Oireachtas Joint and Select Committees
Tuesday, 5 February 2019
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
I thank the committee for the invitation to be here to discuss Brexit preparations and the recent European Commission communication entitled, Towards a more efficient and democratic decision making in EU tax policy. In relation to Brexit, the Government remains firmly of the view that the only way to ensure an orderly withdrawal of the United Kingdom is to ratify the withdrawal agreement, as endorsed by the European Council and agreed with the British Government. The European Council has made it clear that it stands by the withdrawal agreement and that it is not for renegotiation. The agreement, with its backstop provisions, is the only agreement on the table that provides the essential legal guarantee to avoid a hard border in any circumstances and protect the Good Friday Agreement in all its parts. As a Government, our focus remains on securing ratification of the withdrawal agreement but we must also continue to implement our preparations for a no-deal scenario.
On 19 December, the Government published its Brexit contingency action plan, setting out its approach for dealing with a no-deal Brexit. Intensive work relating to the action plan continues across Government on a daily basis. As Minister for Finance, my objective is to protect the economic and financial interests of the State and to support the work of the Revenue Commissioners so as to minimise the Brexit disruption to trade to the greatest extent possible.
My Department is working within the whole-of-Government approach and co-ordinating closely with its agencies which are developing and implementing plans and measures to protect our economy. I recently met with the chief executive of the National Treasury Management Agency, NTMA, the chairman of the Revenue Commissioners and the deputy governor of the Central Bank on these matters. All are engaging closely in the overall whole-of-Government preparations and are confident that they have put appropriate contingency plans in place to do everything possible to limit the inevitable disruption to consumers and trade in the event of a no-deal Brexit.
However, it is not possible to eliminate all risk in a no-deal situation. Any Brexit will be negative, and a no-deal most of all. Not all issues are within Ireland’s direct control. This is not, I should emphasise, to avoid responsibility but to be frank and open. This is an exercise about the limitation of different degrees of damage. The Government is working actively at EU level and the EU will be taking a number of unilateral, limited and temporary measures in areas such as air transport, for example. However, it is important not to pretend that there can be what some in the UK are calling a "managed no-deal". No such thing exists and, from the EU perspective, we need to be very careful not to put at risk the benefits of the withdrawal agreement and, in particular, the transitional arrangements and the backstop.
Last week, following discussion with Government, I issued an initial assessment of the economic and fiscal impact of a no-deal Brexit. The new analysis is based on an initial application of the latest UK estimates from the National Institute of Economic and Social Research, which is the UK equivalent of the ESRI. Brexit, in whatever form, is an historic challenge for Ireland, and the implications for our economy will be disproportionate relative to those for the rest of the EU. While my Department's central economic and budgetary planning scenario remains an orderly exit based on the UK leaving with a transition arrangement in place, the risk of a disorderly Brexit has increased in recent weeks. In a disorderly exit scenario, while in aggregate terms the economy would be likely to continue expanding, the pace of growth would be significantly lower than is currently expected. My Department's initial assessment suggests that the level of economic activity would be approximately 4.25 percentage points lower than our existing trajectory over the medium term and approximately 6 percentage points lower than in a no-Brexit scenario. The reduction in the pace of growth would have negative spillovers to the public finances and the labour market. The headline deficit could deteriorate by nearly a percentage point of national income in the short term. As for the labour market, the unemployment rate would increase by an estimated 2 percentage points relative to budget 2019 projections. As earlier research from the Department of Finance has shown, the most adverse impacts of Brexit are likely to be felt in the agrifood and indigenous manufacturing sectors. The more comprehensive assessment by the Department of Finance and the ESRI will be published later this quarter. This output will be incorporated into the stability programme update, due in April.
I recognise that these estimates may not capture the full impact and that the figures could be conservative; indeed, the impact in certain exposed sectors and regions could be worse than the average. Nevertheless, quantifying the impact is important to help Government to understand the possible macroeconomic implications and to design the appropriate policy response. Of course, it is important to point out that Ireland is facing the challenge of Brexit in a robust economic position, with the highest national income growth in Europe and record employment levels. In addition, exports, job creation, inflation and public debt indicators are all strong. This strong performance will provide a better and stable platform for the external challenges that lie ahead. We have already taken many actions, many of which are supported by long-term planning through the national development plan and the national planning framework.
On financial services, my Department has been working closely with the Central Bank on planning for Brexit. The Central Bank has statutory responsibility for financial stability. It is working closely with financial services firms to ensure they have contingency plans in place for the end of March and are adequately prepared to cope with the possible effects of Brexit with as little disruption for consumers as possible. As for financial services, the Department and the Central Bank have stressed that responsibility for contingency planning remains with individual firms.
On the basis of its ongoing work, the Central Bank has been able to provide assurance that while some level of market disruption is inevitable, the financial system as a whole should be resilient enough to withstand a hard Brexit and that the most material "cliff-edge" financial stability risks arising from Brexit may have been largely mitigated. In this context, the contingency preparations announced by the European Commission last November mitigate the immediate risks arising from potential loss of access to UK-based market infrastructure - the central clearing counterparties mechanism, which is used to clear derivatives - and for Ireland specifically, access to a central securities depository allows for the settlement of Irish equities and exchange-traded funds.
On CSD, I am proposing legislation in the Government general scheme to support the Commission decision. As far as consumers are concerned, the most important issue for them arises where the UK or Gibraltar-based insurance firms do not have adequate contingency plans in place. While most insurance firms and intermediaries providing services from the UK and Gibraltar have taken appropriate action, contract continuity still remains a risk where firms have not taken adequate action. The legislation I am proposing as part of the Government omnibus Bill will allow for the run-off of policies in place at the time of Brexit over a three-year period, eliminating the most material risk for customers of insurance firms.
The Department of Finance has been working closely with the Revenue Commissioners on Brexit since the referendum. While the Department is responsible for overall policy, Revenue is an independent body responsible for implementing that policy in a fair and efficient manner. Revenue is on the front line in terms of our preparations for Brexit and facilitating efficient movement of legitimate trade post-Brexit to the greatest extent possible. I know that the Chairman of the Revenue Commissioners attended this committee on 24 January and outlined the work and scale of the challenge of the very significant increase that can be expected in traders who will have to deal with customs formalities for the first time, leading to an estimated tenfold increase in customs declarations, the complexity of issues relating to the landbridge and the challenge for Government agencies, including Revenue, in putting the necessary arrangements in place. The Chairman outlined to the committee the very significant programme of work and he made reference to ICT, staffing and outreach to business, all of which is being done through either trade representative bodies, events or seminars. A no-deal Brexit will be a serious challenge for our traders. I am, however, satisfied that the Revenue Commissioners have been working very hard and will continue to work hard to ensure they are prepared to facilitate the efficient movement of legitimate trade to the maximum extent possible in a no-deal scenario.
In terms of legislation, the draft omnibus Bill, known officially as the Miscellaneous Provisions (Withdrawal of the United Kingdom from the European Union on 29 March 2019) Bill 2019, was published on 24 January. It calls out particular areas that need to be addressed urgently. Part 6 refers to legislative amendments proposed for income tax, capital tax, corporation tax and stamp duty legislation to ensure continuity for business and citizens in regard to current access to certain taxation reliefs. Part 7 deals with implementation of the European Commission’s equivalence decision under the central securities depositories, CSD, regulation. Part 8 includes legislative measures for a temporary run-off regime. I look forward to working with all Members of the Dáil and Seanad to ensure the necessary legislation is in place before 29 March.
Turning to the second item on the agenda, the launch earlier this month by Commissioner Moscovici of a Commission communication entitled, Towards a more efficient and democratic decision making in EU tax policy. This communication sets out a roadmap which aims to start a debate around changing the system of voting for tax files from unanimity to qualified majority voting, QMV. At this point, we should reflect on what has been achieved on tax issues at EU level. Since 2015, there have been 21 different measures, an average of more than one initiative every three months. This is evidence of progress being. The Commission roadmap identifies the passerelle clause as being the most feasible option for moving away from unanimity. This provides that the European Council could unanimously decide to move an entire policy area or part of a policy area from unanimity voting to QMV. The support of the European Parliament, as well as national parliaments, including Dáil Éireann, would also be required. This is a highly sensitive suggestion for many member states, including Ireland, as any move to change the voting method used for tax files would reduce member states' sovereignty. Given the large volume of important agreements reached at EU level on tax issues, I do not see the need for, or merits of, any proposals to move away from the requirement for unanimity.
Regrettably, the United Kingdom leaving the European Union means that some things will change. Planning for this change has taken place on a whole-of-Government basis. No future relationship between the EU and UK will be as good as the status quo. Membership of the Single Market and customs union is a core element of our economic strategy. That will not change. Ireland will remain an active and enthusiastic member of the EU. The Government is committed to working with the European Commission and our EU partners to ensure the closest possible relationship between the EU and UK.
In terms of taxation the same principles apply. It is our view that the way to achieve the best results and tangible progress is to have all member states working together for the benefit of the whole European Union. I thank the Chairman and look forward to questions from members.
I am aware that the officials were informed of the possible questions on the national children's hospital and the nurses' strike. I do not know whether the Minister wants to add anything to his statement at this stage.
The Minister may wish to comment later on Deputy Howlin's statement that in the 31st Dáil, when he was the Minister for Public Expenditure and Reform, he received weekly and monthly reports on sensitive projects that may have overrun.
I welcome the Minister for Finance and Public Expenditure, Deputy Donohoe, and his officials and thank him for his opening statement.
On Brexit, I acknowledge the publication last week of the forecasts of what a disorderly Brexit might look like for the Irish economy. Does the Minister accept that in reality the impact may be far worse and more adverse for Ireland than he has set out? The Minister acknowledged that the figures may be conservative. One thing that is very difficult to quantify in any economic model is the whole issue of sentiment and confidence. In a disorderly Brexit scenario, is it the case that there is a likelihood of investment decisions being stalled and confidence being damaged? The Minister acknowledged that there could be regional variations. Areas that are heavily dependent on agrifood and indigenous manufacturing, for example, are likely to be far more adversely affected than Dublin. Does the Minister accept that the impact of a disorderly scenario could be worse and perhaps significantly worse than the economic model has predicted?
Yes. When I was publishing these forecasts last week I emphasised that they were all based on economic forecasts drawing on information from the UK. There are two specific issues that we cannot take account of, the first of which is the second round effects on consumer and investor confidence, to which Deputy McGrath alluded. As against that, one positive that we cannot take account of - there are a few positives in this situation - is the possible effect of any mitigants or offsetting measures that we would be able to agree with the European Commission in light of a disorderly event. When outlining the figures last week, I indicated that because some of them are based on information that is based on constantly evolving estimates, I will view them as the minimum effects on the economy. I want to be open about that. In particular, I have acknowledged in statements I have made elsewhere that the impact of a disorderly Brexit could be significantly different at sectoral and regional level from the average impact on the country. I am pleased to repeat that point today.
Yes, that is based on the information currently available to me. As we move forward, I will use further information and models that emerge from the UK to update the forecasts again when I provide the stability programme update in April. To make a final point, if the Deputy is asking me to forecast the effect of a recession in the UK on the Irish economy, we have ample experience of those kinds of economic events in economic history and forecasting.
The event whose effects I am being asked to predict is something that has not happened before. To see an economy of the scale and interconnectivity of the UK leave something like the EU is unique. As such, at each point, I have acknowledged the caveats we have built into our forecast. If they evolve, the first point at which they will evolve will be in April. Of course, I will update the Oireachtas in the stability programme update.
To clarify what we will next see by way of projections, some ongoing work is being done by the Department and the ESRI but is the Minister saying that it will be April before we see the next set of forecasts, which will be more detailed? That would be in the stability programme update, which is normally made available to us in draft form around mid-April. Of course, 29 March will have passed by that stage and to some extent, we might know where we stand. Can the Minister clarify what we will see next on the economic side by way of forecasting and projections? When will we see this?
What will come from me next will be the stability programme update, which will be shared with the Oireachtas. The Department of Finance is also producing work in conjunction with the ESRI that also will be published. I believe this work is on track to be completed by the end of the first quarter of this year. I want to share the information that is available to me now.
In essence, the Minister is saying that there will be nothing further before 29 March either from the Department by way of its joint exercise with the ESRI or from the stability programme update. The Minister is saying that what we have now is the Department's best estimate of the impact of a no-deal Brexit.
In the context of the backstop and the fact that we are only seven weeks away from 29 March, are discussions under way in the background? I do not expect the Minister to go into any detail but have there been discussions in the background between the Department and the Government generally and the European Commission regarding the doomsday scenario of a no-deal Brexit and the expectations of the Commission regarding adherence to the Union's customs code and the requirements the Commission would impose on Revenue as the national agent of that code? Have those discussions taken place or are they ongoing?
The Chairman of the Revenue Commissioners gave an update of where we are with the preparation of the implementation of customs policy if we got into a disorderly Brexit scenario. Representatives and officials-----
I believe the Chairman of the Revenue Commissioners gave the committee an update regarding what we are planning for and what is part of scenarios we are willing to implement concerning how we would manage things on an east-west point of view that I am happy to go through again. There is engagement. The Commission is here at the moment and is discussing how we would implement and deal with different scenarios that could develop in the future. It is important for me to be clear that in any of those discussions, we are not engaging in or planning for the implementation of infrastructure on our Border. I think Deputy Pearse Doherty asked me that question the last time I appeared before the committee and that answer has not changed. If the events of the past number of weeks have shown us anything, they have shown us the need for a legally operable backstop and that continues to be the basis of the engagement we are having.
The Commission has said publicly, and this has been reiterated by the President of the Commission, President Juncker, that it does not want to see the development of a hard border on the island of Ireland. As the Tánaiste and Minister for Foreign Affairs and Trade and I have said, were a disorderly event to take place, we would then have to engage in a period of negotiation and engagement with the Commission and the UK regarding how that would be delivered. As I make this statement to the committee, I wish to put it in a logical context. This is the very reason we negotiated for a backstop and a withdrawal treaty in the first place.
Our objective remains unchanged so it is only logical that if, for reasons beyond our control, the backstop was no longer to be operable, we would have to engage in a lot of work with the Commission and the UK regarding how that would be delivered.
Moving on to the matter of the children's hospital, the Minister is the guardian of the public purse when the Cabinet is sitting around the table. In April 2017, the Cabinet signed off on a tender of €983 million for the build cost of the national children's hospital. It would appear that, at some point around June 2018, the statutory board set up with responsibility for delivering the hospital learned that the cost would be higher than agreed. Over time, it learned the cost would be significantly higher. It appears the Department of Health, the Health Service Executive and the Minister for Health were not informed of that until late August 2018 and that the Minister for Public Expenditure and Reform, who is in charge of the purse strings, learned of it in November 2018. While I accept the Minister's statement that this is what happened, for most people it sounds incredible that, several months after knowledge of these cost overruns emerged, the Minister with responsibility for the public purse had not learned about it. That is extraordinary. Can the Minister explain how that came to pass?
It came to pass because we had a separate governance structure for the national children's hospital which was independently chaired. That led to a lot of engagement within the board and with the Department of Health and HSE on the issue. That engagement took place, as the Minister for Health has confirmed, from the end of August through September and October and in early November I became aware of the issue and its scale. From that point until the middle of December, I had a significant amount of engagement on the issue to try to understand why this had happened and the options available to Government. A decision that I recommended was then taken in Cabinet on this matter in the middle of December.
In terms of managing this issue, if the Minister for Health, Deputy Harris, had come to me earlier on the matter, I would have asked him to quantify the scale of the issue and to set out what could be done to reduce it further. This was what he was doing throughout that period. If I had been aware of it at an earlier point, I would have asked him to take the actions he was undertaking during that time. I became heavily engaged with the Minister and the Department for Health as soon as I became aware of the issue and the nature of it.
Is the Minister telling this committee that, as the Minister with responsibility for public expenditure, he has no problem with not being told, for several months, of an overrun, let alone one of hundreds of millions of euro? The Minister introduced a budget last October with no knowledge of an overrun of the order of €450 million, while his Cabinet colleague, sitting at the same table, knew an awful lot about it at that stage.
The Minister for Health has acknowledged that the way in which this issue developed and its consequences for the national children's hospital were significant. I was then in the position of asking whether we should go ahead with the project or not. As I look back at how this developed, the fact that we had such an independent governance structure engaged in trying to resolve this issue provided a buffer between me and the Department of Health on the matter. I still would have faced the challenge of how to go ahead with this project if I had the figures earlier.
No one is saying the challenge would have changed but the Minister was the one writing the cheque. I would be furious, if I was sitting in his seat, that it took months to be told of this overrun.
Perhaps the full scale of it was not known in June or July but it was serious enough to be brought to the attention of the Department of Health, the Minister, and the HSE in August. Issues are flagged all the time and Ministers are told something is an emerging issue but that the full scale and scope of it is not known. In regard to the cost of the national children's hospital, the Minister is telling us that nobody flagged with him or with any official in his Department that it was an emerging issue. That is unbelievable.
It would have been helpful to have been aware of this issue as it was developing. The Minister for Health, Deputy Harris, was doing what he should have been doing across the period, which is to understand the scale of the issue and be in a position to fully brief Government once he was confident of the matter, which he did. He came to me.
With respect to the Minister, I know he is not going to throw his colleague under the bus, but it was also his job to keep him informed and to let him know of this emerging issue. The Minister brought a budget into the House without any information in his Department of a very significant escalation in the cost of the national children's hospital. The Minister was in the dark.
I have a lot of engagement with the Minister, Deputy Harris, on a whole variety of different matters, including on this and other matters that the Deputy will raise with me. I have a lot of engagement with him on capital projects, but, more broadly, on the level of capital expenditure and capital resources that are available to his Department at any point in time. When he alerted me to this issue, we did a significant amount of work across a four to six week period to deal with it.
After his opening statement, I asked the Minister to comment on the remarks made today by Deputy Howlin. He said that he helped to design that Department and that the purpose of it was to be sanctioning authority. On a weekly or monthly basis, depending on how sensitive a project would be in terms of issues arising, the Minister would be informed. The Minister needs to clarify his position on that statement. Was somebody from his Department on the board?
I meet the capital team within my Department's regularly and it updates me on various matters that develop. It was through engagement between Department of Health and the Department of Public Expenditure and Reform in early November that we became aware of this issue and then became active on it.
On the Chairman's question on whether a member of my Department was on the board, the answer to that is "Yes."
Nobody told anybody from August. Is that right? I am trying to pick up on the timeline Deputy Michael McGrath set out. It would seem to me that there was a total collapse in the sharing of information in the context of the significant overrun. There was a problem within the Department of Health, the Minister's Department and this board in the context of informing the Minister.
I met my colleague, who is a member of this board, to have a discussion with him on his experience on the board because I am conscious of the fact that his role in this is, understandably, being debated and questioned in the way Chairman has done, and which is entitled to do. In my meeting with Mr. Quinn, my official who is on the board and who leads the Office of Government Procurement and whose name has been mentioned elsewhere, he informed me that from the summer onwards, he could see this matter being dealt by the board of the children's hospital.
He could see that engagement was taking place between the Department of Health and the HSE on the board. He judged that his responsibilities as a member of the board were being discharged fully. In all of the engagement I have had with him over the last number of years, I have found him to be a superb professional on procurement policy who I know will have taken his responsibilities on the board very seriously.
I have no doubt about that but I would seriously question that an official from the Minister's Department would not see the political or budgetary consequences of what was going on and the fact that there seemed to be no real engagement on the overrun with the Departments of Public Expenditure and Reform and Health. It raises the question as to how Government managed this system of expenditure on the children's hospital. It shows up many weaknesses.
What is different in the question the Chairman has put to me is that the engagement at that point was taking place between the National Paediatric Hospital Development Board, of which Mr. Quinn was a member, the HSE and the Department of Health. The board is an agency that was associated with the Government Departments in question and Mr. Quinn could see heavy engagement under way between the Department of Health, the HSE and the board of which he was a member. All of that engagement was taking place and on its conclusion, I was then informed of this issue.
I will pick up on that point before I move to the wider and substantive issues of Brexit and the tax issue. The Minister mentioned Mr. Quinn, who was the chief procurement officer in the Department of Public Expenditure Reform. Mr. Quinn served time on the board but was also chairperson of the finance committee. The Minister stated previously that he was on the board in a personal capacity. Is that correct?
He was appointed in a personal capacity by a previous Minister for Health but I do not want to make any kind of distinction between him as a person and as somebody who would be aware of his responsibilities as a procurement professional or board member.
He comes under Circular 12/2010 which outlines the responsibilities of individuals nominated to boards, particularly his responsibility, where there is a significant public policy issue at stake, to request the chairperson to notify the Minister or, failing that, to notify the Minister himself.
Yes, he would have been subjected to the provisions of that circular. Putting the answer to that question in context, Mr. Quinn was a member of the board at the point at which it interrogated the evolving issue of an overspend and projected increase in costs of the national children's hospital. He was engaged with the issue and he could see the engagement that was taking place between the board, the Department of Health and the children's hospital. He judged - I support him in this based on the engagement I have had with him - that he was discharging his responsibilities in that area because he could see engagement both on the board and with the Department of Health and HSE.
-----was he able to ascertain when Mr. Quinn first became aware that the board was in discussions with the Department to alert it of the overrun? Second, when did the board or the finance committee Mr. Quinn chairs become aware of an overrun in that project?
I will have to come back to the Deputy with an answer on the finance committee.
I cannot give an answer to the committee now but of course I can find out. From the discussion I had with Mr. Quinn it appears that engagement on this issue, at least at board level, happened throughout the summer, leading to communication at the end of August.
When we add all this up, the big question we need to ask ourselves is how we can ensure that we get value for money and that projects are cancelled. There is also the issue of how Deputy Donohoe has performed as the Minister in charge of the Department sanctioning this project. Deputy Donohoe is the line Minister for the Department that sanctions this project. Is that correct?
No. As Minister I sanction recommendations that come from other Departments. I will spell out what that means in order to deal with my responsibility in this, which I want to deal with centrally. A Department outlines a project it wants to carry out and it makes a recommendation to me on the project if it is above a certain scale. I ultimately have to supply that sanction to that Department. If the project is above €100 million it has to go to Cabinet in its entirety.
The Minister does not wash his hands of it however, or at least he should not do so. It would appear that happened in this case. What is the Minister's responsibility in terms of monitoring a project afterwards? We have a huge overrun of close to €500 million and it could increase. It appears the Minister was completely kept in the dark. It seems he did not have his hands on the tiller of this project at all.
I will deal with each of those queries in turn. First I wish to address my responsibility in relation to individual projects, particularly those above a certain scale. They are tracked by the different teams in my Department that shadow each Vote. I fully accept my responsibility for the use of taxpayers' money for this or any other project. That is why the decision I ultimately made on this project was a very difficult one. As I became engaged in this issue the available choices concerning the project's future were very profound. I was aware that the decision to make more funding available, on which Deputy Doherty is now questioning me, would raise questions about the future of the project and how it has been managed. This project was rare in that it had a separate governance structure in the form of the National Paediatric Hospital Development Board. The reason for that body was the number of other children's hospitals involved in this project, as the Deputy knows. To be clear, regardless of what point of the process I am involved in, responsibility for the use of taxpayers' money is mine.
I am not looking at the wider general aspects of the use of public money. I am trying to determine what the Minister's specific responsibility was. He mentioned that he had a responsibility to track this project. I understand that monthly reports were supposed to be made on this project. The Minister had a responsibility to track this project but his chief procurement officer knew that there was an overrun months in advance and did not tell him or the Department. I am not sure if the Minister's tracking flagged that, however the tracking takes place. Deputy Donohoe's colleague, the Minister for Health, was aware of this. He did not tell him and obviously did not tell the Department of Finance. Did the Minister for Finance's tracking process pick that up? The Department of Health was informed of it but obviously the Department of Finance and its tracking process were not. Can the Minister explain how a project costing close to €2 billion is tracked? What is reported? What information does the Minister receive? What does he have to alert the Cabinet to? How come the Minister's tracking did not pick any of this up for months, despite having one of the most senior officials in the Department as chairperson of the finance committee and the Minister for Health and the Department of Health all having knowledge of an overrun?
To be clear, the projected cost of the project we are referring to, the national children's hospital, currently stands at €1.4 billion, though as another committee has heard it is possible it will go beyond that. In regard to my engagement on different projects, I note that I am updated on projects as issues surrounding them develop, if they develop. It is relatively rare-----
I received an update in one of the ongoing meetings I have with my team on health expenditure. At no point in any of those meetings did I have any indication that there was an issue on that project.
I concur with Deputy Michael McGrath. If I was the Minister for Finance, I would be absolutely seething. Let us go back to the point in November when the Minister became aware of this. Several weeks before that, one of the key issues he was dealing with was the budget. One of the key issues in the budget was Department of Health expenditure and the supplementary budget, which was not known to the Minister for Health or the Minister for Finance until the days running up to the budget. There were intense discussions between Departments and, I am sure, Ministers on the supplementary budget and the budget for 2019. The Department of Health knew of an overrun, as did the Minister for Health although he may not have been able to quantify it, but the Minister for Finance was kept completely in the dark and walked into the Dáil and presented a budget. Next week, he will have to tell us which projects will not go ahead due to an overrun that some people were aware of.
To be completely clear, I will be in a position to talk about projects throughout 2019. I am very confident at this point that we will be able to meet the additional costs arising from the national children's hospital and meet specific commitments for projects in the next year. I believe we will be able to do that.
In regard to the information that was available to me, when I became aware of this issue - I outlined the timing to Deputy McGrath, which the Minister for Health has confirmed - I became very heavily involved. I met the chairman of the National Paediatric Hospital Development Board and I had a lot of engagement with the Department of Health on the matter to see how it could be moved forward and resolved.
It happened in a meeting on 9 November. I do not know if it was the Minister for Health or one of his officials who made the information available. Shortly after that meeting I got a phone call from my team to let me know of the matter.
I am trying to figure out if there were enough red flags in the Department. Obviously, that was not the case up to that point. Was this a routine meeting, a meeting instigated by the Department of Public Expenditure and Reform or-----
I understand that the Minister of Health is a colleague of the Minister's. That said, is the Minister surprised that, in his direct engagement with the Minister for Health during the budget process and in identifying the Supplementary Estimate needed for the Department of Health, the Minister, Deputy Harris, did not inform him of what he was aware of at that time, namely, that the largest capital project undertaken by this Government faced a cost overrun?
I had an awful lot of engagement with the Minister on both current and capital issues. If he had raised the issue with me at that point, I would have asked him to do what he was then doing. At all points in the process, he was doing his best to manage a very complicated and challenging project.
Perhaps I can put it like this. Let us for one minute imagine that it was the Minister for Transport, Tourism and Sport, Deputy Shane Ross, who was in charge of this project. What would the Minister say to him?
As a former Minister for Transport, Tourism and Sport, I am equally aware of some of the challenges the current Minister, Deputy Ross, is facing. Regardless of the colleague involved, my attitude on this issue would be the same. A very serious issue has developed and it meant that both the Minister for Health and I were left with very difficult choices.
It is something that there have already been clear learnings from but this is also a project that will be transformative for children's healthcare in our country, which the Deputy is not doubting.
Nobody disputes that. The reality, however, is that there was awareness of this matter. The Minister for Public Expenditure and Reform cannot sit here and say it is okay for a Minister to be aware of a serious overrun on the major capital project of our time and not inform the Department of Public Expenditure and Reform or the line Minister, particularly in the middle of a budgetary process when he is bringing forward Estimates for expenditure for the following year. I am sure the Minister would not want the Minister for Transport, Tourism and Sport, Deputy Ross, or any other Minister to believe it is okay not to bring to the attention of the Minister for Public Expenditure and Reform an overrun of hundreds of millions of euro in his or her Department of which he or she is aware but which may not be fully quantified. He would not want to set as an example for Ministers that they can simply quantify the overrun and, once that work has been finished, bring up the matter in a routine meeting with officials of the Department of Public Expenditure and Reform. That would simply not be acceptable. I understand the difficult position the Minister is in, given that this involves his party colleague, but this is completely unacceptable. We have a Department of Public Expenditure and Reform for a reason. We will deal with this in more detail because we have asked the Secretary General of the Department to come before us. We need to ensure there are robust procedures in place for tracking public expenditure. We all thought that those procedures were in place. Is the Minister really sending out a message to line Ministers that if they are aware of a substantial overrun in a project, it does not really matter if they do not inform the Minister for Public Expenditure and Reform or the relevant officials for a number of months?
I acknowledge and I restate that there are aspects of how this project has developed and there are effects and consequences from which there will be clear learnings and that we will need to look at how this needs to be done differently. What is very challenging about this situation is that we manage and are responsible for hundreds of projects across the country that are delivered in the way we intended and on budget. A significant issue has developed with this flagship project. When the work of PwC has been completed, it will clearly be the subject of learnings regarding what needs to be done differently for a project of this scale in the future.
I move onto the issue of Brexit. We have asked questions on Brexit on numerous occasions but let us park the point that we all want to see the withdrawal agreement ratified and agree that is the best option to mitigate against Brexit. However, there is concern that the withdrawal agreement may not be the end product and we will have a disorderly Brexit. The Minister spoke about the impact on the State and gave figures which will be updated in April. He spoke of potentially more severe sectoral and regional impacts. The regions in question have been identified as the north west and south east. My county of Donegal in particular would be severely hit in the event of a disorderly Brexit. We need to start having a frank discussion. In the absence of physical infrastructure on the Border and in the context of a disorderly Brexit, is the Minister suggesting there will be no checks?
I am restating that we will not be involved in any procedure that leads to the development of checks on the Border. I want to be clear about that. In the event of a disorderly Brexit occurring, because the UK will become a third country, there will be checks in place for goods that are coming from the United Kingdom into Ireland.
That will have to be the subject of engagement that we have with the European Commission. In that case, given the shared objective of the Commission, the UK and Ireland of having no infrastructure on the Border to deal with this issue, we will have to have engagement with the Commission to see how the movement of goods would then be managed.
Is that the Government's position? The Government is very clear that there will be checks coming into Dublin Port, Rosslare Europort or wherever from Britain but coming from the North into the State, whether it is into Donegal or elsewhere are there literally no checks or will the checks happen somewhere else? I am trying to figure that out. I understand and I 100% support the line that there can be no physical infrastructure on the Border but what does that mean and how will the Commission facilitate that?
What we want to do is be in a position where we have as low friction trade as possible in the kind of scenario the Deputy is describing. To go back to what I have said, as the Deputy has just acknowledged, the whole reason we want a backstop in the first place is to avoid being in a scenario of having a risk to movement of goods on our Ireland. If we are in a situation of a disorderly Brexit and we do not have a backstop, trade offs and choices will need to be made on how that issue will be dealt with. However, I am afraid that at this point I cannot confirm to the Deputy what they will be because we will have to engage and work with the British Government and the European Commission. What I can say at this point is that we want to be in a situation where we have as low friction movement as is possible in the context of a disorderly Brexit taking place but for now we will have to restate the process that we will have to engage in with the Commission and the UK on how we would achieve that.
I welcome the Minister and his colleagues. I note the impact that a hard Brexit would have and I know that further financial work is being done by the Economic and Social Research Institute, ESRI and the Department. The Minister says that tax revenues would be lower and expenditure would rise and he says he is looking at the potential that the growth rates in 2019 could go to 2.7% from an estimated 4.2%, which is a reduction of 1.5% and a reduction of 0.85% from 3.6% in 2020. Can the Minister quantify the difference between what he believes the reduction in taxes and the increases in spending would be? What areas would that impact on? Can the Minister couple his answer on that with what would happen in the event of a hard Brexit? I read reports at the weekend that the European Commission might be looking at making supports available in the event of a hard Brexit so the Minister might comment on that area.
On the composition of taxes and spending that would be affected in a no deal scenario, the areas that would have the most immediate effect would be spending programmes that, for example, might be related to the consequences of people not being in work or having less work. For example, our social supports and Department of Employment Affairs and Social Protection spending programmes might be affected. The other area of spending would be related to the kind of mitigants and changes we are putting in place to help our economy cope with the consequences of a disorderly Brexit. The most immediate effect we would face on the budgetary side would be what would happen from a tax flow perspective. Within a tax flow perspective it would be taxes that are most associated with consumption such as VAT.
On what kind of engagement we have had with the Commission, much of it is on the different revenue, customs and transport issues we need to engage with it on. We are having preliminary discussions with it and they are preliminary in the sense that many of those discussions have to wait for the conclusion of Brexit and to see what type of Brexit actually happens to see what kind of supports might be needed and facilitated from a state aid point of view.
Are preliminary discussions around the potential of a hard Brexit and the contingencies being put in place around possible supports to aid export-oriented industries such as agriculture and manufacturing already under way?
On my use of the adjective "preliminary", I only said preliminary because they are contingent on an event that is still a number of weeks away.
We hope a disorderly Brexit does not happen. We, including the Minister, Deputy Heather Humphreys, in particular, have had a lot of engagement on the issue and Commissioner Vestager has confirmed that the Commission is ready to help with this matter. I think Commissioner Hogan has done the same.
The Minister referred to financial services firms having contingency plans in place by March 2019. What level of engagement has there been between his Department, the Central Bank and these firms? When does he anticipate that they will come back to the Department if they have such contingency plans in place? Our financial services sector is important to us, especially if there is a hard Brexit.
Most of the engagement that has taken place has been between the Central Bank and the firms or entities that it regulates. I met a deputy governor of the Central Bank, Mr. Ed Sibley, yesterday and it appears that all of the work that needs to be done to enable financial services entities to be ready for a disorderly Brexit has now either happened or is due to be completed in the coming weeks.
I will move on to the children's hospital. Everyone in Ireland thinks that we need to have the children's hospital. Sight of that may have been lost. People are right to question the sheer scale of the spending. What work has the Minister been able to do in his Department to quantify what he expects the final cost of the children's hospital to be? What cost has been incurred on the underground works? My understanding was that, in 2016, the hospital group went out to tender with a split tender for the underground works and the overground works. The underground works had a detailed designed and the overground works were preliminary. The underground works have preceded the overground works. What will be in place will be groundbreaking. It has been looked at for decades. More than 300 rooms will deal with children from around the country. Does the Minister have an idea what the final cost will be? If not, when does he anticipate that he will have that? What cost has been incurred on the underground works to date and how does that relate to taxpayers' money? Does he have an idea of the timeframe for it to be in place and operational?
The figures I have, which have been verified, are in line with the figures that the Secretary General of the Department of Health and Minister for Health indicated to the Joint Committee on Health. They outlined a figure of €1.4 billion, with different contingencies that could increase the figure. Those figures have been shared with us and we believe that they reflect the different issues that could develop in the hospital. I believe the target date for the hospital opening is between 2022 and 2023. I do not have information about how much money has been spent on the project but I can get it for the Senator as this meeting progresses.
Is the Minister satisfied with his Department's engagement with the hospital group, the Department of Health and the HSE? What is his view on managing the project in the future from his perspective in the Department of Public Expenditure and Reform?
The Minister spoke about contingencies. The expected cost is €1.4 billion. Has the board come back to outline the likelihood of any specific contingency happening? An issue with the project from a public perspective, which we are being asked about, is how much it will cost. When will we reach the point where we know definitively what the final cost of the project will be?
We are virtually at that point. This project is sharing figures that are based on the completion of a tendering process. Since the tendering process has taken place, it has yielded figures which have a high degree of certainty. Any potential change to them will be highlighted by PwC's work on the matter.
I believe all of the tendering projects for the hospital itself are now complete but I know in the figures that have been shared, which go up to €1.7 billion, that different contingencies are acknowledged.
Has a price been agreed on the tender? Ordinary people are asking if there is a cut-off point where a price has been agreed with BAM? Is this a fixed-price contract? Is there a built-in element of contingencies? This project has to proceed. It is important for the health and well-being of generations to come and has been flagged for decades. The Government has taken on the challenge and put it in place. Taking out any element of ambiguity, is the contract itself at a final price? I ask the Minister to take the mystique away from it and distil it to its final state.
It is the final price for the key building itself. I know that the Department of Health has outlined a number of possible contingencies. All of this will take place after a tendering process has concluded and we have greater clarity on what final prices will be.
I do not know if it was put up by the hospital group itself but I know the entity with responsibility for the delivery of the project and all related processes was the hospital board. The hospital board has responsibility for it but I want to make clear that I take responsibility for the final decisions on making funding available for the project.
I wish to ask a final question for clarity. I refer to further contingencies that could arise. I appreciate a contract has been agreed and signed off, with a cost of €1.4 billion for the main building of the hospital. Does that include underground and overground works or just the hospital building itself?
My understanding is that the different contingencies which have been outlined and which have led to some speculation about the higher costs going all the way up to €2 billion refer to further pieces of equipment or changes that might need to be made to the building once it is built.
The reason they are contingencies is that we do not yet have clarity on what the final cost will be. How each of those contingencies materialises will depend on whether a procurement process is under way in relation to it. I am pretty certain that as a consequence of all the scrutiny that now understandably surrounds this project, great efforts will be made to ensure that any confusion or lack of certainty around a figure will end quickly.
I would like to start with one question on the national children's hospital. If the Minister, Deputy Donohoe, was the Minister for Health and he was in discussions with the Minister for Finance as part of a pre-budget process, and he was aware of the overruns happening in the children's hospital, would he inform the Minister for Finance in those discussions?
-----about what would happen if I was doing another job. My hands are full doing the job I have at the moment. It would not be fair of me to comment on what I might do or say if I was in another situation. The Minister, Deputy Harris, was dealing with an exceptionally difficult situation, one of many that he has to deal with as Minister for Health. He dealt with this in the best way that he could at the time.
The Minister, Deputy Harris, has acknowledged that there are many aspects of this issue that have concerned him. That is one of the reasons a review of it is under way. I will not comment on what I might have done in those circumstances.
I will move on to Brexit and quote something Mr. Michel Barnier said a couple of weeks ago in an interview with the Luxembourg Times when talking about the possibility of a no-deal Brexit:
There will be checks in case of a no-deal-Brexit. We will do everything possible to enforce them unobtrusively. However, that will not be possible with everything. How should we control animals crossing the border? There will have to be checks. Again, the problem arose from Brexit and we expect the UK to take responsibility.
Does the Minister agree with Mr. Barnier that there will have to be checks on the North-South Border in the event of a no-deal Brexit?
We have already made clear that in the absence of an agreement we will not be putting those checks in place at the Border. In fairness to the European Commission and the British Government, they have all acknowledged their commitment to that objective as well. Regarding checks that are likely to develop, I have already said in dealing with questions Deputy Doherty put to me that it if the UK becomes a third country, the goods taken into our country from there need to be checked.
I have answered this question in this committee already but I am happy to say it again. The Irish Government has made clear that we will not be putting checks or procedures in place on our Border. The reasons for that transcend the discussion we are having about economics or trade policy.
I know the consequences of doing that would stretch all over our island and deeply affect the stability and peace that we have. It is for those reasons that the Government continues to be clear in its objective.
I agree with not participating in any hardening of borders because it would be disastrous economically and would potentially provoke a rise in sectarianism. In response to Deputy Pearse Doherty, the Minister indicated there would have to be engagement with the European Commission. Customs is obviously a European competence. If, in those engagements, the the European Commission took the view that the only way to meet the requirement to protect the Single Market would be to have border checks on the North-South Border, is the Minister clear that the Government would tell the European Commission that it would not impose any checks and there would be no hardening of borders?
Let me deal with that by going back to the questions from the Deputy's colleagues which I have dealt with. As I said in an interview earlier in the week, in that kind of scenario we would have to engage in a further negotiation, to which there would be three parties, namely, Ireland, the European Commission and the United Kingdom, on how the consequences of a disorderly Brexit would be managed on our island. I cannot give the Deputy a clear answer on what would be the outcome of that negotiation because in a disorderly Brexit scenario the consequences and challenges for the UK and Ireland would be great and trade-offs would be created regarding how we deal with the situation.
Will the Government refuse to be party to any hardening of the Border, as opposed to having a commitment or intention or whatever? In the event that there is no deal and no deal is reached subsequently, with the result that pressure comes from the European Commission to protect the Single Market, is it accurate to say the Government will still not agree to impose any hardening of the Border?
Hypothetical situations are sometimes the most difficult to manage. As I said, we will not be part of putting in place hard infrastructure on our island on the Border between North and South, nor is that our objective. The Commission, to which the Deputy referred, has been at the forefront of trying to avoid that happening. The challenge it would face would be in dealing with the consequences of a disorderly Brexit scenario for the protection of the integrity of the Single Market, to which it also has a strong commitment. We would then need to have an engagement with the Commission on how we can maintain the commitment we have to the Single Market, while avoiding infrastructure on the Border between North and South.
I do not know if the Minister is a regular reader of Waterford Whispers News website, which a couple of days ago featured the headline, Government Confirm Intention To Use Brexit As Excuse For Everything. Can the Minister understand why nurses would feel that is a pretty accurate description of the Government's use of the Brexit card?
I imagine there are citizens working in many different parts of the economy who now understand the effects Brexit will have on all of our prospects. If members of the nursing unions and nurses - I always say I have the height of respect for the work nurses do - feel that Brexit will affect their prospects, that is also the case with many others. Brexit will decisively shape decisions that this Government and future Governments will have to take.
Would the Government not be better off to engage in meaningful negotiations with the nurses, including about pay, give a commitment to pay parity and fundamentally to pay the nurses now rather than to have another day of strike action on Thursday, a major protest in support of the nurses on Saturday, three days of strike action next week and two days of strike action the following week? Is the Government not making a very serious mistake in trying to hold the hard line that it will not be able to hold because of the weight of public support behind the nurses?
I acknowledge and understand the support nurses have and we are all aware of the reasons for that support. I understand how popular their cause is at the moment because of the care they give and the professionalism they show at all times. While the Deputy is able to talk about the nurses in isolation, I am not. If a move is made in one part of our Civil Service and public service, every other part of our Civil Service and public service will expect the same. That is why we can only move forward in a way that is consistent with the overall wage agreement that we have and which I am trying to protect. A change for one public servant would become something expected by all.
The Government will not be able to sustain that position. As public support goes from passive to being active on Saturday, the Government will feel the weight of pressure to concede in favour of the workers. Other workers see that these issues are related; I do not see them as unrelated. Other workers also feel they need a pay rise and that their pay is not keeping up with cost-of-living increases, in particular the cost of accommodation. Will the Government not ultimately be forced to make a significant offer and, for example, sit down and talk about pay, which the non-offer of negotiations last night did not even include?
As the Taoiseach said, at a certain point a way will be found to solve this issue. I have much experience of how these issues have developed in the past. I have always seen a way for them to be resolved. I expect the same will happen here.
I know this is not a concern for the Deputy because he wants to see all public servants have their wages increase; he and I have debated this previously. The challenge we will face is what the financial consequences of this will be and whether we will be able to have another collective wage agreement. The Deputy and others have championed the cause of wage restoration. Through this agreement, which I am trying to protect, anybody who is on a salary of up to €35,000 is now earning more than they were in 2008 and anybody on a salary of up to €50,000 will now have their wages fully restored by the end of 2019. That is the kind of change the Deputy and others have championed and sought, and that is what this wage agreement is delivering. Therefore, he can understand why I am so eager to protect it.
If there is a change now for nurses, every other group not getting the same change will then feel the need to take action against the Government to make that happen. When the public sector wage bill is between a quarter and a third of total expenditure and given the Department we are talking about, the consequences of that for how we look after our national finances are enormous.
We are currently spending hundreds of millions of euro a year on agency nursing staff. Just before Christmas the Government agreed to pay off junior Anglo Irish Bank bondholders, who were supposedly burned, to the same amount it would cost to pay the total nurses' claim. The Government obviously has no interest in getting the Apple tax money. The Government is making choices and those choices are not to pay public servants, nurses, etc.,what they deserve and need to survive and what most people feel they should be paid but instead it is to protect the interest of the 1% in this country.
Given the charges and what we think we have learned from the past about not spending money we ultimately might not have, and if we were to lose the case, many other countries across the European Union and the world would come looking for that €14 billion. The Deputy knows it is not open to me to spend it because he understands what would happen in the event of our losing the case.
The Deputy is right to say payment was made to those bondholders after everyone higher up the creditor hierarchy was also paid. He also will be familiar with the successful efforts to try to get money back in respect of the different issues we had to deal with in the context of the collapse of our banking sector. He is aware of all this, but I know these charges-----
-----are easy to make. Of course, across the same period no depositor lost any money either. I am sure the Deputy would have been concerned if during the crisis period, people who had money in banks, ordinary depositors, had lost money as well. In every one of these cases what the Deputy is referring to is once-off amounts of money that, ultimately, he is saying should be used to fund ongoing wages. We have been down that path before, and look how it turned out.
That brings me to my final question because the Minister knows I am not just in favour of these once-off amounts being used in this way. I am in favour of, for example, increasing the amount of revenue we bring in through corporation tax, increasing income tax on high earners etc. That is ongoing revenue. I note that the Minister and the Government are now very concerned about issues of sovereignty. I can understand this in the context of how these dynamics will play out post Brexit. I am concerned about issues of sovereignty as I interpret the word to mean the right of elected bodies here to decide on matters that happen here. However, why is the Government's concern about sovereignty only ever expressed whenever we are talking about the potential for an increased need for taxation on big business? The Government was never concerned about sovereignty when it came to the fiscal treaty, of which the Minister was in favour, which clearly involved a restriction of sovereignty and a transfer of powers away from the national Parliament here to the European Commission? The Government was not concerned about sovereignty when it came to the Maastricht treaty, of which I presume the Minister was also in favour. The Government was not concerned about sovereignty when it came to the troika programme. Why are sovereignty and the green jersey only ever rolled out whenever it is possible that big business and multinationals will be faced with increased corporation tax, as opposed to when demands for increased austerity, restrictions on public service spending and so on are made by the European Commission or when structural changes in this regard are made through the likes of the fiscal treaty?
Arguments about sovereignty are articulated much of the time in respect of different issues in which I am involved. I hear them being raised as live issues in respect of climate change, for example. I would not for a moment make the case that they are just confined to issues of big business. I think the reason one hears sovereignty talked about the most regarding taxation is that it is such an important part of our economic sovereignty.
But decisions over public spending are not such an important part? What the Government signed up for and what it was in favour of when it came to the fiscal treaty were clearly related to sovereignty but the Government did not care.
-----which the people passed, and the benefits we receive in sharing that sovereignty are, I think, now well understood and have made a really big difference to the development of our economy and our society.
Is that whenever the fiscal rules are responsible for our not being able to use the money we have to build housing? Does the Minister think the excessive deficit procedure and the fact that we have this money in the pensions reserve fund and so on that we cannot use because of one of the fiscal rules are good things?
I thank the Minister for his opening statement.
First, how much are we losing per day with the nurses not working, the consultants idle and theatres lying idle because the nurses are not there? Deputy Donohoe would know as Minister for Finance.
The Minister said he is responsible for financial consequences. It is hugely important to all of us that we know the financial consequences of each day the nurses are out on strike because we are going to end up paying for those consequences.
I find it surprising that the Minister does not have the figure off the top of his head.
The Minister talked about the public service stability agreement. Clause 3 of that agreement allows for Government action for specific purposes. There is a recruitment and retention crisis within the health service. Does this clause not allow the Minister to sit down with the nurses and at least talk about pay with them?
It is the provision of that clause that has allowed us to make the recommendations we have made on the additional allowances, which were in turn recommended by the Public Service Pay Commission and which I have already said I will act on. The challenge we have with pay is, first, that there is an issue as to what the legal basis for changing wage rates would be, but the bigger issue we would face is the economic consequences of doing so, for the reasons I have outlined already.
The Minister has taken pay off the table, though. Nurses build up time in lieu because they cannot get out of work on time as there is not sufficient staffing for them to be released. As they end up having a number of hours each and every week that they cannot take, they are working for free. They are therefore subsidising the health service above and beyond their 39 hours. This is surely connected to the issue of pay and links into the recruitment and retention crisis we are trying to address.
The Senator is correct that the number of hours people work or do not work of course feeds into the effect that pay policy can have on anyone. As for the assertion she made about recruitment and retention and her description of it as a crisis, I go back to the learnings and conclusions of the Public Service Pay Commission's report, which I accept and which stated we do not have a generalised recruitment and retention difficulty. The report acknowledged, however, that we do have challenges within some sectors and some hospitals. This is why I have accepted the recommendations on specific allowances.
I will not spend further time on the matter, but the Minister knows it needs to be sorted sooner rather than later, and the committee really needs to know the daily figure for the financial consequences of the nurses' strike.
Moving on to the situation of the children's hospital, I think the reason people are so angry is that it is one of a whole line of procurement failures. People have lost confidence in those, including the Minister, who are managing the procurement process and continue using the procurement model that has led us to so many failures. These failures include the situation we faced with Carillion, which the committee examined; the national broadband plan; and JobPath, which will be discussed in the Dáil later this evening and in respect of which we have spent approximately €100 million on engaging private companies. We never saw the contracts that allowed JobPath to bring back thousands of vulnerable jobseekers again and again and get repaid for doing so, each job costing citizens over €3,000. It is because of all these issues together that I certainly do not have confidence in the procurement processes. I wonder how much more is happening beyond what we have had sight of and how much more money is being wasted. We compare this with the procurement rules for the smaller community organisations, the rural affairs organisations and the local authorities, which cannot buy a packet of biscuits without going through a rigid procurement process.
As the person with whom the buck stops, what would the Minister do differently about the national children's hospital if it was 18 or 12 months ago? Will he change the procurement models in use as they are not serving us?
I disagree with the Senator's claim that our general procurement policies are not working. Where we may differ is I do not think she envisages any role for the private sector in delivering projects, but I do. The tendering process we have used, which has worked a lot of the time for schools, primary care centres and road projects, involves the State tendering for the best value and then using its resources to deliver projects. While I accept and acknowledge the great difficulty with this phase of the national children's hospital, I can point to many other projects delivered through use of the private sector that have worked.
For me one of the key learnings arising from the national children's hospital is this we need to be more aware that if we set project prices at a particular point in the economic cycle, as we complete the actual tendering process, perhaps after several years, there can be a very big variance between what we thought it would cost and what it ends up costing. The degree of cost inflation in this project will have consequences for other projects in the future.
Does the Minister think we are granting tenders to bodies and companies that are purposely understating the price? They go in with a much lower price, knowing they can do so because there do not seem to be sufficient management structures, and then continually add to that figure. Are we not leaving ourselves open to a challenge? Others who have tendered at another price could come back and point out that their tender prices were much lower than the one the State has ended up paying. Would that not present a legal problem?
No. We make projects and tenders available to companies that are able to deliver them at the best value. Value has two different elements, namely, price and the quality of the work done. If it turned out, when procurement processes are reviewed, that an organisation made a project available to a company that was not the cheapest bidder, questions would be raised about whether we could have secured the project at a lower price. For that reason, if a firm offers a lower tender price for a project the probability is that it will secure that project. However, when Departments are making final decisions on matters they take account of other factors apart from the exact price.
Does the Minister not think we are wasting money hand over fist with a lot of these projects? I take his point about value and price. We all know the difference between the two. There do not appear to be any controls in place. That is one of the biggest problems. The other problem is that companies can offer any price that they want, ensure it is the lowest price, and then add on whatever other costs they want afterwards.
The controls on the vast majority of other projects that we do work. Of course we spend little time debating projects that communities need and which are delivered on time and on budget. I understand why those projects do not get the kind of scrutiny a project with this kind of difficulty deservedly does. I do not believe we have a situation of mass waste on our different projects. Those involved in making decisions on projects tend to want to find the most effective use of taxpayers' money.
However we are now finding that the cost inflation in some of our largest projects is higher than was anticipated when the decision to go ahead with them was made.
I will finish with that. I do not think that the capacity to deliver the projects, or the will to deliver them with real value for money, is there. I refer to JobPath. The Minister may have been involved in that, or perhaps the Taoiseach was. The Taoiseach was the Minister in charge at the time. I raised JobPath and the waste of money involved in it with him before he was Taoiseach. The Local Employment Service Network, LESN, is publicly funded. The State contracts private companies and pays them €100 million. We will be examining that further in another forum.
We are here to discuss Brexit. On that topic, has the Government formally requested the use of the European Globalisation Adjustment Fund? We all agree on one thing. As the Minister said, we are in very exceptional circumstances. The fund could be used to address some of the problems companies will face.
Access to the European Globalisation Adjustment Fund is a policy area for the Minister for Business, Enterprise and Innovation. She has had wide-ranging discussions with the Commission about the various kinds of supports that might be needed.
Has the Government made a formal request for that to be done? Whether there is a hard or soft Brexit, I am concerned about the gap between 29 March and the point when funding will be available on the necessary scale, particularly in the regions which may face a downturn, as the Minister noted. I am afraid that during that gap many businesses will go to the wall. That is why I think we should be front-loading some of these schemes. I refer to schemes that small and medium-sized enterprises, SMEs, can access without much bureaucracy. There is a fear that while some loans and supports are available, they are not available on the scale that we need. Moreover, the derogations from the state aid rules need to be maximised at this stage. Regardless of what kind of Brexit we end up with, front-loading those projects would help to mitigate some of the consequences.
The provider of the majority of resources in the early days of a disorderly Brexit will have to be the Irish Government because we are fundamentally responsible for looking after our own economy and our own citizens. The main support we will quickly need from the European Commission will be the sufficient policy flexibility to make funding available.
From the discussions I have had with the Commission to date I believe there will be. The Commission's intention is to support Ireland in the various challenges we could face. In regard to what we will do for SMEs, we will do all we can to provide support and help to different parts of our economy in the event of a disorderly Brexit. I do not want to understate just how challenging and disruptive that will be. Any Brexit scenario we could face will be different from the status quo. The Government, with support from Europe, will provide help and support.
It will still be very different from today.
I know much of that thinking is going on in the Department of Agriculture, Food and the Marine, which is involved with the part of our economy that would be most severely affected, including those who work in our food and food export business. It has done a lot of work about how that would happen.
The main provider of support for any economy in a shock like that will be the home Government. We will need flexibility from the European Commission in a number of different areas. It is possible that there will be a need for additional support from it. The main area in which we are most likely to have to deal with that will be the export of food.
The Minister knows that a new agricultural scheme or such would take months to put in place, that the IT system will not always match up, and that checks and balances need to be done. If the structure is not yet identified for how that will be delivered, if it is to be delivered, that would concern me.
All I can do is reassure the Senator that, in those circumstances, we would move with all the speed that we can to provide support to those who are in difficulty. I emphasise that no matter what support we can supply, a disorderly Brexit will pose a significant challenge to the Irish economy. That will mean change for all who are affected by it.
Such a thing is not ordinary. With regard to state aid, projects such as the western rail corridor, Knock Airport and others in the regions have to be front-loaded. I know the Minister has the national development plan and such but we need to see more urgency there.
Capital expenditure for this year is up by 24% compared with a year ago. I hope it will become clearer that the decision in budget 2019 to target such a large amount of additional capital expenditure in this year was the right year to choose for the Irish economy.
Can I clarify something raised by Senator Conway-Walsh relating to procurement and the ability of Departments and so on to deal with procurement issues and overruns? It appears to me from listening to the exchanges here that the Department of Health was the bad apple in this barrel. It has a history of overruns. It cannot live within its budget year to year. It seems to have contaminated that process and the communications systems between the board, the Department of Health and the Department of Public Expenditure and Reform. It is not so much the procurement process. People in responsible positions seem to have failed to carry out their full duty to report the expected measure of overspend. I imagine these are not junior officials but senior officials within the Civil Service who should be more aware of the budgetary and political consequences. There was a failure of communication within the Minister's Department and I heard clearly what the former Minister, Deputy Howlin, said today about reporting and such.
The clarification sought by Senator Kieran O'Donnell was about the final cost. The Minister said that it was €1.4 billion but may go beyond that. A figure of €1.7 billion was mentioned, and another of €2 billion. Are the groundworks included in the €1.4 billion?
I have respectfully to take a different view from the Chairman on that. I acknowledge the learning that we have from this project and, as others have, I highlight the importance of the project. I have much engagement with the Department of Health with regard to different figures that turn out to be right or which we are able to verify.
Would the Minister acknowledge that it failed him in this? This was a failure of the management not just of the budget but of a plan and tendering process. Nobody seems to have been held accountable about who did not report to a person or Department. I am reflecting what was said at the meeting here. It arose in June, the Minister introduced the budget in October and people began to learn of the overrun towards the end of last year. It is shocking and I know that we often do not acknowledge the projects that come in on time, but when we get it wrong, we get it spectacularly wrong.
As the Chairman just said, we have many other projects which come in as expected and on time. I am gravely concerned about the scale of the additional cost for a project this big and have to be involved in the management of it. From the moment at which I became aware of the issue and its scale, I had a significant amount of engagement with the Department of Health on it.
It was a serious question and it was treated in a serious way. My understanding of the contract is that it will be structured with regard to how long it will take to do and we will yield the cost at the end of it. I do not expect that there will be any overrun in delivering that report.
The Minister might inform us about that. We spoke about the overrun for 2019. How much money will be required above what the Minister or the Department of Health budgeted for? How much will it have to find for this contract in 2019?
Many of the points have been covered. I thank the Minister for being here and his opening remarks. Those of us in the Upper House get fewer chances to see him as we cannot see him at select committees. It is good that he is here and I have a number of points to put to him. What is his opinion on the chances of a no-deal scenario emerging?
I thank the Minister and appreciate the position in which he find himself. He mentioned some unilateral temporary measures. In that regard, he referenced aviation. Will he give us an idea of what some of these unilateral temporary measures might be, giving real and concrete examples?
The Commission and the United Kingdom are engaging with each other, working on an agreement that would put in place a contingency regulation for air connectivity, providing for a time extension of seven months to allow airlines, particularly airlines impacted on by ownership rules, to implement restructuring plans, subject to certain conditions.
I thank the Minister. I was not clear on that matter. The Minister made reference to the level of unemployment increasing by approximately 2% and a deficit of 1% in gross domestic product. In absolute numbers, what are we talking about in the level of unemployment? Equally, what amount of euro would equate to a deficit of 1%?
In our current central scenario, where there is an agreement and a transitionary period, in 2019 the number of people at work will be 2.32 million, an increase on the base figure of 2.259 million. In a no-deal scenario in 2019 we anticipate 15,000 fewer jobs being created than would have otherwise happened. In 2020 we believe 52,000 fewer jobs would be created.
No, although perhaps we are splitting hairs. There would be 52,000 fewer jobs created. This means that more jobs would be created than in a previous year but fewer jobs would be created in a no-deal scenario.
That is as full-time equivalents or whatever else. Fewer were jobs would be created, which is a separate point. I thank the Minister for clarifying the matter.
The Minister stated some of the figures may be conservative, but I argue that they are not conservative enough because we are talking about a central scenario. Do we have figures for worst case scenarios and the least worst or best case scenario?
Not really. If we were to publish many scenarios and their economic consequences, it would undermine the utility of the work done in the first place. What we have just said is based on the best information available to us and it is what we think is most likely to happen.
Okay. I can appreciate the sensitivity and the Minister not wanting to announce to the wider world what is the worst and best case scenario. I presume the Department is preparing figures for a worst case scenario rather than the central scenario. It is not just looking at what will happen if everything goes reasonably okay.
We have not done anything beyond what we have already published. We have a central case scenario which was included on budget day and there is a no-deal scenario, the figures for which I published last week. We do not have a secret set of figures beyond them.
I am not accusing the Department of having a secret set of figures. I could understand it if the Department had many iterations of what was ongoing and that it might not necessarily want to share figures for a "nuclear fallout" or worst case scenario. The Minister is saying the most likely scenario affects the creation of approximately 50,000 jobs and that there would be more people on the live register, etc.
I will touch on a very small point raised last week related to VAT on food supplements. I appreciate that nobody else has covered it, but we have been considering it as a committee. Most members have highlighted it both here and in the Seanad and the Dáil. I appreciate the independence of the Revenue Commissioners. The Minister took the relevant Bill on Committee Stage, but the Minister of State, Deputy D'Arcy, took the final part of the debate on Report Stage. He mentioned that when the tax strategy group reported, it would bring clarity to the matter. Would it not be better for the Minister to ask the Revenue Commissioners to consider holding off on implementation of the change on 1 March until the report is published?
The Senator has been good enough to acknowledge the independence of the Revenue Commissioners in the first place. Therefore, I cannot ask them to do something in how they interpret the law. It is all part and parcel of recognising that they are independent and evaluate tax law as they see fit. I have had much contact about this matter and the Senator is aware of its origins. The Revenue Commissioners have formed a view that the application of VAT in the sector was straining, with more products included than they felt was appropriate. I am reviewing the position because I have received correspondence on it.
We are talking about if there is any space for anything to be done on the matter and there may not be. It refers to the interpretation of the law. I hope to be in a position where I can conclude looking at the matter in the next few days.
I thank the Minister. I accept that this affects a broad range of products and that not everything is as good as other products. Quite often it is elderly people or those who are genuinely very unwell with chronic illnesses who buy some food supplements to help with whatever conditions they have. Their prices will increase by almost one quarter if a VAT rate of 23% is applied to them. It will have a significant impact on some people, often those who are not terribly well and do not have sufficient income. I appreciate that not all food supplements are amazing, but many have beneficial qualities; therefore, if people do not take them, they could end up using the health service, costing us €700 or €800 per day or whatever the daily rate is. There might be false economy as we might only receive a little in VAT. I have highlighted the independence of the Revenue Commissioners and take on board the fact that the Minister is carrying out a review. It might be false economy for the State to gain a little in VAT when half of the people might no longer buy the products and they later become sick and have to go to doctors to claim other and more expensive products. We should bear this in mind.
There is the matter of taxation.
I will attend the OECD next week on behalf of the committee. The Minister has done a great deal of work with the OECD on addressing global concerns about the loss of tax revenues from various companies. Unfortunately, we have a certain reputation. Like the Minister, I defend Ireland and point out that we are not seeking the €13 billion, given that it was not earned here and does not belong to us. When the Minister meets other finance Ministers and, presumably, is sometimes accused of collecting revenues greater than he is entitled to, what is his line?
Simply that we are not, and that we are earning taxation on economic activity and value created inside our jurisdiction. It depends on what kind of finance Minister one is talking to and from where he or she comes. Finance Ministers from exporting economies tend to understand our point quickly.
I suppose the Minister did not dwell on the European Commission's proposal in his opening statement because he had much more to say. Is it fair to say that, given the veto possessed by Ireland and other countries, the proposal will not proceed any further and is dead in the water?
Regarding the hospital, much has been examined. I am the chair of a school board that sometimes considers building an extension and looks at various prices. I understand building inflation and initial guesstimates, but we are talking about a cost that started at €600 million or €650 million nearly tripling. Some people say it might even hit €2 billion. We are not far off tripling the initial cost now, which is a significant increase on what is the largest project in the State. It will be the most expensive hospital ever built per room. The State owned the land, so did not even have to buy any. Has the Minister any indication as to why a project that was supposed to cost €650 million not that long ago will now not give the Exchequer much change back out of €2 billion? It cannot all be building inflation. Building inflation in Dublin is not anything remotely like that, and I was even surprised when I heard that rate was 4% to 6%. A sum of €500,000 will be spent on a more in-depth costing, but there must be an initial figure. The Minister stated that the Minister for Health, Deputy Harris, has done all of the work that he would have asked him to do had he told him in the first place. He has done a great deal of work and examined all of the issues. What has he found?
There are three factors that I am clear on that have contributed to the issue facing us, the first of which is the general effect of cost inflation. Cost inflation has grown at a quicker pace than was anticipated when the original figures for the project were identified. Second, a number of specialised forms of work need to be done and have, in turn, become even more expensive, for example, electrical engineering. Third, as the project was being moved forward, the clinical standards and design of the hospital began to evolve, which had an effect on the cost.
Was none of those reasons, including clinical standards, anticipated? Hospitals are built all over the world all of the time. I am sure that this hospital will be best practice - it would want to be at this price - but surely many of those reasons should have anticipated by the quantity surveyors and architects, officials in the Department of Health or people involved in the project team. I do not expect the Minister, with two Departments to run, to look over plans and go through everything on a line-by-line basis, but were there not processes in place that could have anticipated these developments before someone even said the project would cost €650 million? Perhaps if these figures were examined earlier, the project might have gone to a different site. I am not saying it should do so, particularly at this stage, but perhaps someone would have said that €2 billion was far too much and suggested doing something else in a different way on a greenfield site where building would not have to be done in an inner city, built-up area. Why was some of this not anticipated?
It was anticipated, but the magnitude of change was even bigger than anticipated. If a rate of cost inflation shifts even a little in a given year, the compound effect of that over four to five years has a significant effect on the project.
It would have some effect, but no one looking at this proposal would expect the projected cost to almost triple. The Minister is a fair person, and if he were sitting here and I were sitting there, he would challenge me on how the cost tripled.
I want to address that point. All of the individuals who have been working on this project are competent and professional and have been dedicated to trying to deliver it. There were issues with the project's initial estimate and how the higher cost was shared. As I became aware of this issue in the timings that I indicated to the committee, I met many of the individuals involved. They are very skilled professionals. However, the cost of this project and how that cost was shared are issues of grave concern to me.
Was the figure of €650 million unrealistic? It was in hindsight, but is the Minister concerned that it was pitched low - contractors sometimes do that, although I am not saying that €650 million was the contractor's figure - so that people would think they could live with that amount? Should it always have been €1.4 billion or €1.6 billion? Why was it so low? Although we can kick that question off to the PwC report, there must have been some initial sense. The Minister, Deputy Harris, is busy trying to run the Department of Health, but this is the largest project in the State and will undoubtedly outlive all of us. Was the figure lowballed at €650 million to get the project over the line in the public's view? No one would have agreed to build the most expensive hospital in the world. The Minister, Deputy Donohoe, would not have said that.
I do not believe that the figure was lowballed to influence our decision on going ahead with the project. I also do not believe it was lowballed to influence the choice of site. However, it is clear in retrospect that the initial figure was too low versus the cost we have now. When the €650 million figure was identified, which would have been in 2012 or 2013, it was based on expectations of what would happen with cost inflation and in delivering the project. It is obvious now that there has been significant change in all of those costs.
I thank the Minister for his response. My concern is that, if the machinery of the State got this so wrong, it might end up being €3 billion or €4 billion. How can we say with any certainty that the new figures are right if all of the previous figures so far have been proved so wrong?
I will take 30 seconds to raise one other issue. I have mentioned to the Minister the major issue with staff recruitment and retention, especially in the greater Dublin area. The pay of public servants, in particular, is not rising at the same rate as in companies such as Facebook, Google, eBay and PayPal. It is great that people in those companies are earning as much as they are, but they are driving up the cost of everything for many other people. The Minister needs to examine this issue. In schools all over Dublin, probably including the Minister's constituency, teachers are travelling-----
Another 30 seconds, if the Chairman does not mind. It is difficult to get people if they have to travel two or three hours per day each way. That is not conducive to good teaching, good nursing, good policing or whatever. This matter must be examined. If we could drive down the cost of housing and make it more affordable, perhaps they would not need the same rate of pay. At the moment, though, we are facing a challenge.
I am aware of that and understand that the cost of living is a big challenge for those at the beginning of their careers, particularly in Dublin. That is why we have created the Land Development Agency and why we are seeking to make progress in the provision of affordable housing.
On the point about higher costs, I do not believe we will approach the figures the Senator mentioned. The main reason for that is that we are now clear about the exact tendered price rather than the anticipated price. We are now debating prices after the tendering process is complete for key parts of the hospital. For those reasons I do not believe we will be looking at the kind of changes the Senator has suggested.
Quite a few of the questions I had intended to ask have been asked, so we will not go over that ground again. Some figures mentioned as possible price tags for the children's hospital include €950 million and €1.4 billion. Has there been a tendering process all along which led to all of those increases? Was there a main contract in the first instance which was supplemented by invoices from the main contractor? Will tendering processes continue until the end of project?
There will be tendering processes on an ongoing basis. Much of what we are referring to is the key tendering process which will deliver the hospital building itself. The vast majority of expenditure we have referred to has yet to be spent.
Has it all been tendered? From what we have read in the papers it seems that BAM won the tender bid because it bid €130 million lower than the next lowest offer. There was a tendering process after the initial contract, all the way along. The public can be fully assured that it is not just extras that is driving the cost of this towards €2 billion.
On Brexit, we had a discussion with the Revenue Commissioners last week about sealed containers going through a third country, for example, sealed containers travelling from Ireland, through the UK and onwards to Europe. Will there be a requirement for sealed containers from Northern Ireland travelling through southern Ireland, into the UK and on to Europe? Will they be treated in the same way? Will the container that has to be sealed in Northern Ireland be treated in the same way as sealed containers from southern Ireland?
That will be the subject of engagement we have with the European Commission. If a withdrawal treaty is implemented and has a backstop contained in it, we know that if the future trading relationship between the UK and the EU does not allow the movement of goods between Northern Ireland into Ireland, it is very likely that the backstop will be operational. In that case, there will be regulatory alignment between the North and the South, which will entail the free movement of goods. If we do not have an agreement and a disorderly environment prevails, the movement of that truck will have to be determined by processes agreed between the European Commission, the UK and Ireland.
A lorry in the North might be treated differently from a lorry in the South. The lorry in the North, if travelling through the UK, would not be seen as going through a third country, whereas the lorry from southern Ireland, if travelling through the UK, would be seen as travelling through a third country. How is that situation going to pan out if there is to be no border?
The Senator has identified the reason we have been working so hard to make sure there will not be a border. We want to make sure that those trucks are able to move in a frictionless way. In the context of an orderly Brexit occurring with a backstop in place, that process can be managed, which in my opinion is the best option open to Ireland, the UK and the European Union.
In the event that we do not reach an agreement, the management of that truck will be the subject of engagement between the European Commission, Ireland and the UK.
I can foresee a situation where one lorry would have to be treated differently from the other. I am sure the container travelling from Northern Ireland through the UK would not have to be sealed going through the UK, whereas containers travelling from the South would have to be sealed.
The Minister mentioned air transport and that a number of unilateral, limited and temporary measures will be put in place in that area. Will he outline what he means? Does that apply to freight or to passenger traffic? Will it apply to all airports, including Ireland West Airport? Is it mainly-----
Currently, aviation law for EU member states is covered by the single European skies agreement. In the absence of that, there would have to be an agreement in place to cover how access would be managed and the circumstances under which it would happen. One of the key issues, on which I know the Department of Transport, Tourism and Sport has been engaging, is that a key principle of European aviation is that any air carrier wishing to operate in the single aviation market has to have a majority ownership of EU nationals. Time is being allowed to international airlines to restructure to ensure that the access they currently have across the EU is maintained for a period.
Yes, because if we have an orderly agreement, we will then have a transition period in which all of this can be worked out. In the absence of such an agreement, this would have to be done quicker. A seven-month period is being made available to airlines to allow them to restructure if necessary.
The nature of the legislation is really a matter for the Minister for Transport, Tourism and Sport, but I will try to answer the Senator's question. Many of the changes necessary in this area will be made by the European Commission. Any changes we have to make domestically are a matter for the Minister for Transport, Tourism and Sport.
On the transport of goods, many transport companies have their own storage. We have heard that 600 extra staff are being taken on by the Department of Finance or the Revenue Commissioners to help deal with Brexit. I am sure that many of those companies, whether the manufacturing companies which have their own storage facilities or an independent storage company that warehouses goods on their behalf, whether coming to or going out of Ireland, will get full support from the Revenue Commissioners and customs officers on what they have to do to meet requirements. How quickly will they be told what to do?
Much work has already happened in that area. There are two things happening specifically. The Revenue Commissioners are either organising seminars or are engaging with representative bodies in different sectors of the economy, explaining to those bodies the kinds of requirements necessary to deal with a third country. To be clear, even though the Revenue Commissioners will be able to give a lot of support and advice on the situation in the event of a disorderly Brexit, it will involve change for individual companies and will affect their costs bases and how they supply goods.
At this point, what the Revenue Commissioners can do is indicate to people the change that is likely to happen and give them enough time to plan for it. There will be change, however.
I will ask the Minister a question on an issue that is troubling all of us, namely, the overrun on the new national children's hospital. This has implications for the health budget, the whole capital programme, other budgets and the competence of the State to deliver large-scale capital projects. I was prompted to ask a question when the Minister outlined the three main reasons for the overrun, namely, general cost inflation in construction, a lack of understanding around the technology costs such as cabling and changing clinical standards. Those seem to be the three main reasons for the cost overrun. If one talks to people around town who are involved in large-scale capital construction projects, they say the main reason was that the State sought an initial cost estimate before the detailed design drawings had been done. They say it was a political imperative that pushed the process and it was to get political kudos by showing the Government was delivering and acting quickly. We did not get our ducks in a row. We got a costing based on planning drawings rather than detailed construction drawings. That is one of the reasons for the massive overrun. The eventual contract winner, BAM Ireland, had the State over a barrel because the deal was done before we knew what we were getting into. When I ask people around town with real expertise in capital construction, quantity surveying and other areas, that is what they tell me. They do not say anything about changing clinical standards. They say that for political reasons the State pushed the bidding process in the wrong way and that is why we are in trouble. Does the Minister wish to comment on that?
I do not agree with that. The other interpretation of the Deputy's comments is that the reason the State was trying to build this hospital quickly was that this particular project had been the subject of much debate and discussion for a long time. One of the benefits of the PwC review that is under way is that it may offer further views and insights on this issue. However, the three reasons I have outlined to the committee are the factors that had the biggest effect on this project.
I have heard we had the project priced before the detailed design had been done and this put us in a very weak position when it came to pricing because the contract was already signed, sealed and delivered. It is not as if cabling technology or hospital technology are changing that quickly. The bidder was able to bid without the final design. While there are other issues, for example, a difficult site, I am told the main reason for the overrun is that there was a political imperative to be seen to be announcing good things and this pushed us to sign a contract before we had the detailed designs. That is what people around town are telling me.
I am not in a position to comment on what people around town are saying about this project. What I can comment on is the work I have done to date in trying to understand the key reasons this project is costing more than had been anticipated. I have outlined those reasons. It occurred to me, as the Deputy outlined what he is hearing elsewhere, that such comments may in part be driven by the fact that the design and specification of the project heightened as it went on and, in turn, that created some of the cost difficulty we are now dealing with.
I would appreciate if the Minister could send me a note setting out exact timelines, the bidding approach, the level of project design drawings when each of the bidding stages took place and when the final contract was agreed. As I said, I am going on anecdotal evidence from people I trust in Dublin who are involved in this area. I am just reporting back to the Minister what is being said to me. It would be very useful to get a very detailed analysis, possibly as part of the PwC report.
I would love to be able to get that level of detail on the various stages of the bidding process and the stages at which the design was when the bidding took place in order that I can check if my friends are correct.
I will make just one point on the new national children's hospital and it relates to taxation. I heard the point made by Deputy Eamon Ryan on the overrun. There is no doubt that construction inflation would have been factored into costs. Every project has construction inflation factored into it. Inflation has exceeded what was expected. Will the Minister outline what rate of inflation was factored in for the project and what has materialised?
On upgrades or enhancements to the hospital project, all of those would have been sanctioned at a point in time. One cannot decide to build a road and then turn it into a dual carriageway without having sanction from the Department. None of this explains this whopper of an overrun - €500 million - that just materialised because these increases would have had to be factored in and those estimates of the additional inflation would have been known. If I am building a four bedroom house and I decide to make it an eight bedroom house, I will factor in the costs at that point. It is not as if I would decide to turn it into an eight bedroom house and the cost will be the same. I do not understand how this overrun happened.
A number of major projects are due to be rolled out in the next few years. I have a clear view that the Minister was asleep at the wheel on this and took a hands-off approach. The fact that the Minister for Health did not even bother to lift the phone or speak to the Minister for Public Expenditure and Reform in the corridor to say the national children's hospital had bust the bank and was running €500 million over budget or did not have his officials inform the Minister's officials in a routine meeting is bizarre stuff. It shows complete incompetence at Government level and alaissez-faireattitude to the public purse and spending. It is clear that the Minister for Public Expenditure and Reform was not over this issue and was not keeping a running look at what was happening, given that so many people in his Department and other Departments were aware of this and he was kept completely in the dark.
How can the Minister satisfy this committee that this will not happen with other projects and that there are robust procedures in place for projects such as MetroLink and we will not see another overrun of a couple of hundred million euro in a couple of months or years? We had come out of this type of approach taken in the old Fianna Fáil era, no harm to it, in terms of the back of the envelope stuff. This was all supposed to be a thing of the past and a relic of our history. This is why the International Monetary Fund, IMF, suggested that the Minister have a tracking monitor within his Department to monitor capital projects. It is why there are robust rules in place for reporting to Cabinet on projects costing more than €100 million. The Minister was completely asleep. How can he instil any confidence in us that he has got to grips with this issue? It appears the Cabinet is dysfunctional. I am sure the Minister and the Minister for Health, Deputy Harris talk. I am sure they chat and meet each other in the corridor, at Cabinet meetings and at different events. Did the Minister for Health raise the issue with the Minister personally after the Minister's officials were told by the Minister for Health's officials and then contacted the Minister? Did they ever have a conversation about this issue? It is bizarre that there has been such an overrun and the two Ministers responsible did not have a conversation to relay that information directly, but allowed their officials to bring it up in a routine meeting.
I cannot remember now but we had multiple meetings and discussions on this matter. The Deputy will make his mind up on my stewardship or management of public money. I make the point again that we have multiple other projects across the State that are smaller than this but cumulatively far bigger in value that come in on budget and are delivered in the way the country wants.
Clearly, we have a flagship project here that involved a lot of complexity in cost. I have acknowledged that there are clear learnings from it regarding how information was shared and the consequences that it posed for me but if one looks at the many projects we have delivered, procurement processes worked well and good projects were delivered. This is clearly a project in terms of the scale of money and its importance and we must look at what went wrong and what could be done differently for other comparable projects.
I accept responsibility in relation to this. I have responsibility for how the taxpayers' money is spent. Regardless of the different governance questions or the different boards, I accept responsibility for how the public's money is spent. That is why I am doing two things. The first is that I will look at other comparable projects that we have of this size from a tendering and governance point of view to see whether there are any learnings that are transferable. Second, I have been involved intensively in this phase of the project since early November and I have been looking at what is the right thing to do. In addition to accepting responsibility for where we stand, I also accept responsibility for all of the other projects that happen in the way the public wants but I understand the reason scrutiny is happening on this project.
Given his assessment of the situation currently, does the Minister envisage any scenario where we will see a reduction in the cost of the national children's hospital, in line with what is in the public domain? Can he satisfy us that we are not going to see further significant overruns on the project that could drag it closer to the figure that was given to the Committee of Public Accounts of €2 billion, which the Minister disputed earlier?
No, I am asking two questions. What is the Minister's assessment of the potential for the project to come in under the figure that is in the public domain, and what is the risk of it being in excess of that and creeping towards €2 billion?
If it does come in below €1.4 billion, my judgment at this point is that it would do so by a small amount. The reason for that is we are referring to many costs that have now been tendered. As to whether I believe it will go above the larger figures that have been quoted at the Committee of Public Accounts and elsewhere, at this point I do not, but clearly as we look at how this project is going to be managed moving forward, I need to ensure that it does not happen.
I wish to ask the Minister about taxation. There has been a continuous effort to try to centralise tax sovereignty and remove our tax decision powers from us as a sovereign state. That is ongoing. The Minister made that point in respect of the passerelle clause. Is it his position that we would be told of any such proposal to move from unanimity to qualified majority voting on taxation matters? Is he crystal clear that it is not an issue for discussion and that our tax sovereignty will remain as it is, and whatever about other member states trying to pool that sovereignty, Ireland will stand firm on the issue?
I will not agree to anything that will undermine our decision-making ability on taxation policy. There are two issues. The first is that I do not believe it would to the point in which we would have conversations about a veto on this issue. The reason for that is I know many other countries share our concerns. The protections that we have, such as through the Lisbon treaty, or all of the debates that I have been involved in on this issue, means that I will not agree to anything that will undermine our ability to set our tax policy in key areas.
One of the states that was in our corner in this regard was the UK, which is about to leave the EU and that changes the political dynamic in Europe. I welcome the fact that it will be resisted, and rightly so.
We have had many discussions about the BEPS process, the Minister will be aware that last week that the OECD issued a policy note on the inclusive framework addressing tax challenges in the digital economy. For the first time it has talked about the allocation of taxing rights. That is a significant move from the OECD in respect of the BEPS process. It is in the chapter on the proposed way forward where it suggests a pay-where-you-earn scenario, as opposed to where the physical infrastructure is and where the employees are. That would be a significant issue for Ireland given the number of companies that are taxed here. If we had a pay-as-you-earn scenario, the State's revenue would be significantly reduced. What is Ireland's position on the proposal? Is it the case that Ireland will resist that? Does it not flag up as well the vulnerability of some of our taxation positions if this were to take place, given the heavy reliance on a number of companies, regardless of whether they remain here, in the future? There would be a significant reduction in taxation accrued from them.
The particular section to which the Deputy is referring, namely, the allocation of taxing rights, would have a significant effect on the tax base in the future. However, many other countries within the OECD have a similar concern and many other companies involved in this process also have concerns regarding their global business models and how they would be able to internationalise their businesses. I accept that there is a particular section within the report that would be definitely a challenge for us but, on the other hand, there are other proposals in the OECD report that offer a basis for engagement as well. We have a long road ahead of us now in the OECD process to try to see whether we can get to a similar place as we did on BEPS.
It is, but this is a document it is putting forward to now use as a basis for discussion between different countries. While there are some elements in there that we will have to work on, other elements could offer a way in which we can move forward on the issue in a globally co-ordinated way that would be better for Ireland. My team and I need to do a lot of work and engagement on the issue.
I wish to make a point on insurance because it is important for people to have an insurance policy. The Minister referred to insurance companies, some of whom have contingency planning, but there are issues with others who have not done that in the UK and Malta. In the context of Brexit, what does that mean for a consumer who might be listening to the debate? If I was watching the committee proceedings, I would not understand what it means. Does it mean my insurance policy could come to an end on 29 March? What does it mean in practice for those companies that have not done the proper contingency planning and that are located in Malta or the UK and are passporting into Ireland? Will that information be publicly available to consumers who may be considering renewing their policies at this point in time?
What it means is that in the absence of any change here, if one has bought an insurance product from a company that is based in either of those jurisdictions and if a disorderly Brexit were to take place without any change, it would lose the ability to sell those products in Ireland. However, in the Brexit omnibus Bill that we are bringing forward, we have a section allowing a three-year window within which products that have been made available from those two jurisdictions would still be operable here in Ireland.
My message to consumers who may have those products is when our legislation is passed, there will be a three-year window during which their current rights and protections will be maintained, but people need to be aware that after the three-year window there may be choices they have to make to ensure their home or business continues to be insured in the future.
With regard to value for money, the role of the Comptroller and Auditor General, and PwC, would it not be more fitting for such a report to be concluded by the Comptroller and Auditor General, or is it the Minister's intention to involve the Comptroller and Auditor General following the PwC review?
It might be but, as the Chairman may be aware, it is not up to me to direct or ask the Comptroller and Auditor General to do work like that. It is up to the Comptroller and Auditor General himself and his office to determine what they want to review and where they want to make inquires.
As part of the narrative out there on the children's hospital, I believe it would be worthwhile to give that comprehensive response to the committee with regard to the queries raised by Deputy Ryan in his contribution.
We have not had time to deal in detail with the 23% VAT to be imposed on food supplements. I understand that the Minister's reply was that a review was being undertaken-----
It is worthwhile considering that there are lower levels of VAT on some fast foods, yet there will be 23% VAT on food supplements. I hope the Minister might consider that because it will have major implications for the businesses involved and for the individuals who rely on such supplements. I hope he can come to a speedy and positive conclusion on it.
On nurses' pay, I wish to highlight that psychiatric nurses are not doing overtime. The psychiatric service is pushed to the pin of its collar to deliver the type of services on demand required by people who turn up to avail of them. I have no doubt that the ban on overtime is going to affect that cohort of patients in a very negative way, just as much as those who have had operations cancelled and so on. After this there will be a significant buildup of issues to be dealt with in the context of patients and patient safety. All of us have been in and out of hospitals as patients or as visitors. This situation has gone on for a long number of years; it has not just happened now. Nurses are under serious pressure on wards and it is caused by lack of appropriate ratios of nurses to patients. I believe that some intervention has to be made by the Minister or by the Minister for Health, Deputy Harris. The Minister has said that at some stage a point will be found to resolve the issues. That is a fact, but engaging with the nurses and talking about pay is part of that. I understand that I can say that and the Minister has a wider agenda to look after with a balance to be achieved, but at some stage this is going to give. There is public opinion behind the nurses and there is the determination of the nurses to see this through because it affects so many of them.
All I can do is encourage the Minister and the Minister for Health to acknowledge the differences in the hospitals and the differences in terms of the nurses and what they have to go through on a daily basis and to respond accordingly.
I said earlier that at a point this will be resolved. I want to make clear that we will do all we can to try to have this issue resolved and we will play our part in either the Labour Court or the WRC.
With the permission of the committee, I will ask the clerk to forward to the Minister the diagram that was given to us by Permanent TSB in respect of Pepper Ireland and Glenbeigh Securities, which explains the structure of the companies and how they operate in terms of the taking over of these loans. I do not expect, or want, the Minister to respond now because it is a detailed technical tax-related issue but I ask that following examination of the diagram by him and his officials, his officials would come back to the committee to tell us how this particular type of special purpose vehicle, SPV, works, including where it does and does not govern and how it governs. I am trying to figure out where the tax law in Ireland kicks in and where the money goes to. I believe there is a role for the Department of Finance and Revenue to clarify that for the committee.
It is about profit participation and all of that complex area. We have asked the Secretary General of the Department of Finance to attend the committee at an early stage. We are trying to finalise dates but I ask the Minister to encourage him to come to the committee to deal with the matters before us.
I thank the Minister and his officials for their attendance.