Mr. Robert Watt:

I welcome the opportunity to speak to the committee alongside my colleague from the Department of Finance, Mr. Derek Moran. I am joined by Mr. John Kinnane and Mr. Robert Scott from my Department. In particular, I welcome the opportunity to discuss how my Department can assist the work of the Committee on Budget Oversight in carrying out its duties. I begin by emphasising my Department's role in the recent improvements that have been made on budget clarity, oversight and engagement. The medium-term expenditure framework provides Departments with greater clarity regarding available resources and better planning in the provision of key public services. Moreover, the whole-of-year approach to budgeting facilitates greater engagement with the Oireachtas and shifts the focus on budgeting away from one single event in October.

More information than ever before is now available relating to how public resources are allocated and utilised. A number of key milestone events facilitate the publication of detailed information during the year. The summer economic statement outlines the overall fiscal stance while the national economic dialogue facilitates a robust exchange of views from various stakeholders, including members of Oireachtas committees, on the competing economic and social priorities facing the Government. The mid-year expenditure report publishes the pre-budget baseline for departmental expenditure, represents the starting point for examination of budgetary priorities by the Oireachtas and identifies areas where expenditure pressures may arise. Allocations for the coming year are subsequently published in the expenditure report on budget day, with three-year multi-annual ceilings in addition to details of specific budgetary measures. The Revised Estimates Volume, published in December, details the specifics of the coming year’s allocations and also provides the public and Oireachtas committees with convenient at-a-glance information on what services are being provided. The Minister for Public Expenditure and Reform has announced his intention to go further in this regard with a new performance report to provide more timely performance indicators to sectoral committees than is currently possible through the Revised Estimates Volume. It is expected this new initiative will be published this month.

The prudent management of expenditure has played a significant role in the stabilisation of the public finances, with a reduction in the underlying deficit from 11.5% in 2009 to less than 1%, projected, in 2017. Economic conditions have improved markedly in recent years, and increases in expenditure over the past three budgets have been prudent and sustainable, averaging just 3% per annum. As the committee is aware, the management of the annual Exchequer funding provision allocated to Departments is governed by the rules detailed in public financial procedures. On an ongoing basis, managing the delivery of public services within budgetary allocations is a key responsibility of each Minister and his or her Department, and measures are in place to help ensure that these budgetary targets are met. The Department of Public Expenditure and Reform is in regular communication with all Departments and offices to ensure that expenditure is being managed within the overall expenditure parameters. The drawdown of funds from the Exchequer is monitored against published expenditure profiles, and there is regular and timely reporting to Government on these matters. This information is published monthly as part of the Exchequer statement published by the Department of Finance. As the year progresses, year-end spend can finish ahead of profile. Explanations for this include forecasting issues and higher than anticipated numbers in demand-led programmes. In addition, policy decisions taken by Government can increase expenditure over and above that forecasted in the Revised Estimates Volume.

I turn now to the specific topics raised by the committee in its invitation letter. To set out the expenditure performance for the first quarter of the year, gross voted expenditure to the end of March was €13.599 billion, which is €130 million below profile, with gross voted current expenditure €155 million below profile and gross voted capital expenditure €26 million above profile.

At this stage, there is no evidence of any significant emerging pressures which may have significant implications for the achievement of expenditure targets for 2017.

The finance function in each Department and corresponding Vote section in the Department of Public Expenditure and Reform monitor emerging expenditure trends closely on an ongoing basis. This is to help ensure that there is early identification of areas of expenditure pressures. This means that early action can be taken to ensure that overall expenditure levels at Vote group level are fully consistent with Voted allocations and overall expenditure targets are achieved.

I would like to reiterate my Department’s intention to be engaged with the committee to the fullest possible extent. My officials have made themselves available to the committee on numerous occasions and I will ensure that this continues in order to assist with the work of the committee.

I am aware the Committee have been considering their information needs to discharge their mandate. I would like to address these suggestions in turn. As previously mentioned, the timely expenditure information already published as part of the Exchequer statement contains detailed information on current and capital expenditure by Vote group. This is publicly available and my officials would be happy to engage on any issues related to expenditure performance on a monthly or quarterly basis. The orders of reference for the committee refer to a situation where significant variations from the expenditure profile could impact on the overall fiscal position. The Exchequer statement provides information to facilitate such an assessment and could be enhanced by advising the committee of the reasons for any substantial variances that could negatively impact the end-year position.

The committee has highlighted the issue of potential expenditure risks and I would like to address this in regard to Voted expenditure. A fundamental principle of the medium-term expenditure framework, MTEF, is that responsibility for meeting expenditure needs within agreed envelopes is a matter in the first instance for the relevant Department via reprioritisation or procedures such as virement within Votes. This is necessary to avoid an expectation that emerging issues need to be addressed through increases in expenditure allocations. Another important consideration in reporting potential expenditure risks is the Government’s prerogative in terms of decision-making. This includes expenditure priorities and choices inherent in allocating increased funding resources to any spending programme.

In regard to the committee’s query on the main drivers of expenditure, the most well known of these relate to demographic pressures such as the provision of additional teachers or a larger number of citizens qualifying for the State pension. The Irish Government Economic and Evaluation Service, IGEES, staff within my Department conduct regular analyses of such trends in order to inform the setting of ministerial expenditure ceilings published in the expenditure report. The detailed analyses of demographic trends are available on our departmental website. As a result of the ongoing work, an amount of €45 million was provided for these issues in 2018.

Another key driver is staff numbers. There has been significant recruitment in front-line areas in recent years with almost 18,000 or 6% additional staff recruited since 2013. Public sector pay is another issue for which provision has to be made. An allowance has already been factored into the budgetary arithmetic for 2017 and 2018 to take account of the Lansdowne Road Agreement, LRA. Recommendations from the Public Service Pay Commission are expected in the second quarter of this year and following this the Government have committed to begin talks on a successor to the LRA which will obviously have implications for expenditure over the medium term..

My Department has increased both the quantity and quality of its engagement with stakeholders on expenditure matters in recent years. I am confident that the level of information currently available provides a very strong basis for an analysis of expenditure performance.

I would like to express my appreciation once more for the opportunity to speak to the committee.