Irish Fiscal Position and Public Health

A few of the public health students were interested in the current Irish economic situation. I will use this post to give a brief update about the situation aimed at non-economists and describe where you can get sources to read and monitor the situation. The overall fiscal situation is important as it sets the context in which health policies are proposed and evaluated.

1. Irish Economic Situation

From 1994 to 2001, Ireland had one of the world's fastest growing economies, fuelled by a uniquely positive confluence of demographic and environmental factors. Growth slowed from 2001-2007, but during this time Ireland still recorded impressive levels of growth compared to other advanced industrialised economies. Since 2007, we have had one of the largest falls in national income of any country in the world, with only Latvia experiencing a greater percentage decline during this period. One major theory of the cause of this collapse is the over-reliance on property speculation in the Irish economy, particularly from 2004 onwards. This had a number of adverse effects - it left homeowners very exposed both in terms of their income and wealth to a property shock, it diverted resources away from potentially more productive areas of the economy, it artificially inflated the government revenue figures and it left bank balance sheets overexposed to property development loans. Anglo Irish Bank, in particularly, conducted massive amounts of lending on interbank markets and effectively ploughed this into the domestic construction industry. Following the collapse of Lehman brothers bank in the US, Ireland was left extremely exposed in the ensuing market uncertainty. In 2008, Irish banks were finding it increasingly difficult to borrow on international markets and speculation heightened that Anglo and perhaps even the two main retail Banks AIB and Bank of Ireland might go bust. In late 2008 the finance minister guaranteed the liabilities of all the Irish banks. This included deposits but also bonds. Following this, an asset management programme (NAMA) was introduced to buy bad property loans from the banks. These loans, most of which are impaired, are effectively bought at a big discount and taken off the balance sheets of the banks to make the banks less risky to potential investors. However this process exposes the taxpayer to a lot of risk and also means that the banks have to admit the full extent of the losses. Following this, the government then had to purchase stakes in the banks to ensure that they had sufficient capital. Nobody knows ultimately how much all of this is going to cost - figures range from 40 billion to 70 billion depending on who you read. This, combined with a drastic reduction in tax revenue, has dramatically increased our debt relative to income ratio. As of last week, the international financial markets have more or less given up on Ireland with Irish state borrowing costs consistently in excess of 8 per cent, meaning that lenders have a strong belief that Ireland simply wont be able to pay all of this back. The prognosis for the next ten years is very uncertain. The view of "moderates" such as Professor John McHale of NUIG is that determined fiscal action such as passing the upcoming budget will enable us to bring the costs of borrowing down to reasonable levels (see link below). People like UCD's Morgan Kelly and independent analyst Constantin Gurdgiev have taken the view that the cost of the banking bailout coupled with the fiscal deficit has simply become too high and that the state is effectively bankrupt and will require an intervention either by the European Commission or the IMF. In such an event, Ireland would receive enough money to meet its public spending at interest rates lower than the market rates but would be forced into dramatic public spending reductions in return.

http://www.irishexaminer.com/ireland/is-irelands-number-up-136365.html

http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html


2. Implications for Public Health Spending and Employment

The Irish healthcare system is financed partly by private health insurance but mostly by taxation. The Department of Health receives its budget from the Department of Finance and is responsible for the direction of healthcare policy, with policy implementation being the domain of the Health Services executive. The HSE has a budget of approximately 10 billion. The massive decrease in exchequer revenue coupled with the dramatic rises in the cost of servicing borrowing will mean big decreases in the amount of finance made available to the public health system. Some implications for healthcare that are worth discussing include:

a. There will be marked changes in work practices in the publicly funded health system. The "Croke Agreement" linked below outlines some of the principles underlying the basic agreement, which agrees to keep public sector pay levels constant in return for reforms to work practices.

http://www.impact.ie/iopen24/pub/crisis/agreement/payagreedoc.pdf

b. There will likely be cuts in publicly funded health services, particularly on the non-pay side. The report for the Department of Finance by Colm McCarthy (Bord Snip) details priorities for cutbacks in health expenditures. See 3.11 of the report attached. Some of the likely areas will include rationalisation of administrative structures, declines in welfare entitlements, reduction of staff numbers through "natural wastage", reduction in use of external agency staff and so on.

www.finance.gov.ie/documents/pressreleases/2009/bl100vol1.pdf

c. Cost-effectiveness will likely become an increasing concern for the development of health services as the available funds become less and the demands on them greater.

d. Due to the political implications of the downturn, the next government is likely to be headed by Fine Gael. They have proposed (see below) to abolish the HSE and replace it with a disaggregated hospital trust model.

http://www.finegael.ie/news/a/4326/article


3. Some potential action points for public health practitioners

It is always important for ethical public health practitioners to demand that public money be spent toward effectively improving people's health. The nature of the debate does become somewhat more urgent though during a major economic downturn. Some talking points are below, and I happy to field questions if people want to practice some arguments.

a. The importance of ensuring that programmes with major long-term benefits are not disproportionately affected. A very lazy way of making cuts is simply to cut things that do not have short-run impacts. It is important that people with scientific knowledge of the long-run effects of areas such as childhood screening programmes, interventions with disadvantaged young mothers and so on make the case strongly.

b. The insistence on an embargo on the recruitment of new staff into the public health service is something that should be examined.

c. The nature of recession will change the demands on the public health system, particularly in areas such as the provision of mental health services.

d. The need to argue the case for public health spending will become more pressing, particular in areas such as child nutrition, screening programmes and so on.

e. Public health scientists should be active in promoting an effectiveness-driven approach to healthcare allocation and attempt to counteract the "parish-pump" tendencies of a lot of Irish healthcare policy.

f. Many public health practitioners explicitly place "equity" or concern for fairness at the heart of their practice. This will be increasingly important in the context of long-term unemployment and regional declines engendered by the recession.

Sources:

Many of the country's top academic economics post to a website called www.irisheconomy.ie. This is, in my opinion, the consistently best website for getting informed opinions on the Irish economic situation.

Detailed statistics on the Irish Economy, including employment numbers, are available on the cso website www.cso.ie

The Department of Finance website contains detailed figures and updates on our fiscal position. The estimates of public expenditure, below, give a breakdown of where the health budget is spent.

http://www.finance.gov.ie/

http://www.finance.gov.ie/ViewDoc.asp?DocId=-1&CatID=13&m=f

The OECD health website provides substantial data on relative health spending and healthcare inflation, among other things - http://www.oecd.org/health/healthdata