Shake It 'Til the Facts Spill Out

Sometimes you just want to pick up the radio and shake it until the tiny little people inside start talking sense.  Take Minister Frances Fitzgerald on the Pat Kenny show yesterday:

Minister:   The country is broke.   The path back for every citizen in this country is going to be so tough.   And yet we’re the fourth highest in the OECD when it comes to spending on public services.  That’s often forgotten. 

Never mind the country-is-broke lark (we’re not too broke to pay over €3 billion a year on a non-existent bank).  Nor the ‘path back’ reference (easy for some, harder for others).  But the fourth highest spender on public services in the industrialised world?  Huh?  Not only should it be forgotten, it shouldn’t even be remembered because it is simply not the case.

Eurostat provides a comprehensive database on spending on public services, or Government final consumption expenditure.  They provide total spending, percentage of GDP, per capita and spending in power purchase parities (PPPs which factor in living costs).  It should be noted that this doesn’t count spending on social transfers (pensions, unemployment payments, family income supports, etc.).

Here is the spending per capita on public services in the EU-15.

Ireland doesn’t rank as a large spender on public services.  We rank 9^th in the EU-15 league, ahead of the UK, Germany and, not surprisingly, the Mediterranean countries.  We spend 16 percent below the average of the other EU-15 countries. 

• We would have to spend an additional €5.5 billion on public services just to reach the average of other EU countries. 

• We would have to spend an additional €8.7 billion on public services just to reach the average of other EU countries not in bail-out (excluding Portugal and Greece).

We’d have to spend an awful lot more money to be like an average EU country (though, yes, spending more money is not a guarantee of improved output).

Maybe the Minister was referring to public spending measured in PPPs to factor in the cost of living.  High cost countries need to spend more to get the same value as low cost countries.  So how do we stack up in this measurement?

In this measurement, Ireland shares 11^th place in the standings with Germany.  Now, we’re only ahead of the Mediterranean countries.

Was the Minister referring to spending on public services as measured by percentage of GDP?  I don’t think so.  The other EU-15 countries spend an average 22.3 percent of their GDP on public services; in Ireland, it is 18.3 percent.  We would need to increase spending by €6.3 billion just to reach the average on this measurement.

Eurostat also estimates the spend, as a percentage of GDP, for the years 2012 and 2013.  These estimates show that Ireland would have to increase spending on public services by €7.1 billion in 2012 and €7.9 billion in 2013 just to reach the average of other EU-15 countries.  This shouldn’t be surprising as the Government intends to cut public services up to 2015 at least.

Of course, some will raise the issue of military spending.  Unlike other EU countries, especially the UK and Greece, we don’t spend a lot on military (neither should the UK or Greece).  This, say some, skewers the spending figures. 

So what happens if we subtract spending on military services?  Not a whole lot.  Ireland would still need to spend an extra €4.9 billion to reach the average of other EU-15 countries in 2011.  This figure would still rise in 2012 and 2013 if the Eurostat estimates hold.

There are other arguments.  For instance, other countries have a higher elderly population which require more expenditure on health and other age-related services.  This is true.  But Ireland has a higher youth demographic which requires a higher spend on education and youth-related services (justice, recreation & leisure, etc.).  Further, Ireland has a much lower population density than other EU-15 countries with the exception of Sweden and Finland.  There are 65 people per square kilometre in Ireland; the average of the other EU-15 countries is 171 while in the Netherlands it is 492.  Thin density means that public services (health, education, water, energy, security, etc.) have to be spread out, making it difficult to reach the scale that can be obtained in highly urban societies.

However you spin it, the Minister is wrong.  There is no measurement which can come even close to justifying her claim that we are one of the highest spenders on public services in the industrialised world.  The truth is that we’d have to spend billions just to reach the average of other EU-15 countries.  We are a low-low spend economy when it comes to public services.

If people want to argue that fiscal consolidation based on spending cuts is superior to a tax-based fiscal consolidation, fine.  If people want to argue that much of our spending on public services is inefficient, fine.  Let’s test the evidence, let’s come up with proposals to increase efficiency.

But first and foremost, lets’ start with the facts.  Let’s describe the situation as it really is.  If we don’t, the debate becomes degraded and reality becomes anything you want it to be.  

Comments

[Colum McCaffery]

There is a growing problem with lies, rumours and unsubstantiated rubbish harming public controversy. It is commonplace to appear in media and cite nonsense without risking a journalist saying, "hold on ..." It's very difficult to address this thoroughly but ...: http://colummccaffery.wordpress.com/2008/08/16/let-the-active-citizen-publicly-complain-about-lies-in-the-media/

[Pat]

Great that you included the link to the data set. It's probably useful to mention that you've calculated Ireland's data for 2011 (as it isn't available on the data set - a link to that would be great) and that the EU average figures are your calculations differing from their average (as they are using total spending then dividing by total population - depending on your data source I'm guessing 7,621 is spurious accuracy and 7,600 should be the precision you should be using). Using their EU average figures and your calculations we are already at the EU average for spend. Its interesting data.

[Michael Taft]

Thanks for that Pat. I forgot to link to the EU Statistical Annex for the Irish population figure for 2011. Eurostat does provide the 2011 Irish spend on public services (provisional). Any change in the final figure would be marginal. The EU Statistical Annex provides population. That gives us the figures to make the per capita calculation.

As to the averages, the databank provides the weighted average. However, given that Germany and Spain make up nearly a third of the EU-15 population, weighted averages obviously reflects disproportionately what's going on in those countries. I took an arithmetic average.

The difference can be seen in this example. Say there are five countries, four of which have 20 people and the fifth which has 100 people. The four countries spend a €100 per capita on services, while the fifth spends €20. The unweighted average spend of the five countries comes to €22. That certainly doesn't reflect the reality of the four countries and suggests they are massive over-spenders when in fact they spend the same as 4 out of 5 countries. The arithmetic average would be €82. This is closer to the reality of the four countries and show that the fifth country is the under-spender.

You can make an argument that Ireland is average spend country. But given that we would have to increase our spending to reach the levels of 8 countries (€ per capita), or 10 countries (PPP per capita), or 12 countries (spend as a % of GDP) - I think it might be a hard argument to sustain.

Just to note: 7,621 is the arithmetic average of the spend by other countries. 7,600 is just rounding up.

[Michael Taft]

Apologies, Pat. In my example above, the fifth country should read €10 spend on public services.

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