Public spending woes in the US and
Ireland highlight the cost burdens of entitlement programs but they are
difficult challenges to tackle as the well-off fight for the same safety net as
the poor. The Irish welfare budget in 2010 more than doubled to 17% of GNP
(gross national product) since 2001.
In The Washington Post today,
columnist Robert Samuelson
writes that in 1960, national defense was the government’s main job;
52% of federal outlays. In 2011 - - even with two wars - - it is 20%
and falling. Meanwhile, Social Security, Medicare, Medicaid and other retiree
constitute roughly half of non-interest federal spending.
With people living up to 20 years
after hitting the retirement age of 65, healthcare in America already accounts
for more than 17% of GDP (gross domestic product) and is likely to rise further.
According to the Organisation for
Economic Cooperation and Development (OECD), as a share of GDP, the United
States spent 17.4% on health in 2009, 5 percentage points more than in the next
two countries, the Netherlands and France (which allocated 12.0% and 11.8% of
their GDP on health). Norway and Switzerland were the next biggest spenders on
health per capita, with spending of more than $5000 per capita in 2009.
Ireland was at 9.5% of GDP.
Robert Samuelson says by 2035, the
US 65-and-over population will nearly double, and health costs remain
uncontrolled; the combination automatically expands federal spending (as a share
of the economy) by about one-third from 2005 levels. This tidal wave of spending
means one or all of the following: (a) much higher taxes; (b) the gutting of
other government services, from the Weather Service to medical research; (c) a
partial and dangerous disarmament; (d) large and unstable deficits.
Samuelson says while 70% of
respondents in a
Pew Research Center poll judged budget deficits a “major problem,”
64% rejected higher Medicare premiums and 58% opposed gradual increases in
Social Security’s retirement age.
He says what sustains these
contradictions is a mythology holding that, once people hit 65, most become
poor. This justifies political dogma among Democrats that resists Social
Security or Medicare cuts of even one dollar.
The Kaiser Family Foundation reports
the following for Medicare
beneficiaries in 2010: 25% had savings and retirement accounts averaging
$207,000 or more; among homeowners (four-fifths of those 65 and older),
three-quarters had equity in their houses averaging $132,000; about 25% had
incomes exceeding $47,000 (that’s for individuals, and couples would be higher).
Robert Samuelson said last May that
half the nation’s wealth is owned by people 55 and older (a third of the adult
population), report Eugene Steuerle and Stephanie Rennane of the Urban
In Ireland, separate from the social
welfare budget is the cash cost of public sector staff pensions which jumped by
66% in the period 2005-2010.
Public staff pensions now account
for 12.9% of the total Pay and Pension Pay bill, up from 9% in 2005. Overall,
the pensions bill has increased from €1.35bn in 2005 to €2.23bn in 2010
representing a 65.6% increase over the period (pay in contrast rose by 10.8%).
The real annual cost of Irish public
staff pensions is however about €5.1bn (including an annual actuarial accrual)
and the cost of an additional year for judges is 62% of salary net of personal
Finfacts article, July 2010:
Irish public sector pay/pensions to rise 16% in
period 2005-2010; Pay up 11%: Pensions up 66%; Pensioner numbers rise 43% to
Finfacts article, Apr
Surreal Ireland: Real annual cost of Irish public staff pensions at €5.1bn; Cost
of added year for judges at 62% of salary
As for the welfare budget, the
Department of Social Protection recently published
Statistical Information on Social Welfare Services 2010 (pdf), which shows
that the welfare budget has jumped from 8% of GNP in 2001 to 16.7% in 2010.
What is striking about the annual
spending of €21bn is that despite having high cash payouts compared with for
example the UK, there are a huge number of schemes including payments for
furniture as well as telephone and electricity discounts for some rich people.
Direct unemployment supports account for
27% of the total spending.
One legacy from the boom is that
there are about 78,000 foreign nationals on the Live Register, which including
dependents could put the total above 200,000.
The number of welfare recipients has
jumped from 900,000 in 2001 to 1.4m in 2010. The number was 1m in 2007.
The number in receipt of a pension
from the State was 276,065 in 2001 and 393,825 in 2010.
Short-term payment rates for a
single person in 2010 were 80% above the 2001 level, compared with a 22% rise in
consumer inflation. Its a similar pattern for other categories.
Rent allowance cost €804m in 2010,
up on 2009 but about half the peak level of the boom.
As for the rise in the number of
older people, Brendan Walsh, professor emeritus of economics at UCD, says the
death rate among the population aged 65 and over has fallen from 70 per 1,000 in
1999 to 40 per 1,000 last year, with a 4.8% fall in 2010 alone.