Oireachtas Joint and Select Committees

Wednesday, 17 October 2012

Joint Oireachtas Committee on Finance, Public Expenditure and Reform

Public Expenditure and Reform Vote: Discussion with Minister for Public Expenditure and Reform

4:35 pm

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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We are back in public session and will deal with item No. 8 on our agenda, which is the 2013 allocations for the Department of Public Expenditure and Reform Vote. I welcome the Minister for Expenditure and Reform, Deputy Brendan Howlin. I advise members that a briefing paper has been prepared as part of today's presentation. I also remind Members, witnesses and those in the Visitors' Gallery that all mobile telephones must be switched off. Members, including the Minister, are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I welcome the Minister here, as part of the new budgetary process which involves presenting information to Oireachtas committees in advance of the budget in December.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I will begin by congratulating the Chairman on his election to the Chair of this committee. We had a good working relationship with his immediate predecessor and I hope the Chairman has the same meteoric rise as he had, in a short period of time. I am glad to be here because what is happening today is an important step in developing a much more democratic system of scrutiny over the budgetary process. The current series of meetings between Ministers and various committees represent the first time that committees have convened hearings not just on expenditure outturns for last year, but on prospective Estimates for next year, which is very important.

The detailed Estimates allocation has not yet been settled and therefore it is timely that elected representatives, such as the members of this committee, should express their views on where the quantum of expenditure for next year should be allocated. This represents a step in the whole-of-year budgeting process that I announced in the comprehensive expenditure report last December and is a key element of the new medium-term expenditure framework. As part of this framework, multi-annual expenditure ceilings have been set out for every Minister and Department and these ceilings form the basis upon which Estimates are proceeding. As Members will be aware, on 28 September last, I published the Ministers and Secretaries (Amendment) Bill, 2012, which will put these ministerial expenditure ceilings on a statutory basis, which is one of the commitments made under the EU-IMF programme. I look forward to discussing and debating that legislation in the coming weeks.

After last December's announcement, I wrote to all committee Chairs inviting them to avail of this new opportunity to participate in the Estimates process in ex-ante fashion with Departments. We are all embarking on new territory and I am pleased to be part of that vanguard today. In this spirit, I am happy to engage with the committee on next year's Estimates for my Department and associated offices. I have no doubt that many constructive and thoughtful views will be expressed and upon listening to those views, which will have a bearing on the final Estimates allocation, I assure members that I will have due regard to all worthwhile suggestions that are made. When the 2013 Estimates are brought before the committee for examination in the new year, we could usefully return to some of the topics and themes that we have canvassed today. This is, in itself, an important new dimension of accountability and it will enhance the role and policy relevance of committees.

I wish to refer now to public expenditure policy even though, strictly speaking, it is not the purview of the work we have to do today, in terms of examining the Department's Estimates. My Department has the lead role in formulating national expenditure policy, both current and capital, within the context of the Government's overall fiscal policy. It is no exaggeration to say that this is one of the most challenging and demanding briefs in the Government as a whole and I am satisfied that my Department exercises its role in a skilful manner.

To begin with, there is the important dimension of helping me and the Government in the task of correcting the national finances. Ireland's plan for fiscal sustainability involves steady and measured progress on both the expenditure and revenue sides and my Department has been successful in guiding expenditure policy along the course we have charted. There is no doubt that the course on which we have embarked is difficult. It is challenging for the people and will be turbulent. So far during 2012 overall expenditure in gross terms has been kept to roughly €93 million of target. In other words, by the end of last month, we were within €93 million of the expenditure target. It is no secret that live register pressures of the order of €200 million are affecting the social protection budget for this year. Unemployment has remained stubbornly high. There are also pressures of a similar order of magnitude in the health area, owing in part to demographic pressures, including the demand-led costs of medical cards, and to the difficulties and delays in securing co-operation for important reform initiatives. All of these pressures are being actively tackled by the Departments concerned in close consultation with officials of my Department and I am confident that these problems will be overcome.

Looking to next year, the focus of today's discussion, my Department has the task of guiding the Estimates process to a successful conclusion in line with the overall fiscal targets the Government has agreed under the Stability and Growth Pact and the EU-IMF programme. Discussions are proceeding this week with our troika partners and the Minister for Finance and I met them yesterday for more than two hours. Discussions are ongoing between officials of both Departments. We will also discuss the Government's overall strategy as we move towards next year. I do not doubt that my Department will continue to provide an excellent service for me and the Government in this task. Of course, my Department was established not just as a Department of expenditure but as a Department of reform and nowhere is this more evident that in our budgetary strategy and structures. The very fact that we are engaging today is one of the fruits of the budgetary reform agenda. More generally, I remind the committee of the series of major budgetary reforms which are taking shape around us and which fundamentally restructure the way we shape our budgets.

I mentioned the medium-term expenditure framework under which, for the first time, all Ministers and Departments have a clear sense of their actual expenditure allocation, not just for one year but for the next year and the year after that. It is completely unrealistic to expect Ministers and Departments to plan for the future when they do not know what the future looks like. That is the old system from which we are moving away. All that the old system achieved was to create an incentive for Departments to hope for the maximum possible allocation, plan without a sense of constraints and lobby hard each to get more money the following year. In fact, Departments regarded unspent money as failure. That has been done away with. That is what I mean when I argue for an end to the traditional budget day surprise. We need a mature debate from early on in the year about the resources available and how they are to be prioritised. Such a debate must involve our elected representatives and that is the rationale for this structured dialogue in committees. I hope the whole-of-year budgetary process will prove to be constructive and positive.

In similar vein, 2012 sees the introduction of performance budgeting for almost all Departments and offices. The Book of Estimates presents the spending allocations grouped by strategic programme. These are the same as the high level objectives in the departmental statements of strategy and bring a new streamlining and clarity to the overall processes within each organisation. Alongside the spending allocations we have performance indicators - outputs and outcomes - set out clearly for members to see. It is important that we focus on performance and results; in other words, not just on how much we are spending but on what exactly we are achieving with the money in question.

Next year my Department will build on performance budgeting still further. For next year it plans to move this performance information to a public-facing web platform to make it easier for the public and Members of the Oireachtas to see how well the system of government is delivering public services. This new system, to be called Ireland Stat, will be launching shortly in pilot form. I saw the pilot presentation last week. The system will also allow for a far richer and deeper level of information to be presented than is possible in printed form. The initiative is one part of the Government's overall narrative of performance, delivery and results. I will be interested to hear the feedback of committee members on this initiative once the pilot has been launched.

My Department is responsible for ensuring we receive value for money for every euro spent. This year it developed a new public spending code which set down definitive new criteria for appraising and evaluating all forms of public expenditure. This year, for the first time, the traditional methods of ex anteappraisal have been refined and applied to current as well as capital programmes. In support of this initiative, my Department has launched a new Irish Government Economic & Evaluation Service, IGEES, bringing in world class economics graduates to supplement and upgrade specialist capacity across the service as a whole. I will be very glad to give members of the committee details of this service.

I have spoken about the public finances. Turning to public service reform, my Department has been engaged on a wide variety of issues. Committee members will be aware of the comprehensive and ambitious public service reform plan. I have written to the Chairman offering to give the committee an update on what we are doing on it. I had a chance to do so with the Committee of Public Accounts and some members of this committee were present at that meeting. There will be greater use of shared services which will increase integration and efficiency. As part of our overall shared services strategy, last May we approved the establishment of a human resources shared service centre for the Civil Service. It is estimated that this will reduce the human resources headcount by 17% and costs by 26%, with annual net savings of €12.5 million. The first transitions to the new centre are expected in March 2013, with all in-scope bodies to be transitioned by the end of 2014. We have accelerated our plan for a pensions administration shared service. This was to come after the human resources shared service, but we are dovetailing the services and the pensions service will integrate with the human resources shared service. We are also developing a business case for a payroll shared service and commencing a baseline exercise for a banking and financial management shared service. In addition, shared service plans are being prepared by each of the public service sectors of health, education, justice, defence and local government, with a range of priority shared service initiatives identified for each. It might be useful for me to give more detail of how this will be rolled out.

Earlier this year we agreed a range of actions aimed at achieving a focused and integrated approach to external service delivery, that is, outsourcing, of non-core processes. A short-list of potential major projects for priority implementation is being prepared and plans are being developed, again by the four main sectors, which will be evaluated for delivery by the private sector. In addition, all proposed new services across the public service will first be tested for external service delivery before being approved for provision internally. We are proceeding with a radical reform of the way in which public procurement is organised. I did not have the opportunity to see the presentation of the Minister of State, Deputy Brian Hayes, and do not know if he dealt with this area. We have had an external review of the way in which we procure in the public service. Our advice is that we could yield potential annual savings in the range of €250 million to €600 million over a three year period. This will involve a new national procurement office overseeing the integration of procurement policy, strategy and operations and greater aggregation of purchasing.

We are also developing proposals to drive reform in how we manage the property portfolio of the State. This has been largely explained by the Minister of State, Deputy Brian Hayes.

In April we published the e-government strategy 2012-15 which builds on Ireland's strong recent performance in this area. We have also published a cloud computing strategy. This is one of the first half dozen countries to have produced such a strategy. We have set out plans for significant further data centre consolidation.

These are just some of the examples of the many reform projects being progressed. Continued investment in the Government's public service reform agenda will yield medium and longer term cost savings, increase efficiency and facilitate the continued provision of services in a smaller and leaner public service where expenditure and staff resources are being reduced considerably.

I am committed to the delivery of the ambitious programme of commitments of political reform, also outlined in the programme for Government. The unifying theme running through these initiatives relates to securing greater openness and transparency and enhanced accountability leading to more effective governance. These measures represent a comprehensive suite of significant measures which have the potential to bring about an important shift for the political and administrative systems.

In July, the Government endorsed the principle that the Freedom of Information Act would be expected to apply to all public bodies consistent with the original objective of the Act to enable access to information in the possession of public bodies to the greatest extent possible. Subject to some specific conditions, freedom of information legislation will be extended to a number of high profile public bodies previously entirely outside the scope of the Act. Any limitations to its implementation will apply only in the most exceptional cases where there is a clear public interest in safeguarding particularly highly sensitive and confidential information. The Government has also agreed to significant reforms to restore freedom of information legislation that was debased or worsened, shall I say, in more recent times. The general scheme of the Bill has been submitted to this committee for its views and recommendations. The committee will have an important role in advising me in that regard.

It is planned to enact the Ombudsman (Amendment) Bill by the end of the year. It was passed in the Seanad today. This will lead to a significant extension in the remit of the Ombudsman by the addition of some 140 public bodies which are currently excluded from the remit of the office. Following the enactment of the Bill, the Ombudsman will have the legal authority to carry out administrative reviews on well over 300 public bodies.

The introduction of comprehensive whistleblower legislation is central to more effective management and early amelioration of risk both in the public and private sectors. In well-run and risk-focused organisations, whistleblowing should be encouraged and promoted. It is our ambition to have world-class whistleblower legislation in place.

I note that the committee is pressed for time. I will not dwell in detail on the other matters dealt with in my statement. However, political reforms include the statutory framework for ethics legislation, the legislation for the conduct of inquiries and the addressing of the commitment in the programme for Government to Civil Service accountability.

In my statement to the committee I provide an overview of the activities of my Department on a wide range of policy initiatives. Turning to the details of the relevant Votes and the material supplied to the committee, under the Public Expenditure and Reform Vote my Department was granted a modest increase to enable it to drive forward certain initiatives. We recruited a small number of staff with skills in economics and we are looking for experts in areas such as procurement and shared services, for example. While not envisaging an increase in funding, next year, as part of the Estimates process we are engaging in seeking to maintain our funding at 2012 levels. This would enable us to complete this reform work and to deliver savings in the medium term. An aspect which is unique to my Department is that we pull in work from other Departments and make savings in different areas.

I refer to the superannuation Vote and retirement allowances. Members will note that due to the nature of expenditure under the superannuation Vote, no reductions have been provided for with regard to pension-related payments to retired civil servants. This Vote is particularly difficult to estimate as the majority cf persons covered by the Vote may exercise an option to retire at any stage once they reach the age of 60 years.

The 2013 Estimate for Vote 12 proposes a gross provision of €466.6 million. That sum represents a decrease of almost 7% over the 2012 gross Estimate of €500.375 million. The 2012 Estimate was prepared having regard to the level of retirements envisaged to take place in January and. February 2012, when individuals availed of the grace period.

The committee has examined other Votes in the Public Expenditure and Reform Group of Votes such as the Vote for the Office of Public Works. I have provided information on the State Laboratory, the Public Appointments Service, the Valuation Office and the Office of the Ombudsman. The views of the committee on how expenditure might be reduced in these areas would be very welcome.

In summary, my Department is involved in a wide-ranging series of public service and political reforms within the parameters of the constraints on public expenditure which the Government has imposed on itself and the commitments in the programme for Government.

I am happy to record my appreciation of the work of my Department staff. Much work remains to be done but I remain confident of our ability to achieve the very demanding agenda we have set out. I welcome the greater engagement of this committee and I thank the Chairman for affording me the opportunity to attend today. I look forward to questions and I hope for positive suggestions from members.

4:50 pm

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I thank the Minister. Is it agreed to publish the Minister's statement? Agreed. The Minister must leave the meeting at 7.15 p.m. because he is meeting the troika. I will need to vacate the Chair at approximately 6.45 p.m. or 6.50 p.m.. Is it agreed that Deputy Michael McNamara will substitute for me in my absence? Agreed.

I wish to ask the Minister a question about the overarching issue which is not specific to the Estimates presented by him this afternoon. What is the long-term situation with regard to public pay costs? It is part of the Minister's reform brief and it must be calculated in the Estimates for 2013. I ask the Minister to deal with that specific matter before we move on to dealing with the more general items in his opening statement.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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My Department is very different from most other Departments in that we are the policemen on the expenditure side for everybody else. We are engaged in dialogue with every line Department with regard to the reduction of the ceiling of both current and capital expenditure to be achieved each year in order to reach the target set in the memorandum of understanding with the troika and indeed, with the commitments in the programme for Government. We all know what are the main stepping stones. The Government is committed to having a general government deficit of no more than 8.6%. We are determined to achieve that and it will be achieved. It is a painful and difficult process but we will do it. The target for next year is 7.5% and we need to work incrementally to reduce the deficit below 3% - our target is 2.9% - by 2015. This will be achieved in a number of ways. We have set out the medium-term fiscal framework by way of both reduction in expenditure and tax increases and we have set out the annual plan to achieve this. For next year, 2013, the ambition is to reduce expenditure and increase taxes to make a consolidation of €3.5 billion. This will be a reduction on the expenditure side of €1.7 billion on current expenditure; €0.55 billion on capital expenditure which is already in the capital framework; the balance of €1.25 billion will be from taxation. These are challenging and very demanding targets and doubly so in the context of increased demand on public services. For example, a manufacturing company which decides to reduce staff numbers and costs will find it very difficult to increase its productivity to the extent that we are expecting the public service to increase its productivity. However, we have done this.

There has been much negative comment about public sector workers. In my view they have risen to the challenge. They have taken very significant pay cuts with an average of 7%, plus a pension levy of 7%. The average reduction across the public service is 14%. It ranges from 3% at the bottom to about 30% at the top. A ceiling has been imposed on top pay so rates at that level have been significantly reduced.

The Chairman's specific question is about public service pay. Some recent commentary has said that if we could just savage public service - some expect people to pay to come to work in the public service - that this would solve all our problems. That is not the case. However, we need to have a significant contribution to the pathway to economic solvency from reductions in the pay bill. We have targeted a significant reduction in numbers which have been reduced to date by 28,000 from a peak. I acknowledge to Deputy Fleming that the process was started by our predecessors. We still have a way to go, however. I have indicated I wish to accelerate the pace of downsizing and that is why I have asked for a voluntary focused redundancy programme rather than a general programme.

I have asked all line Ministers, in the context of a voluntary redundancy scheme, to target staff who are surplus to needs.

The ongoing downsizing exercise will be important. The bill for gross pay peaked at €17.5 billion in 2009. It is estimated that, following the impact of the pension deduction, it will fall to €13.7 billion net in 2015. Taking account of the pension-related deduction, the estimated reduction in the pay bill in gross terms - I have indicated this on several occasions - will be €3.8 billion. Additional pension costs will be of the order of €500 million; therefore, the net reduction in the pay bill will be in the region of €3.3 billion.

It is going to be challenging. As people exit the public service - a significant number left at the beginning of this year - we must move others into place to fill the gaps that will be created in order that we will not be obliged to recruit new staff. This will involve using the full architecture of the Croke Park agreement in the context of redeployment, changing rostering arrangements and altering peak hours of work in order that staff might be rotated. This will allow us to deploy workers to areas in which the demand for them is greatest. The most obvious example of success in this area is the new Garda rosters. We discussed changing these rosters for decades, but it has finally been done. According to the Garda Commissioner, it has been possible to increase the number of gardaí on the beat, despite the fact that the number of members serving in the force has actually fallen. All of this is welcome.

I do not wish to pretend that the next phase of the process is going to be easy. I am involved in ongoing engagement with the public service unions on all of the matters to which I refer. I expect that when the new sectoral plans we have discussed with the implementation body are put in place, there will be both additional savings and further changes in work practices, on which we will be able to report to the committee as progress is made.

5:00 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I thank the Minister for coming before the committee. Commencing a general debate on the Estimates for the coming year at this stage is a first small step in the right direction. I say this despite the fact that the documentation with which we have been presented is based on the policy for 2012 and that the cost of any new policy which might be adopted has not been factored in. We are operating to some degree in a vacuum, but I accept that this is only the beginning of the process.

I wish to raise one point in respect of which I would like clarification in order that I might frame my questions. I take it that the €51 billion in respect of the departmental ceilings represents both current and capital spending. If that is the case, I will proceed.

The comprehensive expenditure review has been completed and legally binding targets are going to be imposed on Ministers and their Departments. What sanctions will apply in circumstances where such targets are not met? Will it be possible for a Department to simply state at the end of a year that it overspent by €500 million and that it will require additional funds for the following year? Will sanctions be imposed in respect of this matter?

Will the Minister assist us in understanding the macro figures with which we have been presented relating to the budget? Both he and the Minister for Finance have stated the budget adjustment for next year will be €3.5 billion. The Minister for Finance has indicated that approximately €1.25 billion will be raised on the taxation side. He has also stated that as he will be carrying forward a figure of between €200 million and 300 million, he will only be obliged to find €1 billion in this regard. All of this means that some €2.25 billion is going to have to be raised on the expenditure side. The Minister for Public Expenditure and Reform has indicated that expenditure for 2012 was €51.88 billion and that the target for 2013 is €50.589 billion. That is a difference of approximately €1.3 billion and illustrated in the schedules with which we have been provided. Will the Minister indicate how it is expected to get from €1.3 billion to €2.25 billion. I cannot glean what the full picture is from the information provided. The Minister has indicated that the overall budgetary reduction already includes capital. From where will the other €1 billion that will make up the adjustment come? Perhaps he might clarify the position in this regard.

The next matter to which I wish to refer may not come within the Minister's remit, but given that he has responsibility for public expenditure and reform, he should be able to explain the position. How is the charge for interest on the national debt worked into the budget figures? We are discussing taxation and reducing expenditure. One of the most significant elements of the budget is the cost of servicing the national debt. This can, depending on international conditions, etc., vary enormously. I do not know what is the figure for servicing the national debt - it could be €7 billion - but where does it fit into the figures presented to us today?

The issue of increments was the subject of much discussion both inside and outside the House during the past week. When the Minister for Finance was before us, we did not have an opportunity to discuss everything with him. We have been presented with so much documentation that I am only getting the opportunity to read it as we go along. However, a note was circulated by the Revenue Commissioners which indicated that the average pay of its employees for this year would be €48,844 and for 2013 €49,477. Revenue notes that this higher average pay will be as a result of the increased cost of increments - approximately €3 million - in 2013. I accept that the Minister may not be in possession of the note to which I refer which was presented to us during the session with the Minister for Finance. Revenue employs fewer than 6,000 people, or 3% of the overall public service. How much, therefore, will increments across the entire service cost? Revenue appears to have highlighted this as a significant issue. Will the Minister elaborate on it, particularly as increments are the subject of ongoing discussion and comment. Does the Minister expect that discussions on increments and targeted savings on allowances - if such are to take place - will be completed by budget day? If they are not, how will savings, etc., in this regard be factored into the budgetary figures for the coming year?

A stimulus package of €2.25 billion was announced last July. Is this money included in the Estimates for next year? If not, how is it contemplated within the arithmetic relating to the budget?

The Minister referred to shared services. We have been informed that it will cost in the region of an extra €10 million to do what he has just outlined in the context of new policies and shared services. Based on the figures with which we have been presented , provision has not yet been made in this regard. It is projected that the cost of superannuation and retired allowances will be €466 million. This is despite the fact that under the comprehensive review of expenditure, a maximum figure of €438 million has been set. The outcome of all of this is that in addition to the €10 million additional cost for shared services, there will be a further shortfall of €28 million. I accept that pensioners are going to have to be paid. This means the Minister will be oblige to find €38 million to cover the shortfall to which I refer in addition to identifying how to reduce expenditure in his Department's group of Votes by 8%. I wish him well in his efforts in respect of shared services. However, he is going to be obliged to find an additional €38 million in order to pay for them and to cover the overrun in respect of superannuation and retired allowances. Perhaps he might indicate how he intends to proceed in this regard.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The Deputy took a ramble across all the areas for which I am responsible. I will deal with the issues raised on an individual basis.

I will begin by answering the question on where I am going to find further savings. The idea behind my appearance before the committee is for members to provide me with advice on that very issue. In the context of the comprehensive expenditure review, last year we published information on the policy options available. We know what is the framework for 2013 in terms of the expenditure ceilings. The idea is for the various committees to engage in this process in order that we might discover members' views on which policy options should be pursued before we make a determination in that regard. I genuinely hope members will come forward with priorities or suggestions and indicate whether they consider certain of the options to which I refer as being good or bad.

Ultimately we must make the decision and then I will come back to the committee to account for it once I have presented it to the Dáil.

The first issue to which Deputy Fleming referred was the policy basis for decisions. The idea of publishing the comprehensive review of expenditure was to circulate all the policy options, the existing instruments for reducing costs. They are not intended to be exhaustive but there is a wide range. The policy instruments to make the reductions across all areas exist.

In terms of sanctions to Departments, new sanctions are being introduced. We will introduce legislation in that regard. The proposals are still being developed. The idea of a multi-annual budget line is that like countries, one should be building up reserves in better times and spending at other times so that there will be ebbs and flows over a budgeting cycle. Issues arise in terms of demand-led schemes. The ones that are under the most pressure currently are the Department of Social Protection and the Department of Health. I do not wish to range over other Departments because they will be accounting for themselves before their line committees. We must have mechanisms to deal with supplementary expenditure that will arise because one will have schemes and emergencies for which one will not be able to account. We will discuss that in detail when the legislation comes back to the committee.

In terms of macro-expenditure - I did not hear the contribution of the Minister for Finance – I have indicated the breakdown of next year’s €3.5 billion. It will involve a €1.25 billion contribution from the tax side. From my side of the House it is €1.7 billion on the current side with €0.55 billion on the capital side, which is already indicated in the multi-annual capital plan I set out last year. The imperative for us is not the monetary ceiling, it is the deficit target. We are committed to reach a deficit under the troika agreement of 7.5% next year. If it is determined that greater or lesser adjustments will get us to that figure; that will be the focus, unless the Government decides to go beyond that figure. The target is not a volume of money; it is a deficit target which we must reach over time.

The charges for interest are a matter for the Minister for Finance. The interest charge is reflected in the Central Fund. It is non-voted money under the Department of Finance.

The total cost of increments-----

5:10 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I appreciate what the Minister said, that savings are required based on the target of €1.7 billion but the schedule he has given us for next year – the comprehensive expenditure review – indicates that in 2012 the figure is €51.8 billion and in 2013 it is €50.8 billion. There is only €1.3 billion of a difference between 2012 and 2013. The Minister is saying he wants-----

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I do not have the table.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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What is the difference?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I do not have the table before me. Is there unallocated spend or is it the total?

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I do not know. I am asking the Minister.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I would have to see the table.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Okay. I refer to page 20 of the comprehensive expenditure review which has been circulated to us. It is the document on which all the Minister’s figures are based.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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It is not the documentation I have circulated to the committee today.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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No. The Minister might come back and clarify the matter in due course.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Yes, in essence, the figure we have to adjust next year is not a fixed quantum of money.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I understand that it is a percentage.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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We want to reach the deficit target. We will have to make a calculation on growth and tax revenues next year. It is like the old story of asking directions, when the person asked says if I were you I would not start from here. It depends on where we start from. The target outturn figure for this year is a deficit of 8.6%. We expect to be comfortably within the target. The previous Department of Finance fiscal forecast indicates a deficit of approximately 8.4%. If we are at 8.4%, then the journey to 7.5% is a shorter journey than if we are at 8.6%. There are a number of factors. The first is what the outturn figure will be for this year; how robust is the inflow of tax; whether it will exceed what we expect and what the projections of that will be for next year and what is the growth estimate. As members are probably aware, we have revised down the growth figure. The original estimate last year for this year was 1.2%. We are still expecting growth of a more modest nature of between 0.5% and 0.7%, depending on whose forecast one takes. Whatever growth figure is determined for next year will also impact on the quantum of money adjustment that we will determine in the budget. The details are not set down in stone in that regard.

The next item on the list of questions relates to increments. The total cost of increments in a full year across the entire public service is €170 million for next year.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Are they new increments for next year?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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That is the additional cost. I should advise the committee on the matter as I spoke about it on public radio. We had a discussion on the issue last week during Question Time when Deputy Fleming in particular made a reasonable request about whether I had investigated stopping increments for those earning more than €100,000. I did consider that. As I indicated, the bulk of increments are paid to low-paid public servants within the Civil Service, 50% or slightly more are paid to clerical officers who are not well paid. The nature of increments is that they are paid to the entrant’s grade whether it is to the Garda or teachers. Increments are for those who start off on the lowest grade. That would not be the place to start in order to make savings but at a higher level one could make a justification for it. I asked for the advices of the law officers of the State on the feasibility of doing that. It would not make much sense targeting people earning more than €100,000 in terms of the quantum of money involved. The clear advice I had is that increments constitute basic pay and represent part of the terms and conditions applicable to staff. Pay scales form part of the public announcement of the terms and conditions for recruitment purposes or when promotional competitions are run within the public service. Increments are awarded as part of pay for pension purposes and therefore their suspension or alteration would have a long-term impact. In essence, the only way one could remove increments would be by agreement or by legislation. The latter would be open to challenge in terms of contract law.

On the stimulus package and where that sits-----

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I am looking for the figures.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The stimulus package is not in the figures in that it is predicated on an external funding source, namely, the sale of State assets plus investment money from external investors including the European Investment Bank. We will explain how that fund is to be structured once we get closer to accruing money. It has been signalled that a number of State assets will go to market next year. I will come back to the committee with detail on the matter when we get closer to the mechanisms for doing so.

I answered the question on the cost of shared services at the outset in the context of additional pressures of superannuation and shared services. I want to drive the agenda and we must find the resources to do it as we go along. They are investments in savings elsewhere because as we save money across all other Departments by, for example, locating human resource management into one centre, we are saving pockets of money all over the place. In that instance it is €12.5 million annually.

There is an outflow of money to set it up of the order of €10 million, but that will repay itself very quickly. If any member of the committee has views on other areas that might be suitable for shared services I would welcome that.

I have already indicated that the anticipated potential savings from shared services in the human resources area is €12.5 million per annum, with a reduction of 149 full-time equivalent staff.

5:20 pm

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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The Minister will depart at approximately 7.15 p.m. and I am conscious of the need to allow everybody to contribute. We should be able to if we do that in ten minute slots.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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I will be succinct. The only thing the Minister said that I can agree with is when he defended low and middle income public sector workers, but I point to the fact that his Government and its predecessors have hammered them significantly already.

In a previous era Croke Park conjured up the excitement of Gaelic football and hurling. Croke Park is now a term of abuse of public sector workers, but it is manufactured and contrived by sections of the media to hammer and denigrate public sector workers and try to divide them from private sector workers for an agenda that is appropriate to a billionnaire-owned press and not the interests of society.

The Minister should be more forthcoming on behalf of public sector workers whom he is hammering on behalf of this bailout fiasco and publish examples of what the increments for low and middle income workers mean, namely, that they are critical to their lives and they have every penny spent for their children, their mortgages or whatever ten years before it arrives. We should have the truth on that. The dishonest tactic is to use the €100,000 and €200,000 plus salaries, which I agree are scandalous. The aping at the higher echelons of what was going on in private capitalism was the only aspect of benchmarking that was completely wrong, and that is being used to hammer the low and the middle income earners. The Minister should bring the facts and the truth out and not allow this vicious propaganda campaign that has been ongoing for a number of years.

I put it to the Minister that the reality of the Croke Park agreement, far from being the Eldorado for public sector workers it is conjured up to be by sections of the press, is leading to the destruction of the public sector. Taking 28,000 jobs out of the public sector has had and is having a detrimental effect on many services, and front line workers such as those in health are bearing the brunt. That is being conveniently overlooked and the Minister is looking for more now, even when the 2008 OECD report pointed to a modest public service in this country by comparison with European Union counterparts

I put it to the Minister that his fine words here about external service delivery masks a cruel agenda of privatisation. It is cruel in many areas but I will put just one to the Minister, namely, what is happening in the home scene. Public sector home helps are being told to spend less time with elderly residents who desperately need their care. At the same time leaflets from private providers of paid care are being left in elderly people's homes to pressurise their families to supplement the reduction in public care by paying for these privateers, which they cannot afford.

I am conscious that when the Minister leaves here he must present himself to the vigilantes of the troika. Unfortunately, it is their demands that will determine the outcome of the budgetary process. We might as well be talking here for the next week or leave now because nothing that we say will carry any weight in that regard but I ask the Minister to convey to them that there is huge resistance for this bailout of the European financial system at their behest on the backs of our people, and that resistance will continue. They live in a cocooned environment. Why are they staying in the Merrion Hotel, the most expensive hotel in Dublin, and is the Minister paying for that? Who is paying for it? They are coming here demanding that we bleed our people.

The Minister's colleague, the Minister for Finance, Deputy Noonan, was here earlier and he outlined some of the same figures. However, to impose further cuts in capital spending and in the current spending against a background where there are 14,000 fewer jobs in the country in the third quarter of this year compared to the second quarter will mean it will all go in one direction, which is to the detriment of jobs and will result rising emigration. This whole policy is a disaster.

The pensions for former officeholders is a scandal and a source of enormous anger. Of all the anomalies that hurt people it is what is mentioned to me on a daily basis, and there is a basis for it. That former Ministers are on pensions of over €100,000 is obscene. The Minister might say he will cut them but a cut of 10% or 15% is nothing. Nobody should be on a pension more than, say, the equivalent of an average industrial wage worker when he or she retires from their public sector job. It is incredible that while we have this pressure on home helps and so on, and that is not to tritely put one up against the other, we have these levels of massive pensions. Other allowances, including allowances and pay for Deputies, should be examined-----

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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And the leaders' allowance which the Deputy gets but none of us gets.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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-----as well as the €10.5 million a year that Fianna Fáil, Fine Gael and the Labour Party get each year from the public sector. That still did not stop Deputy Fleming having the audacity to say that the Socialists got more public funding from the Exchequer than anyone else in this country.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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That might be a matter for another committee meeting.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Believe it or not but I would agree with a lot of what Deputy Higgins has just said. There is an element, not only in the media, which wants to divide public sector workers and private sector workers. That is wrong. They are mutually dependent. Everybody in the State is dependent on decent public services when we or our family are sick, when our children go to school and when we want to feel secure on our streets with a decent level of policing. All of that is provided by public sector workers, and the private sector depends upon it.

I have no compunction in defending the public service but we are in a very broken position economically, and people know that. We need to work towards balancing our budget because no matter what else we do we cannot continue to heap debt upon the next generation. We are borrowing substantially more now than we are getting in tax revenues. We need to balance that equation, and we cannot endlessly tax. Deputy Higgins and others talk about some pot of gold taxes that is available. This is the budgetary process. If the Deputy has any suggestions he should submit them to me and we will have them costed, and any good suggestions will be seized upon.

In terms of the bailout fiasco, as the Deputy calls it, the bottom line is that last year we were dependent on the troika, that is the IMF, the European Central Bank and the European Commission, providing us with sufficient moneys to keep the country afloat. Without that we would have a disastrous reduction. If we had to downsize our public services to the amount that our income in tax revenue would fund it would have been a disaster. The only people who gave us affordable money last year, and this year, are the troika. If we had tried to borrow it on the markets it would have been unaffordable, if we could get it at all. That is the reality of it, and there is no escaping that.

I gave my view on the issue of increments. If we are looking for further reductions in the public pay bill we must be as creative as we can be and maintain an ongoing spending review.

We analysed the spending of public sector workers, including the spending of social welfare benefits, particularly in small rural towns. It is interesting that this expenditure accounts for a significant proportion of economic activity in many rural towns. We cannot suck this out without damaging the private sector. People seem to be a little blind to this. The spenders to whom I refer are those who ensure there is some commerce in the shops, pubs, restaurants, etc.

I totally disagree with Deputy Joe Higgins that the Croke Park agreement somehow represents the destruction of the public service. It is allowing reforms that are absolutely necessary. I am familiar with the Deputy's traditional views, as we spent ten years together on the administrative council of the Labour Party. We had to be in the room at the same time because, if we both left at the same time, there would have been an imbalance of votes. I know very well his views on outsourcing, for example. His campaign on bin charges caused the privatisation of the bin service.

5:30 pm

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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The opposite is the case.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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If one does not allow public services to be paid for, they must be privatised. The Deputy is not campaigning against the private sector bin collectors in the same way as he campaigned against the public ones. He will probably adopt the same approach to water and other services. That is the very strategy that will ensure privatisation. Those of us who are interested in quality public services know that public companies such as the ESB can compete with the best. We do not believe electricity should not be paid for because it is provided by a public company. This points to the absurdity of some of the Deputy's views on these matters.

We need to have reforms. Some services are better offered in the private sphere and others in the public sphere. We need efficiencies. I hope to have the efficiencies of the private sector match the integrity and quality of the services of the best of the public service. This is the reform plan and what we are working towards.

Pensions for former officeholders are a disquieting issue. This is why, shortly after I entered office, I examined how we could reduce these pensions. I introduced the Financial Emergency Measures in the Public Interest Bill and went as far as my legal advice would allow to lower them. The advice is that pensions are preserved property rights under the Constitution. Therefore, the claw-back had to be proportionate. If one adds the pension abatement for pension holders, the significant taxation that applies and the universal social charge, one finds a great difference in the gross and net figures.

With regard to public pay generally, we often compare gross figures without examining the net figures based on the significant increases in taxes that now fall on all workers, both public and private. In the public sector there is the additional 7% pension reduction which is a 7% tax, no matter how one slices and dices it, over and above the normal tax that falls on the private sphere. Net rates present a different picture, but I agree entirely with the views on a very tiny category of earners, including senior politicians, senior public servants and some very senior officeholders in the public sector who have very large pensions. There are specific proposals in the programme for Government on the calculation of tax supports for future pensions within the public and private sectors and I hope they will be implemented.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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With regard to the constitutional problems associated with pensions, there is anxiety over the expected turnout in the referendum on the rights of children. I support the proposed constitutional change, despite its limitations. The Minister would have a 95% turnout on the day if he was to propose an amendment to deal with the considerable pension issues. Everybody would come out to vote in that regard.

The Minister, whose remarks comprised handy propaganda against us, knows very well that our campaign against bin taxes and other charges is being conducted becasue they are all new burdens on the shoulders of ordinary people who are paying for the services already. The overwhelming majority of bin services nationally, for which services a payment system has been in place since the Minister's former leader, Mr. Dick Spring, introduced it in 1983, were privatised long before the dispute in Dublin.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Not in my county.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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They were privatised and the same will happen with water. Once one modifies a service, as proposed with Irish Water, it is turned into a commodity, after which it is ready to be handed over to the privateers or private companies which are now bleeding the people dry. That is the record.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I thank the Minister for his presentation and will start with the positive points. I congratulate him and his team on the productivity achieved, including the 7% reduction in salaries and the 7% pensions adjustment, which together amount to a reduction of 14%. We have to do this kind of housekeeping. The first half of the conversation today was with the Minister's colleague and mine, the Minister for Finance, Deputy Michael Noonan. I reminded him that it was over one year since publication of the paper by Cecchetti, Mohanty and Zampolli on the real effects of debt on an economy. The Minister for Finance received a copy last year. I was dismissed and sidelined a little and told it was kindergarten economics. However, it is not.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I have an interest in everything the Deputy has to say.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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This is not about egos. I want to forget about the partisan politics of the past. Let us all forget about it; the matter is too serious to do otherwise.

Tomorrow and Friday the big artillery will be needed at the European Council. That is where we will need to give barrels of information and truth to Mrs. Merkel, Mr. Schäuble and Mr. Weidmann, the president of the Deutsche Bundesbank. They are backtracking at a rate of knots that is frightening and dangerous, not only for us but also for the eurozone as a whole. They are playing with fire and do not really understand the problem. Eminent financial figures who understand the financial system, not just economists, know how weak and buckling the approach is both on and off the balance sheet in the shadow banking world. It is important that the political leaders of Europe tackle the problem courageously. The balance sheets of the banks, including those of Spain and Germany, must be considered. Mr. Simon Johnson recently produced a study of the Deutsche Bank balance sheet and noted it was far less strong, much more highly overleveraged and undercapitalised than people realised. Unless all of the banks are honest – it took a long time for the banks here to reach their current position but they are still not being honest-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Is the Deputy stating they are less dishonest?

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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They are not; they are still being dishonest and must be dragged by the ear into the truth forum. In Europe we need to get up-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I ask the Deputy to be relevant.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I must say-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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The Deputy may say what he wants, but I will have to rule him out of order and ask him to leave. He should proceed to ask questions.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I have two points on expenditure. The Minister asked for suggestions and solutions in respect of the micro-budget. One solution is to increase corporation tax by 2.5%. This would not make corporations blink, be they domestic or foreign. It would produce a figure of €670 million on the basis of the last returned corporation profit figures. We should get over the sacred-cow mentality; it is just a nonsense.

Second, if we introduced a national recovery surcharge of 5% on incomes of €120,000 and over, it would produce a sum of €520 million based on the last Revenue returns. These sums amount to €1.2 billion in taxes that are very collectable.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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What was the second proposal?

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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That a 5% surcharge be imposed on incomes of €120,000 and over.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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On every €1.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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Yes. An income of €120,000 would attract a surcharge of €6,000. This would produce a sum of €520 million in total. The Minister should keep doing what he is doing in respect of productivity gains, but we must find a mechanism that is easily understood and fair on the surface and in the mathematics and algebra.

The corporation tax is absolutely on the agenda because the effective rate of tax for corporations is not 12.5%, but 2%, 3% or 4% when one conducts double-tax planning in Luxembourg, etc. On a headline rate of 15% fixed for the next ten years, the Minister would get at least €500 million, and probably €700 million, and that is worth doing.

We hold the Presidency of the European Union for six months. All those who will visit, the euro-bureaucrats, the Heads of State, etc., will be protected and buffered from the pain and distress in households, the suicides, the nervous breakdowns, the inability to live normally, and those such as the Garda on €60,000 gross, of whom we heard in today's newspapers and on the radio, who has €109 net disposable income after a modest repayment on mortgage and other household utility expenses. They need to understand that rather than be driven on red carpets all around the place in shiny new cars and not know about how it translates into households. They need to know it during that six months.

5:40 pm

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I will pick up on a few of the points, none of which is particularly relevant to my Department but which, none the less, are welcome to be heard. Getting an understanding from our European counterparts has been one of the priorities of the Government from day one. As I told the committee previously, there are three strands to our economic policy. The first, which is the most talked about, is working towards balancing the budget, which is the 2.9% deficit by 2015. We must do that because we cannot continue to borrow.

Equally, we need to have a jobs and growth strategy. I have announced the first phase of that. That will be funded in the ways I indicated and will have a significant jobs impact from next year on. We need to run out more phases of that. Importantly, we have put the jobs and growth agenda on the European agenda. Our voice is being heard increasingly and the jobs and growth agenda is now a formal part of the Heads of Government Council meeting. There is a particular focus on jobs. As bad as we are, and we are in a difficult situation, especially on the unemployment front, it is frightening to look at a country such as Spain where youth unemployment is well over 50%. We need a social policy to deal with that.

The third strand of our economic policy has been to renegotiate the terms of the deal, and particularly to disconnect the banking debt from the sovereign debt.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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We need a write-down, nothing more, nothing less.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I know exactly what we need but I am also trying to-----

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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It is justified.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Please, let the Minister respond. I can invite Deputy Mathews in for supplementary questions.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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If I could sign the write-down, as Deputy Mathews will be aware, I and the Minister for Finance, Deputy Noonan, would do that tomorrow. The problem is we must convince people. Argument is important and we marshal our argument as best we can and use whatever tools and leverage we have in this regard. We need to make progress on the banking debt, and we have made substantial progress. It was described by my party leader as a most significant event when the Heads of Government for the first time - Deputy Mathews can say that a few of them-----

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I just told the Minister that all of them, for instance, Mr. Schäuble and Chancellor Merkel, are backtracking.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Please, Deputy Mathews.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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It matters little what Ministers say if the Heads of Government unanimously have made a determination to make that link.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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Chancellor Merkel is backtracking.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I will ask Deputy Mathews to leave the committee room if he interrupts once more.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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Does the Chairman want to hear the truth?

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Is Deputy Mathews accusing me of mis-chairing the meeting, that I am denying the truth?

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I am not.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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What I am asking Deputy Mathews to do-----

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I am pressing for the truth.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I will invite Deputy Mathews back in, but if he interrupts the Minister once more, I will ask Deputy Mathews to leave the committee.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Deputy Mathews and I are on the same page. He knows that this is what we are striving towards.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy Sean Fleming will show Deputy Mathews how to do it. My apologies to Deputy Fleming.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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We will make progress in the constructive dialogue we have had. We have made substantial progress. We should acknowledge what we have done. In terms of the interest payments, people said we could not get a better deal.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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Excuse me, I led that charge.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Is Deputy Mathews finished?

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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Not quite, but I will pause.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Will Deputy Mathews wait until I invite him back in? In future circumstances, I will act like Roy Keane in his tackle on Overmars in the first five minutes of the game and ask Deputy Mathews to leave. Deputy Mathews will get one interruption and he will be gone.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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It is different.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy Mathews will get one interruption and he will be gone. I call the Minister.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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It might help if I did not look at Deputy Mathews and spoke through the Chair.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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If the Minister could, it would assist.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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What I am saying is we have made significant progress. From the beginning, in the first meeting I had with the troika in advance of going into Government, we indicated what we needed to achieve. We have progressed much further than I had expected we could in the first 18 months. We have a way to go and I am confident we will move further.

The committee may be aware that the German Minister, Mr. Schäuble, is coming to Ireland and both the Minister for Finance, Deputy Noonan, and I will meet him the week after next. The fact that he has asked to come to Ireland is not insignificant in itself.

In terms of expenditure, I have asked for suggestions. Interestingly, in the best social democratic tradition, Deputy Mathews has given two taxation proposals as opposed to two expenditure proposals, and those are proper to my colleague, the Minister for Finance. I recommend that the taxation agenda is something that Deputy Mathews might usefully raise within his own political party.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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For a supplementary question, I call Deputy Mathews.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I thank the Minister for his response and the Chairman for his forbearance. I remind the committee that Mr. Trichet commented recently that the ECB-----

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Mr. Trichet has no function anymore.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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He has recently commented retrospectively that the ECB did everything it could, and more, for Ireland. That is totally misleading. This adds to the public debate in a misleading sense. It was the other way round; this country saved the eurozone. That is why it is justified to keep insisting and spearheading for a serious debt write-down and a write-off of the promissory note. In fact, it is not a write-off of the promissory note. It is a write-off of emergency liquidity assistance which is supported by the promissory note which can be torn up. Restructuring does not even come into the consideration. It is odious debt. It should not be repaid.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Was Deputy Mathews here for-----

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I am going to remain with matters that relate to the Department of Public Expenditure and Reform.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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I thank the Chairman.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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Deputy Mathews's comments will be noted. I invite Deputy McNamara to replace me in the Chair.

Deputy Michael McNamara took the Chair.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I thank the Minister for producing some of the Estimates. Many of us who are first-time parliamentarians find it quite oppressive to be sitting here with restricted numbers and, ultimately, going into a budget without going through the process of having the larger scale numbers, especially at a finance committee, and with the figures being supplied to the specific committees thereafter so that we can have an advanced and mature debate as to how the country gets out of its woes, but I welcome this step. There are many of us who feel this is not going far enough. It is part of the reform agenda. We think there should be a better budgetary process.

This budget is about fairness. The most important point is not to give everyone an equal burden but to give those with the most capacity the most to carry, both in the public expenditure sphere and in the taxation sphere.

I will make two points on taxation, which I acknowledge is an easier way to go. There is an additional universal social charge of 3% for the self-employed earning over €100,000. If the Minister were to apply that across the board for everyone, according to the Department of Finance, it would bring in another €75 million in taxation.

The Minister will be aware that I and many of my colleagues would be of the belief that the top 1% of earners in this country are earning over €453,000 a year. That is not money that specifically drives the domestic economy. Much of that money goes into luxury items and items that are not key drivers of labour-intensive activities, and it is not spent in the domestic economy.

I understand it has a knock-on effect on the banking sector but those who have most should be paying a solidarity tax. It could be conditional to the point where the GDP deficit reaches 0%, at which point it would erode once again to allow people to be ambitious in society.

Over recent months we have pitted the public and private sector against each other, which does not serve anyone well. I do not know how we lost our appreciation for industrial peace. Perhaps we should show more scenes from Athens and highlight the fact that 48 buildings were burned to the ground in that city’s equivalent of Grafton Street. Vigilantes are walking around Athens demanding money from people every day.

The fairness element of the budget means that parts of the public sector which are very well paid are doing more but the price they are paying is not enough for some people. There is also a section of the private sector that is not contributing enough. A generational gap has emerged between young and old. If we learned anything from yesterday’s figures on banking, it is that we need to address the issues arising for the 167,000 people who come from the same generation as Deputy Donnelly and me. I do not mind whether these issues are addressed through expenditure or taxation but we must give a break to those who are in effect the key drivers of this economy rather than leave them without disposable income or facing a black hole.

The Government controls a high proportion of the two pillar banks. Those banks will ultimately be sold in the market. When we sort out the cost of funds, they will be profitable once again and their projected cashflow will ultimately determine the price at which they are sold. I do not want to see these banks running off into the sunset with the money taken from a generation through extended terms of credit. The Government needs to impose a moratorium on profit making by the banks once they sort out their cost of funds, which should be completed in the near future.

5:50 pm

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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The Minister has to be elsewhere by 7.15 p.m. and Deputy Donnelly also wishes to ask questions. Deputy Spring may wish to allow the Minister time to respond to his questions.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I would like to see the Government raising taxation and hope those who earn exceptionally high sums of money in the bodies covered by the Department of Public Expenditure and Reform will take on more of the burden. I ask the Minister to share his thoughts on these matters.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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We are debating taxation, which is not in my remit. I am not the Minister with responsibility for taxation. I presume Deputy Spring has rehearsed these arguments with the Minister for Finance. I agree with the Deputy that we have asked the people to carry a heavy burden to date. We will have to ask them to carry further burdens but that can only be done on the basis of solidarity and fairness. I also agree we have to construct a budget which manifests these elements. That will present a major challenge but it is what both parties in Government have set out to achieve. I have taken note of the Deputy’s proposals and in my dialogue with the Minister, Deputy Noonan, I will ensure they are fully thrashed out.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I wish to comment briefly on the process before asking specific questions about the numbers before us and suggesting some ideas for the Minister.

I welcome the process as a first step but we have a long way to go in terms of getting figures that are easy to understand and interrogate. This is not a criticism, however, because it was never going to be right on the first attempt. The ultimate objective is a small number of pages of easy to digest information. If it would be useful to the Minister’s officials, I am more than happy to offer a user’s or member’s view.

I have several questions specifically about the numbers before us. The schedule shows a movement on the Department’s ceiling from €865 million this year to €796 million next year, but when I add up the Votes I get a ceiling of €884 million for next year. The schedule, which sets out total expenditure for the State, indicates a reduction in expenditure for the Department of Public Expenditure and Reform of €69 million between 2012 and 2013. There is a gap of €88 million between the number set out in the schedule and the sum of the other tables.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Is that a document which the Deputy generated or is it the one I circulated to members?

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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It was provided to members.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The Deputy is referring to a committee document. It was not generated by my Department. I cannot comment on his figures, therefore.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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That is fine.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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I understand the table was extrapolated from page 20 of the comprehensive expenditure review. I do not know whether the extrapolation is accurate.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Allow me to ask a different question on the same subject. The comprehensive expenditure review for last year identified a net reduction in spending in the Department of Public Expenditure and Reform of €69 million between this year and 2013. The revised figure indicates that expenditure will increase by €88 million. What does this additional expenditure entail?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I would have to see the specific figures to provide a full answer. As I explained in my opening statement, the pensions Vote is included in these figures. The pensions Vote is not an exact science because we have yet to determine the number of people who will retire. We make provision on a guesstimate because everyone in the public service over the age of 60 is entitled to retire and we have to provide the money for pensions. We have also developed the shared services model since last year. We received Government approval to centralise human resource management and have made a significant investment in this project. We will be investing more money next year but that will be replicated in savings in other Votes. When we complete next year’s Estimates we will be able to present a clearer, simpler picture.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Would it be possible to provide the committee with a reconciliation of that €88 million figure? It is quite a jump.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The Deputy is comparing two separate projections. I have not yet settled next year’s Estimate. These are indicative figures. The Deputy is asking why there is a difference between the figure projected last year and the one projected this year.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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That is exactly what I am asking.

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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They are moving targets.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I cannot specifically account for €88 million but they are of the nature of the aforementioned matters.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I do not require the information immediately. I ask that the officials revert to us with a reconciliation.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Of course.

I am trying to be as accurate as I can in giving the Deputy the outline of the figures. We are close enough to settling the figures for next year and I will provide them. The idea of this discussion is for the Deputy to make suggestions about reductions or about where we should target spending to make bigger reductions elsewhere, because that is the kind of Department we are, and that is the dialogue I was hoping for. This is not a scrutiny of next year's Estimates because these figures are only indicative now.

6:00 pm

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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My understanding of the purpose of this session, therefore, is different. In the various tables provided, there are identified shortfalls compared with the figures in the comprehensive review of expenditure of €19 million. Were we to continue next year as we are this year and given the ceiling set for next year, the shortfall will be €19 million. Is that distributed across the various Votes? For example, the tables show shared services miss that target by 69%. The Minister has allocated the €19 million across the Votes. Why are they allocated like that?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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We are making projections, particularly in regard to superannuation, and we are allocating them. With regard to the shared services issue, we are accelerating this project because we are bringing more than the human resource element into it next year and, therefore, expenditure will be greater than we anticipated on it. It would give clarity to do the exercise the Deputy asked for but I cannot do it in the abstract. We have given indicative spends and the ceilings for the Estimates next year but until we determine what they are, I will not be able to reply on a euro by euro basis, which is what the Deputy is focused on. He is talking as if we are considering an agreed Estimate. This is an Estimate in construction and the process we are engaged in is for him to help in the construction of it, not to disaggregate its component parts yet because they are indicative.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I do not mean to be difficult but why then do we have these figures?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Because one needs to have baseline figures to give an indicative view.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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The figures say the Minister needs to find an additional €19 million in savings. If one adds up everything in column E, additional savings required, one gets €19 million.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The Deputy is reading from a document I do not have.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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It is the Minister's document.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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If one goes through each heading, we have to find €19 million.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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The Minister has allocated that amount across the Votes. Is that an estimate or a random distribution?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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We have estimated what individual offices will seek for next year. We have laid out what is the framework now but this is not a finished Estimate. It is an indicative Estimate for us to examine. I will go through its components. Table 2, public expenditure and sectoral policy, comprises almost €21 million. The individual parts comprise pay, appropriations-in-aid from the ESRI and PEACE and INTERREG funding, which is under negotiation. This is our best take as of now on the structure of the Estimate.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Table 1 refers to the Department. If it carries on as per this year, it will cost €62 million to run next year, but the target in the CRE is €39 million, which means the Minister must find €2 million.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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That is correct. It is just over €2 million.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Must the Minister find that or is it just indicative?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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To live within the CRE, €2 million needs to be found, but I have not proposed to make additional cuts to find that. That is part of the discussion we are having now. Has the Deputy suggestions, for example? The idea is that to live within the CRE, I must make this sort of saving.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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They do not seem like terribly useful numbers in that event. Let me give the Minister a few ideas. My understanding was if we were to examine the Department's Estimates, the Minister would say that to meet his 2013 target, he would need to cut by €2.382 million, that this reduction would be extremely risky for the Department to do and that he was not proposing we do that.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I said in my opening contribution that what I have suggested in savings justifies replicating last year's Estimate and not making the CRE saving. The debate is supposed to be about whether that is wise policy.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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My understanding is the Minister is not offering an opinion on the €2.38 million and whether it should be cut or not.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I said in my opening contribution that I believe, in what I have outlined in the measures, that the individual expenditure policy issues justify holding my Vote at 2012 levels and not increasing it. If I was to live within the expenditure ceiling in the CRE, I should reduce expenditure by €2.3 million, as the Deputy rightly said. We have not come to a conclusion on that and the idea of a pre-Estimates debate is to decide whether that is wise policy and whether we should not go ahead with some of my proposals.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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In the spirit of improving of this process, it is practically impossible as a Deputy to say, for example, that the Valuation Office can take a hit but the Ombudsman's office cannot or the Minister must save €19 million to hit his target and his shared service allocation is off by €1.5 million but the Secret Service is good. That is an impossible exercise.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I wrote to committee Chairmen in January and my idea was this would be a whole-of-year process and not something that would take place on the eve of the budget. That would have meant that the committee, for example, would have met the Ombudsman, considered her budget, checked staffing, efficiencies, back office supports and so on, or considered the budgets for the Public Appointments Service or the State Laboratory. I envisaged that the committee would have had all this done as part of the process. I can tell members the information submitted to my office by each body, what is their bid and my discernment of it, but I wanted the committee involved in the process to make an independent assessment of whether we should spend in a specific area or the Ombudsman, for example, needs more or less resources because of the review. She was given 25 initial staff and the question is whether that is enough. That is the sort of drilling down I hope the committee will do rather than having a debate in the abstract.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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That is what I am trying to do.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I agree with that.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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The exercise in which we are meant to be engaged therefore cannot be done because the work the Minister suggests the committee should have done has not been done. Is that reasonable?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I do not want to be critical of the committee.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I am on the committee. The Minister can be critical of us.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The process is new, as is the idea of the multi-annual framework budget. We will put that on a legislative basis for the first time in this session. Having a CRE to examine all policy options and publishing them is new. I am not surprised, therefore, it has not been fully embraced in its first year of operation.

However, I would hope that next year it will happen early enough. This is a small Department and the number of agencies under our purview is small. Every line Department calls on its own sectoral committee to invigilate offices, etc. Making a bid and having the dialogue with officials in the Department of Finance is one thing. However, those officials making a bid in public and answering questions about their expenditure, staffing arrangements, modus operandi and costs in terms of property and so on will inculcate a view that public expenditure management is not a matter for the Department of Public Expenditure and Reform alone but is a matter for everyone. I recently heard the Ombudsman for Children speak on the radio. She was a nurse in England and she said that the first time she was brought around by someone responsible and was told of cost of every procedure she was undertaking was the first time she became aware and started questioning whether she needed to do certain things. Up to then it was someone else's responsibility. This committee could start the process of ensuring everyone minds the money

6:10 pm

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I will quickly give the Minister some ideas.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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I ask the Deputy to be brief as we have approximately two minutes.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I am sure we will endeavour to come to this meeting next year with opinions and I hope the Minister will also because, in fairness, he has not come with a view either.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The problem is that I have to make the decisions.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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However, arguably the Minister should also come with a view. On increments, the Minister mentioned the two 7% cuts that public sector workers have taken. Analysis by Dan O'Brien last year showed that on average - obviously it is not for everyone because not everyone gets increments - all of those two cuts had been more than given back in cumulative years of increment payments.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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That is just not true.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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That was what the analysis stated.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The increments value is €170 million. I have given the Deputy that figure. However, the pension deduction alone is €950 million. The pay cut would have also been €1 billion. That is almost €2 billion between those two elements set against €170 million in increments so the Deputy's figures just do not add up.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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It is cumulative increments and not just this year.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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Once a person gets an increment, that is part of his or her pay. The Deputy is not talking about increments unless he is talking about cutting pay.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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No. By stopping increments and not paying them for several years, it is possible to add up the benefit of not paying them for several years. If it is €170 million next year and €250 million this year, the total saved is €420 million.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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That is true, but-----

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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It is like turning the clock back six years on income.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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It is not. It is making the point that-----

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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In logic, it is not possible to equate an annual saving of €170 million to €2 billion.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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No, but one can add up the €170 million in savings we get year on year.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The Deputy could say we would get it over ten years.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Okay, fine. Last year it was €250 million. If that was done for four years it would be €1 billion. It is pretty straightforward.

Also on increments, there is considerable talk about those at the higher end and that people on lower wages should not be hit on increments. While that may be true in some cases, it is not necessarily true for new entrants. Let us consider a teacher starting work on €28,000. If a graduate started in the private sector on a deal with a salary of €28,000, four months holidays, a permanent job from which he or she could not be removed and a very attractive pension, I would argue that person would not be devastated at not getting a 5% pay increase the following year. I believe we could be far more targeted.

When we looked at the Minister's expenditure proposals for this year, I made the point to him - in some cases he agreed - that across the board many areas under his remit, including stationery, travel and legal fees, are increasing year on year. At the margin all of those should at the very least not be increasing.

My final point relates to health, which may be outside the remit of this conversation but is very much within the remit of the Minister for Public Expenditure and Reform. The schedule from the comprehensive review of expenditure shows a 2% reduction in health spend over two years, which is 1% per year. When adjusted for the young population, the analysis indicated that we have the second highest per capita spend on health in the world after the US. There is a massive opportunity for billions to be reduced with no detriment to service. The Minister has argued that his Department is very small, as it is, and it is very difficult to get much meaningful money out of that. In the Minister's broader remit, a 2% reduction in health for the period from 2012 to 2014, should be seriously reviewed.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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Does the Minister have time to respond?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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I have until 5.30 p.m., at which point I need to return to the office. I believe we have dealt with increments. The Deputy has the notion that we should stop increments for everyone. There is an issue of intergenerational solidarity. People on the top of the salary scale do not get further increments. That money is bagged, if one likes. It is an old idea that as one matures in one's job and acquires new skills, one goes up the scale. That is as it has been since the foundation of the State. We are in difficult times and we need to consider how we can do it. I have said I have an open view on all these matters but there is a legal imperative. I have explained to the committee that the legal advice I have is that it is a contractual issue and any action in that regard would be challenged. However, it is something we might look at.

The Deputy just throws out figures. An increment for a teacher is not 5% of salary. I believe the teacher's starting salary for a recent graduate who has spent four years in college is reasonable but not excessive. We have reduced it by 10%, as the Deputy knows. We have looked at entry grade salaries across the private sector and some are quite low. However, there are many graduate entry grades that would be analogous to that. I am mindful of impacting repeatedly on entry grades because we need to ensure if we make adjustments, they are done on a fair basis across everyone in the public service. If we are to make adjustments in salary, we should not discriminate between how the salary is acquired and whether it is acquired in the public sphere or the private sphere. The way to make everyone in society make a fair contribution is through general taxation. However, that is a debate we can have.

I am mindful of costs in my Department. The Department was created last year and is getting new functions. For example, we are determined to pull the procurement service into the Department and I have advertised for a new procurement officer. Some very good private sector people have applied for that. We have not gone through the process and I do not know who will emerge. Anybody applying for these new jobs in my Department is on contract for a fixed term and we expect results. That is how we will run the Department. My Department is not a typical Department that has been there forever and there will be expansion. We are pulling in new services, including shared services and procurement. We have created the economic advisory service. All external reviews of the public service have pointed to a deficiency in economic analysis and we are recruiting world-class young economics graduates to advise not just my Department but across the sphere. These will add to initial start-up costs as we do that, but I believe they will have a very significant impact on savings in future.

The Deputy's final point was on health. We have all seen that a reduction in health expenditure is very painful. We are doing three things simultaneously, which is difficult. First, we are downsizing numbers. The biggest component of public service numbers is in the health area, which has been significantly downsized while trying to keep services going. Comparing health services internationally is difficult because what comprises health services differs.

When I was Minister for Health in the mid-1990s, we had a very undeveloped child support service. We have invested hugely, and I think properly and wisely, in that area and invested an awful lot in supports for the elderly that did not exist 15 years ago. So we have a different type of health service. In addition, it was a very patchy health service at that stage, with health boards having different priorities. I remember when I asked the current Secretary General of the Department of Health to move from being CEO of the North Western Health Board, which was very successful and where he was doing a superb job, to the North Eastern Health Board. In respect of some of the deficiencies in the North Eastern Health Board at the time, I remember him telling me that he went into health centres that had dry toilets. One found a disparity of service because many services had grown up based on the voluntary effort that had migrated to the public service over time. The idea of an integrated service was the HSE's great concept. The problem was that it built a superstructure on top of the existing structures.

We are now trying to radically reform health and produce more services for more people because the number of medical card demands, the elderly population and the number of children is very high. Thankfully, all these developments are good but they are putting huge pressure on the health service. It is a great challenge to reduce money and numbers and expand services and, at the same time, bring about transformational reform through bringing more services into the primary care sector, reducing the demand on the acute sector, which is very expensive, and introducing universal health insurance so that we have a single-tier health service rather than a two-tier one.

6:20 pm

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Does the Minister believe 2%-----

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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We are already ten minutes over time and Deputy Donnelly has already had 30 minutes.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I have a supplementary question. I will be very brief. Does the Minister think 2% for health is too low?

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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The Deputy might take this matter up with the Minister for Health and the Oireachtas Joint Committee on Health and Children. The demands on health have been very significant.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I understand. My question relates specifically to whether the Minister thinks 2% is about right or too low.

Photo of Brendan HowlinBrendan Howlin (Minister, Department of Public Expenditure and Reform; Wexford, Labour)
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We have not concluded our discussions in respect of that. One of the things that will determine that will be the outturn figure for this year. The Deputy has seen the published figures for the end of September, which were significantly over budget. We need to bring that back in line before the end of the year. As I said in respect of the overall deficit target, the starting point will be important. While the cash demand for next year is modest, if the base has a gaping hole from this year, the pressure in doing that will be even greater. I will have a very difficult and challenging dialogue with the Department of Health and Children between now and budget day.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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There is no more time for questions. I thank the Minister and his officials for coming here and staying longer than we originally envisaged.

The committee adjourned at 7.25 p.m. until 2 p.m. on Wednesday, 24 October 2012.