Edgar Morgenroth: Spending between the regions needs more clarity

Lacking an explicit regional funding formula, the Republic only has the relatively limited and opaque system of grants from the central government to local authorities

Edgar Morgenroth says that in the run up to the local elections there will be an increased focus on the levels of funding and investment going into counties and regions. 

In the run up to the local elections there will be an increased focus on the levels of funding and investment going into counties and regions. 

It is normal that weaker regions, at least in developed countries, receive transfers but the level of transfer is debated in most countries, and Ireland is no different. There are regular calls for more funding and for a fairer sharing of resources. In particular, the perception that Dublin is receiving a disproportionate level of resources is often heard, while Dublin residents point to the fact that a significant share of Ireland’s income is generated in the region. 

An additional reason that regional transfer payments are likely to come into greater focus is that the focus on Irish unification, the sizable subvention that Northern Ireland receives from Westminster will be an important issue. In 2021, the North received a net subvention of more than €16bn, and there has been much analysis and discussion about whether the Republic can match this subvention. 

Lacking an explicit regional funding formula such as the Barnett Formula in the UK, or the Finanzausgleich in Germany, the Republic only has the relatively limited and opaque system of grants from the central government to local authorities. However, the operation of the tax and welfare systems and the very centralised public expenditure system provides an implicit way of transferring resources from the better off regions to those that are weaker.

In 2022, the total budgeted expenditure by local authorities was just over €6bn, with average expenditure per person at just over €1,200. While the expenditure of most counties is close to the average, a few counties such as Kildare and Meath only spend just over €700 per person, and a few countries such as Dublin and Longford spend more than the average. 

Looking at the pattern of local authority expenditure for all counties, those that are better off as measured by personal disposable income tend to have higher local government expenditure per person. That implies that whatever transfers occur at the local authority level do not make up completely for differences in income.

Of course, local government expenditure excludes other spending that comes directly from central government to the local or regional level, such as expenditure on schools and healthcare. This expenditure is far more significant in Ireland which has an excessively centralised system of government. Without an explicit formula for transfers at the regional level there is only limited data available to assess whether transfers across regions in the Republic are fair.

Some research has been done trying to piece together both the taxes raised and the total public expenditure in each region. This shows that Dublin, surrounding counties, and the South-West generate a fiscal surplus where the level of tax collected exceeds the level of public expenditure. All other regions are in receipt of an implicit subsidy from the regions that generate a surplus.

Using the results from the research it is also possible to make a comparison between the level of subvention in the North compared to one of the poorer regions in the Republic. Taking the West Region of Galway, Mayo, and Roscommon as an example, the North received almost double the subvention level per person.

Questions have already been raised whether the level of subsidy that the North currently receives could be afforded by the economy in the Republic.

What has not been considered is whether this significantly higher subsidy than that for other regions in the Republic is politically sustainable to maintain after unification. It is likely that people who already feel that their region is not getting its fair share would demand a rebalancing of transfers. This would be more transparent if an explicit formula to determine the level of subsidy were adopted.

• Edgar Morgenroth is professor of economics at Dublin City University Business School