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Sunday Times Moneycomment - Feb 27

Posted by Jill Kerby on February 27 2011 @ 09:00

Good luck Enda. With our debts you will need it

Over the coming months we’ll all have a better picture of how much more belt-tightening will be necessary as the new administration discovers the true state of our national finances.

I wish Mr Kenny and his new cabinet the best of luck, but I’m keeping my personal expectations very low: all the good will in the world isn’t going to reverse our bad fortune or reduce our catastrophic debt burden to manageable levels.

The state is insolvent and not just because it took over billions worth of private bank debt.

Over many decades it made financial promises to all of us, but especially to a growing army of public sector workers and welfare recipients, which it cannot now keep. It also allowed a financial black hole to appear at the heart of the public health service. 

It will take decades to ‘reform’ these mistakes, when what is really needed is a wrecking ball and a blueprint of a scaled down version of state services that will be sustainable and appropriate to our new circumstances.

The Fine Gael and Labour health policy reforms, based as they are around universal health insurance, are just one case in point.

Everyone would carry health insurance, the service would be patient driven and access would be based solely on need. Labour, laughably, suggested these reforms would happen by 2014, including free GP access, but Fine Gael says it would get the process underway by 2016.

Reform of this magnitude would have been hugely complicated and monstrously expensive even during the Celtic Tiger years when there was plenty of cash sloshing around; today the state has to borrow just to meet the existing health service payroll.

Meanwhile, there is no incentive for the 300,000 health care workers to cooperate with the cutting of their jobs, pay and pensions and why would GPs, who still have control over the hours they work and the fees they charge in this bankrupt state willing become employees of the Department of Health? 

 Finally, while two million existing private health insurance customers may be deeply unhappy with the rising cost of their premiums, they are mainly satisfied with the service they get.  Would a state-run universal insurance system automatically deliver a better service at a cheaper cost? (I don’t think so.)

 Anyone who still thinks that the state should deliver all health services needs to take a good, hard look at how much the health service bosses pay themselves and then ask how many of them were ever held personally accountable for the terrible medical scandals that have occurred and the disgraceful but ongoing waste and inefficiency. 

Such people wouldn’t be allowed to run a dishwasher in the private sector, but you can bet that their biggest concern, if any of them are gently urged to consider voluntary redundancy (also a coalition policy) the unions’ biggest concern will be the size of their golden handshakes and pensions.

 

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No prizes here

 A reader from County Offaly has taken me up on my less than enthusiastic comments recently about Irish Prize Bonds. He discounts the inflation risk by saying that all deposits are vulnerable to inflation and that the overall return of 3.9% of the annual prize bond funds to bond holders is possibly even better than what a saver could expect, especially since prize funds are entirely tax free. 

 He’s correct about the inflation risk these days, particularly as the cost of living is going up as we import food and fuel inflation and wages and assets like our homes and pension funds keep falling.  But the prize bond return affects only a tiny number of holders, with even fewer enjoying a big payout.  Tens of thousands of small bondholders never see a penny return despite a lifetime of bond ownership; that simply isn’t case if you leave your money in a bank, even in this country.

 I’m not really anti-prize bond, except when the company insists on describing their product as an ‘investment’, which is clearly is not. Investments involve risk and reward; good ones pay a regular dividend and can produce a capital return.  Genuine investments create wealth and jobs and prosperity. 

 Prize bonds may be propping up our insolvent state, but they’re about as useful to our wider society as …money left under a mattress.

 

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