Northern Ireland should look south to cut its costly deficit

Stormont can learn from its southern neighbour on how to cut its deficit. Robert Young, CC BY

Northern Ireland is engaged in another round of high level talks involving the British, Irish and US governments to resolve the latest political impasse at Stormont. In the shadow of these sensitive discussions, which primarily concern the legacy of the conflict and welfare reforms, is a rapidly growing deficit in the public finances, which needs to be addressed.

A budget for next year was only just agreed at the last minute, made possible with the help of a loan from the British treasury. The questions now confronting the five-party power-sharing executive at Stormont about financial sustainability and deficit reductions have echoed around Europe since the 2008 financial crisis. However, with limited (though possibly improving) revenue-raising powers, Northern Ireland faces an even more immediate and acute problem.

A bailout from Westminster appears to be off the table in the wake of the Scottish independence referendum and mounting UK debt, which have raised fundamental questions about spending and taxation in the devolved administrations.

Standard austerity responses to debt crises in other parts of Europe have included public service cutbacks. Some information has begun to appear as to the form and scale such cuts may take in Northern Ireland, and the OECD has been commissioned to help with decisions on reform measures. But there still remains little detail as to how deep the retrenchment will need to be.

Lessons from the Republic of Ireland

A good example of how to effectively make cuts and return to growth could lie close to home in the Republic of Ireland. In 2009, the first of three major root-and-branch expenditure reviews estimated that €5.3 billion in cuts needed to be made, including reductions in personnel of about 17,000 or 5%.

Considered alarmist when published, five years later the accumulated Irish budgetary reductions are more than €30 billion, and personnel numbers reduced by more than 10%. Remarkably, all this has been achieved without the compulsory layoffs seen in other countries. And even though wages have been cut by as much as 20% for some, there have been no major public sector strikes. Though considered a national shame at the time, the Republic of Ireland has shown how to handle its debt. It entered and successfully exited a three-year international loan programme during 2010-13, which helped bring in fiscal discipline and spending targets.

A recruitment embargo has been in place since 2008 (due to end next year) and savings have been made by capitalising on the “natural wastage” arising from retiring workers. There was also an exodus of senior public sector staff that took place in 2012 when new, less appealing pension arrangements came into place. Though preferable to compulsory layoffs, the decision to reduce numbers in this way has created an unusual and unsustainable public service demographic, with few public servants younger than 30 or older than 60.

But reducing numbers alone is not enough. Creating a more productive public service calls for a reform plan and buy-in from public service unions. The other major lesson from across the Irish border is that reform dictated from the centre, and without cost targets attached, is doomed to fail.

Serious reform calls for frontline leadership in each public sector organisation – someone to take ownership of the process and who will be required to report on progress. But such reforms cannot be left to the bureaucracy alone. The history of civil service-led reforms internationally does not breed confidence. The Irish experience suggests there should be a small but powerful forum at senior political level to consistently drive reform, and to overcome obstacles to implementing it.

There are many reasons for not letting a good crisis go to waste and using the opportunity to bring in reforms and new work practices that may otherwise have been overlooked. It will of course be difficult to untangle the need for administrative reform from the current political difficulties at Stormont, but mounting public dissafection with the consequences of these cuts should be of concern to all in the power-sharing executive. That might bring some unity of purpose and hasten an agreement.