Brendan Howlin (Wexford, Labour) | Oireachtas source

Aside from these domestic reforms that have now been introduced, Ireland is committed to adhering to and implementing the wider fiscal reform measures that have been introduced across EU member states. In particular, and with reference to the topic of today's discussion, the Medium Term Expenditure Framework which established multi-annual departmental expenditure ceilings on an administrative basis was first introduced in the Comprehensive Expenditure Report 2012-2014, published in December 2011. This important framework is being given legislative underpinning in the Bill. The Medium Term Expenditure Framework, MTEF, is a long-term reform which will provide greater transparency to the public finances in terms of establishing spending ceilings and associated rules which will mean better, more reasoned and longer-sighted expenditure policies. They will help disaggregate demographic, repetitive spending from once-off or discretionary purchase-type items.

The Bill, when enacted, will put the ceilings established in the Medium Term Expenditure Framework on a solid statutory footing through the amendment of section 17 of the Ministers and Secretaries (Amendment) Act 2012. This Bill logically follows on the introduction of the Fiscal Responsibility Act 2012, which gives full effect to the rules contained in the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union, passed by the people, otherwise known as the fiscal stability treaty.

This Bill gives effect to the expenditure piece which falls out of the so-called "six-pack" of five directives and one regulation which introduced, inter alia, an expenditure benchmark. The purpose of the benchmark is to help ensure that general Government, GG, expenditure, including the local authority sector and other GG subsectors, does not grow faster than the potential growth rate of the economy in good times and that, in bad times, GG expenditure reduction makes a major contribution to consolidation. This expenditure benchmark, introduced under EU Regulation 1175/2011, already has a direct effect under Irish law and as such, does not require to be transposed into primary or secondary legislation here to have effect. Accordingly, this now acts as a binding expenditure limit on General Government expenditure under Irish law.

The Ministers and Secretaries (Amendment) Bill provides for Government expenditure limits to be set down each year by the Minister for Finance having consulted with me, as Minister for Public Expenditure and Reform, and similarly, for the setting down of Government expenditure limits each year in respect of the three subsequent years - this is the new multi-annual framework. Then, as Minister for Public Expenditure and Reform, I establish, in consultation with the Minister for Finance, ministerial expenditure ceilings, that is, Department by Department.

Under the scheme as set out in the Bill, once the Government expenditure limits for each of the subsequent three years are decided by Government on the basis of a proposal from the Minister of Finance having consulted with me, as Minister for Public Expenditure and Reform, the Government decides upon an apportionment of these overall limits into ministerial expenditure limits on the basis of a proposal brought to Government by me. It is in this way that the legislation provides for my role, as the Minister for Public Expenditure and Reform, to dovetail with that of the Minister for Finance. The relationship and roles are such that both I and the Minister for Finance take the lead in one part of the process.

In this regard, I want to place on the record of the House the importance of maintaining a close and co-operative working relationship between the two Departments, a point that has been raised previously by Deputies opposite in questions. I am happy to say this is the case and that my Department works closely and harmoniously with the Department of Finance on these and other crucial areas involving aggregate governmental spending and funding matters are generally harmoniously resolved. I should say, on a personal basis, both the Minister for Finance, Deputy Noonan, and I also work very well.

In the Bill, "Government expenditure" is defined in practical, operational terms as the amount of expenditure that is voted by the Dáil each year along with the annual expenditure from the social insurance and the national training funds. Government expenditure is thus designed to match up with the gross expenditure that is set out in the annual Revised Estimates Volume.

It may be noted that the Government expenditure ceiling is not identical to the expenditure benchmark which, for example, excludes cyclically-sensitive expenditure, but there is extensive overlap between the two terms. It is certainly the case that prudent and disciplined management of the Government expenditure ceiling will essentially ensure compliance with the expenditure benchmark. More detailed reconciliation tables etc. will be reflected in the annual budgetary documentation to demonstrate how the benchmark itself is being respected.

Both the Government expenditure ceilings and the ministerial expenditure ceilings must be laid before the Dáil - obviously they must be published - "as soon as may be" after the decisions are made. The subsequent annual Estimates of Expenditure, setting out the detailed expenditure proposals for the coming year, must not exceed in aggregate the Government expenditure ceilings for that year.

Taken together, the effect of these various provisions is as follows. The expenditure benchmark is the core expenditure rule with which the Government and the State are legally obliged to comply in the annual and multi-annual budgetary processes, by virtue of the direct effect of the regulation and the supremacy of EU law. The Government expenditure ceiling, which as I stated is not identical to the expenditure benchmark, must nevertheless be fully compatible and compliant with the benchmark, and the compliance will be demonstrated in the annual budgetary documentation. The ministerial expenditure ceilings are an apportionment of the Government expenditure ceiling and they may not in aggregate exceed the Government expenditure ceiling. It sounds more convoluted than it is. Obviously, the apportioned individual expenditure of each Department added together must comply with the overall Government expenditure ceiling.

In the past, expenditure growth was at times allowed to outpace the economy's underlying ability to finance it. Arising from this, value for money tended to suffer, along with the efficiency of delivering services for the public and the effectiveness of public expenditure in achieving its objectives. This new trans-European approach radically changes the Estimates process and introduces a major reform by setting out the Government's medium-term budgetary plans and overall spending allocations clearly in advance, thereby allowing Departments to plan carefully their budget structure well in advance.

The detailed and practical operational aspects of the Medium Term Expenditure Framework are being finalised by my officials taking into consideration the valuable input of their colleagues from other Departments, and will issue as a circular to all Departments and offices following the enactment of this legislation.

This new approach will set fixed and binding current expenditure ceilings for each ministerial Vote group over a rolling three-year period and makes clear well in advance the level of savings that need to be planned for in each Department to ensure that the allocations are adhered to each year. Special arrangements will apply to certain demand-driven blocks of expenditure, notably the live register, which is related to the economic cycle and is less amenable to multi-annual planning and control.

A comprehensive review of expenditure exercise, such as we undertook shortly after coming into office, will be conducted approximately every three years and will allow for the multi-annual ministerial expenditure ceilings to be re-evaluated reflecting new or developing Government priorities.

I will briefly describe each section of the relatively short Bill. As I stated, section 1 amends section 17 of the Ministers and Secretaries (Amendment) Act 2011. This section provides for the Government, following a proposal from the Minister for Finance, to approve an upper limit on Government expenditure, which comprises the aggregate amount of voted expenditure and the expenditure of the Social Insurance Fund and the national training fund, for each of the following three financial years. It also provides that the Government shall, following a proposal from the Minister for Public Expenditure and Reform, approve the amount of Government expenditure to be apportioned to ministerial expenditure ceilings for each of the three financial years.

Section 2 states the Short Title of the Bill and provides for the commencement of the Act.

I also propose at Committee Stage to include a new section in the Ministers and Secretaries Act to allow for the provision of information necessary for the proper and effective operation of ministerial expenditure ceilings.

The section will provide that public service bodies shall make available to the Minister such information as is necessary for the purposes of the proper and effective operation of ministerial expenditure ceilings. This is a permissive section to allow public service bodies supply the necessary information to the Department of Public Expenditure and Reform to enable me, as Minister, to properly monitor and operate the expenditure ceilings set out in the Bill.

It is proposed on Committee Stage to introduce a provision to allow the Minister for Finance, following consultation with the Minister for Public Expenditure and Reform, to allow the Irish Fiscal Advisory Council to endorse, as it sees appropriate, the macroeconomic forecasts prepared by the Department of Finance for the purpose of the fiscal planning on which the budget and the stability programme will be based. Deputies will be aware that it is a condition of the recently agreed six pack set of EU rules that a body be nominated for the purposes of independently endorsing the macroeconomic forecasts on which the budget is based. This task will be assigned to the Irish Fiscal Advisory Council and involves amending the Fiscal Responsibility Act to provide for this. As this legislative vehicle is before the House now, I propose to do that formal endorsing in law of the Irish Fiscal Advisory Council using the Ministers and Secretaries (Amendment) Bill, as it is dealing with similar issues and in the same general context. This amendment may mean the Long and Short Titles of the Bill will require change on Committee Stage also. I hope Deputies will understand that it is a finance measure but since this legislative measure is before the House we are using it to formally appoint the Irish Fiscal Advisory Council in the role required for it in the agreed six pack arrangements.

The Bill will provide in statute for the medium-term fiscal expenditure. Instead of having annual expenditure limits, by law we will have multiannual expenditure limits. We have been doing that in practice on an administrative basis since we came into office. This will underpin confidence, at home and abroad, about the soundness of the Government's overall budgetary plans. Its design will help to restore Ireland's public finances to a strong and sustainable position over the coming years. It will facilitate greater structural planning based on priorities and ensure there is a focus upon the core principles of Government and will continue the Government's commitment to return Ireland's economy to a position of growth while ensuring sustainability of the public finances. This new enhancement to the Estimates process is both sensible and practical while representing a responsible and necessary change in the approach to budgeting. I hope it will be acceptable to the House.

See this speech in context