Public Sector Reform
The need to address the deficit in public finances requires a reduction in public expenditure, but a reduction that does the least possible harm to the economy and to society. By increasing the productivity of the public sector, cuts in front-line services can be made less severe. Currently, the main means of delivering greater public sector productivity is through the reforms under the Croke Park and Haddington Road Agreements.
Two aspects of Government accounting act as a wedge inhibiting outsourcing. First, unfunded public pension costs are ignored while private operators must include the cost of any pension benefit provided. Second, VAT increases the costs of procuring services externally, but the Exchequer will benefit by the amount of VAT paid.
The failure to introduce a modern, accruals-based system of financial management in the public service has serious implications. There needs to be a system that will take account of the costs of accrued pension liabilities and depreciation of fixed assets in order to send the right signals to public sector management.