We must ask whether we’re getting value for money from surge in state spending

The economy may be rolling along at a very fast pace, but there are signs the Government has forgotten where the brake pedal is when it comes to spending. Who would ever worry about the State losing control of spending when we are running up a budget surplus, we have record numbers at work and tax revenues are at record highs?

But didn’t it happen before, back in 2008? The Government should not plan on the basis that this will happen, but it needs to plan on the basis that it could.

By the end of this year, core spending will have gone up by 37pc since 2019. It is a staggering sum. Core spending is likely to hit €92bn this year, compared with €67bn just five years ago.

There are lots of good reasons to spend more money. The population is growing. We have infrastructural deficits. We are still suffering from years of underinvestment in health, schools and housing in the years after the financial crash.

But without the right level of questioning about value for money, the scale of spending is making the State look like a cash machine. The fact that spending has come on the radar of the Finance and Public Expenditure ministers, Michael McGrath and Paschal Donohoe, even as we approach a series of elections, at least shows some awareness.

In recent weeks, they both warned ministers about spending levels and Donohoe recently conceded that “current expenditure risks are emerging”.

It was a minor rap on the knuckles when the party punch bowl was still on the table.

The Exchequer has benefited from tens of billion in windfall gains from corporation tax in recent years.

It may have come as a bonus, but it could begin to evaporate in a few years.

To put the spending in perspective, let’s look at health. A study published last month found that large increases in healthcare funding and staffing levels in recent years has not been matched by a similar increase in activity in hospitals.

Compiled by the Irish Government Economic Evaluation Service and the Department of Health, it said the health budget had gone from €13.7bn in 2014 to €22.8bn this year.

This week, Robert Watt of the Department of Health said health spending was €500m over budget so far this year. That is heading for another billion.

More than 50,000 additional healthcare staff have been employed in the last decade, yet the study found that in most cases, percentage growth in overall activity in hospitals between 2016 and 2022 was either negative or up to three times behind the growth in real expenditure. Where is the value for money?

Rising costs are a real factor, but the question is whether we should have more to show for what we are spending.

The Government can point to how we have 55,000 more recipients of pension payments since 2019, along with 35,000 more people with medical and GP visit cards.

Between 2019 and 2022, around 6,000 additional teachers were hired and 24,000 additional students enrolled in full-time higher education.

Throw in an extra 1,500 gardaí and you get a sense of where the money is going. But crime detection figures aren’t necessarily improving, especially when gardaí were still working Covid rosters two years after the crisis ended.

Ultimately, the State has to manage its finances based on money in, money out and projections of what is likely to happen in the future. On this basic bit of book-keeping, the figures are not as alarming.

In 2019, tax receipts hit €59.3bn. Corporation tax receipts were €10.8bn and income tax was €22.9bn. Roll on to last year and tax receipts had risen by 16pc to €87.2bn. Corporation tax alone went up by a staggering €13bn to €23.8bn. With more people than ever in work, income tax shot up by €10bn to €32.9bn.

So far, so good. But on the expenditure side, bills keep coming in – everything from the national broadband scheme (€5bn) to the mica scheme (€1bn). The cost of providing for Ukrainian refugees this year will be €2.4bn, while Covid-19 measures are still pencilled to cost €1.2bn this year, in what is called non-core spending.

On the income side, McGrath warned during the week that around half of our corporation tax receipts this year could be deemed temporary and without those windfalls, the Exchequer would be running up a deficit. Corporation tax receipts were running nearly €1bn behind last year’s levels in the early part of this year.

In its defence, the Government will point to two things on spending – how are we doing versus what we budgeted for, and two new sovereign wealth funds.

Donohoe said this week that in January we were ahead of “profile”, (which is target/expectations), but that gap had slipped by this month. It’s not a badge of honour to be ahead of budgeting expectations in the first month of a financial year. We can all usually manage that.

The Irish Fiscal Advisory Council isn’t convinced by those estimates for the year ahead anyway. When looking at the spending figures for 2024, it said last December they were “unrealistic” and lacked “credibility”. It said they omitted large amounts of known spending for this year and failed to take account of obvious overruns in health.

Finally, money is being put aside into sovereign investment funds. If all goes well, they may just cover our public-sector pensions bill in the future as the population ages.

State coffers are now used to solve all manner of problems, simply because the money is there. According to one property developer, about 48pc of all new home purchases are assisted by the State in one way or another – help-to-buy, shared equity or state purchase or development.

If that’s what we need to fix these problems, then so be it. If more health workers, teachers and gardaí will enhance outcomes, improve education and reduce crime, then so be it.

The problem arises when the money is spent and the problems persist due to a lack of reform or focus on what is being achieved in return for the investment.

The Government needs to have an eye towards a time when the cost of standing still is higher and the money tree stops growing.

‘This week, Robert Watt of the Department of Health said health spending was €500m over budget so far this year. That is heading for another billion’