Saturday, December 4, 2010

Worst sums ever! The Government Expenditure Edition

Over the past few weeks we have derided the attempts of a couple of commentators to add up our future National Debt.  Today The Irish Examiner ran a piece which looked at government expenditure and could be the greatest ever crime against arithmetic.

The piece in question is a table that featured on the back page of an 16-page supplement on “The People’s Budget”.  It is not available online but a scanned version can be seen here.  The details of the table are reproduced below.  Do not read it. Move on!

Where our money goes table

At a quick glance it seems to a very innocuous list of figures but it is actually full of errors and only serves to further cement some popular perceptions that have little relation to fact.

The first issue is that if you add up these 18 items they total to €54.59 billion.  This is nearly €13.5 billion short of the total.  It looks like they went through (some of) the government accounts; found a total figure; listed out some individual amounts; and left it that.  Sure, who would bother to check if it was accurate?  Not only is the table total inaccurate, most of the figures in it are wrong. 

The first number to catch my attention was the €1.2 billion cost given for the Houses of the Oireachtas.  What on earth is going on in Leinster House that costs €1.2 billion?  This means that the average cost of the 166 TDs and 60 Senators is €5.3 million.

Of course this is complete rubbish.  The cost of the Oireachtas in 2009 was €123 million, will be €114 million in 2010 and is estimated to be €113 million in 2011.  All the details are available from the Oireachtas Commission.  See tables in this recently released document.  The figure used by The Irish Examiner is out by more than a factor of ten. 

Who wouldn’t be clamouring to cut politicians pay, pensions and expenses if they were costs us €1.2 billion?  It is likely they will (and should) be cut but the savings will be miniscule in comparison to our overall budget deficit.

I have no idea where most of the figures used in the above table come from.  I do know that most of them are wrong.  As well as hugely overstating the cost of the Oireachtas, The Irish Examiner table hugely understates the cost of our social welfare bill.  The give a figure of under €13 billion but the true figure will be more than €20 billion.  These are not small errors!  Time to move away from the garbage and look at some true figures.

The most recent estimates of government expenditure for 2011 come from the National Recovery Plan.  The table here combines figures on current expenditure (page 133), capital expenditure (page 84) and non-voted expenditure (page 110). 

Government Expenditure 2011

And the arithmetic in this table holds together and sums to the €68-odd billion The Irish Examiner list as the expenditure figure for 2011.  The vote headings are relatively self-explanatory but do little to indicate what the money is actually spent on.  The non-voted categories are even less clear.

Under non-voted current expenditure there is €5,100 million of interest payments on the National Debt.  Non-voted capital expenditure contains €3,100 million of funding for the promissory notes used as part of our banking bailout arrangements.  In 2011, it is forecast that Central Government will have receipts of €49.4 billion giving an Exchequer deficit of €18.4 billion.

The title of the original table from The Irish Examiner “where our money goes” but the table giving the expenditure votes only gives the government allocation of expenditure for each Department or Minister.  It doesn’t actually tell us “where our money goes”.  But we can find out.  We don’t have the end-of-year numbers for 2010 yet, but we can get the 2009 figures from the CSO.

In 2009, central government expenditure was €76,164.  However this included the first €4,000 given to Anglo Irish Bank and €3,000 million transferred to the National Pension Reserve Fund to finance the initial recapitalisation of Bank of Ireland and AIB.  So just what did we spend the other €69,164 million on?

Central Government Expenditure

€28.4 billion was spent on direct cash transfers.  Of this €26.3 billion was paid to Irish residents (details from previous post) with €2.1 billion paid overseas (contribution to EU budget, foreign aid, funds for international emergencies etc.). 

The public sector pay bill consumed another €16.6 billion.  Of this over €14 billion went on the wages and salaries of current civil and public servants.  A little over €2 billion was spent on the pensions of retired civil and public servants. 

The government spent just over €7 billion on goods and services; medical equipment, medicines, light and heat, vehicles, computers, websites, stationery, insurance and everything else you need to run a country on a day-to-day basis. 

The government spent about €6.3 billion on capital expenditure.  This is mainly money spent on infrastructure projects (roads, schools, hospitals etc.) but also includes some  capital transfers.

Central government made €6.7 billion worth of payments to local government. Of this €3.6 billion was for current expenditure (primarily wages of local authority workers) and €3.1 billion was for capital expenditure (infrastructure).    You can see how local government spent this €6.7 billion and the €6.1 billion raised from rates, water charges, rents, motor tax and other miscellaneous receipts here.

Our burgeoning National Debt required €3.2 billion of interest payments on the total amounts of bonds issued through the National Treasury Management Agency.  

Finally, we spent €851 million on subsidies.  Of this €389 million went to agriculture, €155 million went in IDA and related grants and €139 million went to Irish Rail.

So to summarise. In 2009, the Irish government:

  • gave out €28.4 billion in cash to all and sundry.
  • paid €16.6 billion to its current and former employees.
  • bought €7.1 billion worth of stuff.
  • spent €6.3 billion building things.
  • spent €6.7 billion keeping local government afloat.
  • used €3.2 billion to keep our bondholders happy
  • provided €0.8 billion of subsidies for things, and of course
  • poured €7.0 billion into our zombie banks.

So that is where our money goes.  So if you want to cut expenditure to narrow the fiscal deficit (and it seems this is what readers of The Irish Examiner as “Leave taxes alone and cut spending, warn public” was the front page headline of today’s edition) then you must do some or all of the following.

  • Give out less money in transfer payments
  • Pay current and retired public servants less
  • Buy fewer goods and services
  • Build less infrastructure
  • Reduce grants to fund local government services

A first step on this path would be if accurate information was provided to the public on where government expenditure actually goes rather than the rubbish that sparked this post in the first place.

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