Gerry Adams (Louth, Sinn Fein)
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To ask the Minister for Finance if he will detail individually the action that he has taken since March 2012 on each of the 50 recommendations made by the Wright report Strengthening the Capacity of the Department of Finance and to detail individually those recommendations which have not been implemented and the reason for doing so; and if he will make a statement on the matter. [50241/12]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy may be aware, the Secretary General of the Department of Finance, Mr John Moran, attended the Joint Oireachtas Committee on Finance and Public Expenditure and Reform (JOC) on November 7th. During the course of the meeting, Mr Moran committed to writing to the JOC to give further detail on the issues raised by members of the Committee. One of these commitments related to providing an update of the Department’s progress in implementing recommendations put forward by the Wright Report. At the outset, it is worth noting that the Wright Report was related to the Department of Finance before a split of its functions was enacted. As you are aware 2011 was a year of significant change for my Department – the former Department of Finance was split into two Departments, the new Department of Finance and the Department of Public Expenditure and Reform. As such, a number of the recommendations are the responsibility of the Department of Public Expenditure and Reform. At the JOC, the Secretary General outlined the Department’s Statement of Strategy. The five major goals associated with the new Strategy are to deliver:

1. A resilient Irish economy founded on sustainable and balanced growth and leading to significant increases in employment numbers.

2. A sustainable macroeconomic environment and sound public finances.

3. An improvement in the living standards of our citizens.

4. A return by Ireland to international debt markets so as to achieve an exit from the EU/IMF funding programme at the earliest possible date.

5. The completion of the restructuring of the banking system and a vibrant, secure and well regulated financial sector.

In light of the revised responsibilities and the new focus for the Department of Finance, the senior management team looked at the internal structures, reviewed how other Treasury Departments operate and sought to refine the organisational structures in order to position the Department correctly to achieve our ambitious goals. Many of the changes implemented go beyond the recommendations of the Wright Report. For example, the Management Advisory Council (MAC) has a new improved agenda. Rather than four similar meetings per month, now there is one in-depth meeting per month (more like a monthly board meeting) with three shorter focussed meetings on the week’s events.

Also, four new subcommittees of the MAC, risk, policy, transformation, and people and culture allow for greater in-depth analysis than could occur during MAC meetings. They are supplemented by staff working groups from within and outside the MAC to look at and make recommendations of what we might improve in areas such as internal communications or use of IT.

I am hugely supportive of the work being done by senior management in my Department, and indeed staff at all levels. This work will ensure that the Department of Finance continues to develop in a way that further improves its ability to assist Government in implementing important policy initiatives.

Please find in the annex an excerpt from the draft letter specifically related to the Wright Report that will be sent to the JOC in the coming days.

Wright Report on Strengthening the Capacity of the Department of Finance

Budgetary and Other Processes

1) After Cabinet review of Budget strategy in June, and consistent with its April submission to the European Commission, the Government should release for public and parliamentary review:

-the Department’s economic and fiscal forecast,

-the Department’s assessment of the economic and fiscal risks to this outlook,

-related sectoral analysis by the Department and

-the Government’s proposed quantum for fiscal action in new spending and tax expenditures.

The Minister and the Department should consult widely on this framework, particularly with the relevant Oireachtas Committee.

The Department is firmly committed to openness and transparency and an example of this is provided by the thorough level of engagement with committees such as the Joint Oireachtas Committee on Finance and Public Expenditure and Reform.

The Department of Finance currently produces three sets of published economic and fiscal forecasts every year:

1. at end-April for the Stability Programme Update (SPU);

2. in October/November for the Pre-Budget Outlook/Medium-Term Fiscal Statement, and

3. the annual Budget forecasts in December.

In addition White Paper (i.e. no policy change) fiscal forecasts for the Budget year are also prepared shortly in advance of the Budget.

This is currently seen as an appropriate number of published forecasts. Publication of an additional set of forecasts just over 2 months after the publication of the SPU forecasts has not been deemed necessary in recent years. It is fair to say also that the published forecasts could be more evenly spread over the course of the year, for example in April, September and December.

Of course the “2-pack” of draft EU regulations concerning budgetary frameworks will most likely mean the publication of draft budgetary plans, including economic and fiscal forecasts, by mid-October each year. The MTFS, which was released yesterday, and the draft budgetary plans that will be required under the “2-pack” is published at a stage in the budgetary process that greatly informs the public and political debate. This document outlines the Department’s latest view on the macroeconomic and fiscal outlook as well as the risks affecting this. It also provides aggregates for the fiscal stance that is considered as appropriate for the following Budget.

Finally, it is worth noting that following discussion of the 2011 Budget Strategy Memorandum (BSM) at Cabinet in July of last year, the Minister for Finance issued a statement in which he acknowledged discussion of the BSM – a confidential , mid-year update of the emerging economic and budgetary outlook and an important part of the budgetary process – at Cabinet.

2) Departments would not seek spending enhancements beyond the spring consultations leading to the Budget review at Cabinet.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

3) To the extent that November tax results surprised to the upside, such revenue should be used for debt reduction, not new spending or tax relief.

The Department of Finance agrees that fiscal policy should follow a sustainable path based on sound economic fundamentals. Broadly speaking, this recommendation advises that fiscal policy should be cognisant of underlying trends as opposed to one-off factors such as an upside surprise in November tax receipts.

Under the terms that Ireland has negotiated with our funding partners in the EU-IMF Programme of Financial Support, Ireland has committed that “Any additional unplanned revenues must be allocated to debt reduction” (Permanent Condition from the Memorandum of Understanding).

Under the “six-pack”, which amended and strengthened the Stability and Growth Pact, Member States must make an appropriate annual improvement in their cyclically-adjusted budget balance, net of one-off and other temporary measures, towards their medium-term budgetary objective. Until Member States, including Ireland, reach their medium-term budgetary objective, annual expenditure growth (excluding expenditure relating to interest, co-funding for EU expenditure and non-discretionary changes in unemployment benefit expenditure) must not exceed a rate calculated on the basis of the medium-term rate of potential GDP growth. In addition, Ireland cannot make tax revenue reductions unless matched either by expenditure reductions or increases in other revenue items or both.

As a result, as any upside revenue lodged to the Exchequer cannot be used for additional expenditure or additional tax relief, it will reduce the Exchequer Borrowing Requirement and, therefore, favourably impact on our debt situation.

4) The Panel supports the establishment of a Fiscal Council to review and publish commentary on the Department’s analysis and the Government’s proposed quantum for fiscal action. The Panel believes that such a Fiscal Council must be independent of Government, have qualified membership, a straight forward role and the ability to report in a timely manner. For example, following a June release of the Government’s fiscal plan, the Fiscal Council could review:

-the Department’s economic and fiscal outlook,

-the Department’s risk assessment,

-whether the proposed fiscal framework, including provision for new Government budgetary action, entails acceptable risks for the economy.

The Irish Fiscal Advisory Council (IFAC) was established on an administrative basis in June 2011, which in effect ensures compliance with Recommendation 4. Upon passage of the Fiscal Responsibility Bill (FRB), it will put the IFAC on a statutory basis and assign it the monitoring and assessment functions required of an independent national institution under the Fiscal Compact. The FRB also provides for the funding of the IFAC. The provisions ensuring the independence of the IFAC comply with the European Commission’s Common Principles.

The IFAC was established with a mandate to independently provide an assessment of, and to comment publicly on, whether the Government is meeting its own stated budgetary targets and objectives. The Council is also charged with assessing the appropriateness and soundness of the Government’s fiscal stance and official macroeconomic projections, as well as an assessment of the extent of compliance with the budgetary and debt rules.

5) To the extent the December Budget exceeds the quantum of action identified in June, the Fiscal Council should reassess the risks of these further actions for the economy.

Please refer to Recommendation 4.

6) The Fiscal Council could also usefully assess the impact of future Social Partnership wage and fiscal provisions on Ireland’s economic competitiveness.

Please refer to Recommendation 4.

Economic and Fiscal Forecasting

7) Forecasts in Budget Memoranda to Cabinet and for public consultations should include well-articulated scenarios of alternative outcomes, consistent with the Department’s risk analysis.

Further to the information set out in respect of Recommendation 1, the Budget Strategy Memorandum (BSM), as well as other Departmental publications that provide economic and fiscal forecasts, sets out emerging risks, both positive and negative, to the emerging economic and fiscal outlook. Of course the risks to the economic outlook have implications for the public finances but there are also risks, separate to those associated with the general economic situation, which can have very serious consequences for the public finances. These too are identified in the BSM.

Quantitative Sensitivity analysis of fiscal and economic outcomes analysis to changes in global growth and the savings rate (respectively) is conducted as part of on the Department’s forecasts and presented in the Medium Term Fiscal Statement (MTFS). A qualitative assessment of macroeconomic and fiscal risks is also set out.

Details of engagement with economists and academics from the public and private sector that also assists in developing positions on risk analysis is provided in response to Recommendation 8.

8) In addition, the Department should provide a public work-shop, with private sector and academic interests, once a year so that the assessment of the economic and fiscal challenges can be debated before the Department finalises its forecasts.

In terms of the fiscal situation, the Department, immediately after the end-June 2011 Exchequer Returns, held a briefing session to discuss the end-June numbers and prospects for the remainder of the year. Representatives from various banks/stock broking firms etc. were invited. Unfortunately representatives from just one institution attended. However we agree this should not discourage the Department from offering such briefings in the future and this is something we will look at again.

Of course, the Department very regularly meets with and briefs, as part of its day-to-day operations, credit rating agencies, potential investors, international institutions. In recent years the Department has considerably increased its level of interaction with economists from elsewhere in the public sector and in the private sector. For example, the Economics Division has held a series of seminars over the past 18 months with private and public sector participation. Seminars have been held in the context of the Stability Programme Update in both 2011 and 2012 to discuss the macroeconomic and fiscal forecasts as well as the risks associated with those forecasts. A similar exercise was carried out in relation to last year’s Medium Term Fiscal Statement. A further seminar was held on estimation of the output gap and the structural balance in January of this year.

Advice over the Budget Cycle:

9) The Department of Finance should keep a written record of advice tendered and decisions taken as part of the budgetary process.

Each year, as the Budget approaches many Pre-Budget Submissions are received by the Department primarily from individuals and from representative groups. Each Submission is recorded and filed. A copy is sent out to officials who are responsible for the relevant policy area. The Department also circulates these Submissions, as appropriate to the Department of Public Expenditure and Reform.

A summary of the principal Submissions is also circulated as a Paper to members of the Tax Strategy Group (TSG). This Paper, along with the policy papers on Budget options which are also prepared by various Departments for the TSG, are subsequently published by the Department of Finance (further details of the TSG are at (16) below).

Written submissions on various options are prepared for the Minister. The Minister will decide, in consultation with the relevant officials, whether or not a particular option should be pursued. These decisions are recorded in writing. Options which have been approved by the Minister are then included in the Budget and Finance Bill process which, of course, is subject to Oireachtas scrutiny.

10) The Panel strongly supports the public release of substantially more economic analysis by the Department. However, policy advice to the Minister for Finance in the preparation of the Government’s Budget should not be subject to release under Freedom of Information for at least five years.

The recommendation that policy advice to the Minister for Finance in the preparation of the Government’s Budget should not be subject to release under Freedom of Information for at least five years has not been implemented.

The reason why the recommendation has not been implemented is because it is not consistent with the Programme for Government which seeks to enhance openness, transparency and accountability of all public authorities.

Macro-economic Risks:

11) The Panel recommends that the Department prepare comprehensive macroeconomic risk assessment for Ireland as part of its annual advice to Cabinet.

The Department has substantially increased the level of risk assessment it carries out in relation to its published forecasts as previously set out in Recommendations 1 and 7. A similar level of risk assessment is carried out in advising Cabinet.

Cabinet is more informed than ever of economic developments and risks to the outlook. For example, the Economic Management Council, which consists of the Taoiseach, Tánaiste and Ministers for Finance and Public Expenditure and Reform are given a weekly update of the latest economic developments. Detailed discussions of domestic and international risks occur at these weekly meetings which are supported by senior officials from the four Government Departments.

Detailed quarterly commentaries on the macroeconomic situation and outlook are also provided by the documentation that accompanies the quarterly Troika missions. These are all available on the Department’s website.

12) The Department should establish sufficient formal arrangements with the Central Bank, including its Financial Regulation function, the NTMA and NAMA and establish sufficient technical capacity internally to manage this process.

Senior officials from the Department of Finance, the NTMA, the Financial Regulator meet on a regular basis to discuss issues of strategic importance. The ‘Principal’s Group’ consists of

- John Moran, Secretary General, Department of Finance

- Ann Nolan, Second Secretary General, Financial Services, Department of Finance

- John Corrigan, CEO, NTMA

- Patrick Honohan, Governor, Central Bank

- Matthew Elderfield, Deputy Governor, Financial Regulation, Central Bank

- Stefan Gerlach, Deputy Governor, Central Banking, Central Bank

Other senior officials attend as required depending on the issues being discussed.

On a more formal basis and in response to the internal and external recommendations on the General Government Debt consolidation discrepancy, the Department is formalising arrangements between the Department of Finance, the Central Statistics Office (CSO) and the Central Bank of Ireland (CBI). The Department is in the final stages of a CBI Memorandum of Understanding (MoU), is well underway with a CSO MoU and plans to complete all MoUs by end-November.

In relation to the NTMA, the Fiscal Division of the Department of Finance is in very regular contact and has a very good working relationship with counterparties in the NTMA on issues such as the Exchequer position, debt interest projections, funding issues etc.

The Department meets quite regularly with the Agency in that context, most recently on Monday 12 November. The meetings tend to be more regular at particular points in the year – during the EU/IMF Programme review missions, the various forecasting rounds etc.

The department’s oversight of NAMA is now managed by the Shareholding Management Unit (SMU), which is staffed with banking specialists who are seconded from the NTMA’s banking division. This unit is responsible for ensuring the fulfilment of the Ministerial responsibilities under NAMA legislation to ensure NAMA meets its objectives and has regular interaction with senior executives of NAMA both on a formal and informal basis and meets Directors of the Agency on a frequent basis.

13) The Government should introduce legislation to establish a coordinating committee of these financial agencies, chaired by the Secretary General of the Department of Finance, which would require the full exchange of any information that could entail fiscal or economic risks to the country, among the above agencies.

As stated above in relation to Recommendation 12, stronger ties have been established between these financial agencies particularly through the ‘Principal’s Group’ but no legislation has been introduced to cement the status of this group.

In recent months, at an operational level the Department has also increased its engagement with other State departments and bodies on the identification and management of risk, including fiscal and economic risks. Although this engagement at this level is also not supported by a legislative mandate, it has resulted in an improvement in information sharing and risk management understanding and has also led to revisions in risk management practices at many of the Departments concerned.

Construction Policy:

14) The Department should include sectoral assessments in its annual economic analysis and forecast that is released for public consultation.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation primarily relates to the former Sectoral Policy Division of the Department which is now under the remit of the Department of Public Expenditure and Reform.

However, the Department of Finance is clear that it has an important role to play in forming economic policy as well. The Department’s revised strategic plan, published in May of this year, announced that the Department is itself undergoing significant reforms. The five major goals associated with the new Strategy are to deliver:

1. A resilient Irish economy founded on sustainable and balanced growth and leading to significant increases in employment numbers.

2. A sustainable macroeconomic environment and sound public finances.

3. An improvement in the living standards of our citizens.

4. A return by Ireland to international debt markets so as to achieve an exit from the EU/IMF funding programme at the earliest possible date.

5. The completion of the restructuring of the banking system and a vibrant, secure and well regulated financial sector.

As a key part of this reform programme, a new, expanded Economics Division has been established in the Department. This Division is resourced by expert economists in both the macroeconomic and microeconomic field with experience drawn from the private sector, international financial institutions and elsewhere in the public service. The Department’s economic resources have therefore been significantly increased and the Department is now conducting additional sectoral analysis as part of its economic planning and forecasting function.

Tax Policy Advice:

15) The Department should substantially increase its analytical capacity in the tax policy area.

The Department has recently completed an open competition, under the auspices of the Public Appointments Service, for policy advisors who have been employed to work in the tax policy area. Six tax policy Graduate AOs have been recruited each of whom have a variety of tax, law and economic qualifications.

Also, the Tax Policy Unit in the Department of Finance has over the past number of years progressively sought to increase its technical skills capacity. In this regard, the Tax Policy Unit has engaged, following a competitive tender process, with the Irish Taxation Institute to provide a certified tax policy training programme for its staff. This training programme, entitled the Diploma in Tax Policy and Practice, involves well over a 100 hours of tax technical training and runs over two years. The Diploma is being progressively rolled out to all staff in the Tax Policy Unit who do not already have specific tax qualifications.

In addition, a number of staff in the Tax Policy Unit have completed or are currently undertaking professional tax qualifications (such as the AITI Chartered Tax Advisor qualification) and a number of short term secondments to external agencies (such as the European Commission’s Directorate for Taxation) to increase specialist knowledge have been organised.

Separately, a specialist tax economic analysis unit has been established in the Tax Policy Unit staffed by externally recruited economists.

The Tax Policy Unit has also sought in recent years to increase its interaction with external stakeholders. One example of this is that a dedicated 'micro' website www.taxpolicy.gov.ie has been established by the Tax Policy Unit in the Department of Finance to increase the availability of information on tax policy issues to the public. The website is the main portal now being used for an increasing number of public consultation processes on tax policy issues.

In addition, the Tax Policy Unit has recently established a new Tax Training Network, membership of which is available to all staff in the Department of Finance and D/PER.

The aim is to put in place a contact group of people across the Department who are interested in tax policy and would like to be kept informed of upcoming tax research seminars, tax conferences and training opportunities being run by or involving the Department of Finance’s Tax Policy Unit.

To date, approximately 50 people across the two Departments have signed up for membership of the network.

The organised events will qualify for CPD – continuing professional development – for the Irish Tax Institute and certain other accounting bodies. A growing number of staff in the Department have ITI tax qualifications.

16) The Department should organise itself to consult with tax and financial experts and prepare advice that is most appropriate to an efficient tax regime for Ireland.

The Department of Finance has engaged with the Troika as part of the EU/IMF Programme and has already implemented many of the agreed policies in relation to tax policy.

Also, as part of the annual Budget process, the Tax Policy Unit chairs and provides the Secretariat for the Government’s Tax Strategy Group. The Tax Strategy Group considered 24 separate Tax Policy Papers prepared by the Tax Policy Unit in advance of Budget 2011, for example. These papers are published after each Budget and are available to read on the Department’s new dedicated Tax Policy website: www.taxpolicy.gov.ie

In 2010-2011, a review of the Business Expansion Scheme was carried out and an Ex-Ante Economic Impact Assessment of the new Employment and Investment Incentive was published.

A Study on the Economic and Budgetary Impact on the introduction of a Common Consolidated Corporate Tax Base in the European Union was commissioned by the Tax Policy Unit from Ernst and Young, Washington DC and was published in January 2011.

The Tax Policy Unit assisted in the preparation of the National Recovery Plan 2011 – 2014, published in 2010.

The Tax Policy Unit prepared a comprehensive review of tax expenditures in 2010 in line with the provision in Section 1 of Finance Act 2011.

In 2011, the Tax Policy Unit published an Economic Impact Assessment of Potential Changes to Legacy Property Reliefs.

By using the Department’s new dedicated tax policy web portal, www.taxpolicy.gov.ie , the Tax Policy Unit has in recent times been carrying out more and more public consultation processes as part of its deliberative process. Recent consultations include:

- legacy property reliefs;

- tax relief for charitable donations;

- tax residence rules;

- VRT and Motor Tax and

- Film Relief.

Medium Term Analysis:

17) The Government should commit to the preparation of regular medium- term economic plans for Ireland at least every five years.

The Department of Finance is broadly supportive of this recommendation. The negotiated EU/IMF Programme of Financial Support provides a template for economic planning. In it we have clear targets for our public finances, timetables to implement important strategic reforms and simultaneously have introduced a Jobs Action Plan, a stimulus package and radical reform of labour market activation measures.

As part of the programme of reforms which the Department is undergoing, we plan to play a greater role in the management of our economy and to have a greater focus on strategic economic planning for the future. The Department is currently reviewing its economic planning function in order to best support the Government in the formulation of its short and medium-term economic strategy.

Department’s Interface with Other Departments:

18) The Department should integrate those sections of Public Service Management and Development Division dealing with administrative budgets into Sectoral Policy Division to create a “single window” interface with line Departments.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

19) Activities could be organised immediately under the Assistant Secretary level in the Sectoral Policy Division. The longer-term objective should be to establish Principal positions responsible for the interface of all activities with outside Departments.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

Public Service Management and Development:

20) Public Service Management and Development Division should be established as a separate entity, either as an entirely separate Department or reporting directly to the Minister of State for Public Service Modernisation.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

21) The Secretary General of the Department of Finance and Minister for Finance should retain authority over the overall wage bill, negotiating mandates for new collective bargaining processes and manage a single window on departmental control functions.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

Public Service Modernisation:

22) The Panel strongly supports the creation of a Private Sector Advisory Board which it understands is under consideration by the Departments of the Taoiseach and Finance.

I understand that in the context of the Wright report the Private Sector Advisory Board was recommended to assist in Public Service Modernisation particularly in relation to the Croke Park Agreement. While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

23) A full-time Task Force should be established and assigned responsibility for driving forward the reforms under the Croke Park Agreement.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

24) The Task Force would comprise existing staff from the Modernisation Unit of the Department. The Task Force would also include key individuals from the leading Departments along with expertise in the area of change management on secondment from the private sector.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

25) The Task Force’s Team leader should have direct access to the Minister of State responsible for Public Service Modernisation.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

26) In addition, there is a need to recruit expertise in the areas of change management and business process re-engineering.

While the Department of Finance broadly supports this advice, following the split of the Department of Finance into two entities, this recommendation now falls under the remit of the Department of Public Expenditure and Reform.

Core Finance Functions:

27) With the possible exception of the Public Service Management and Development Division, no other core functions should be moved out of the Department of Finance.

The Department of Finance split has been more substantial than this. Further details on the revised structure of the Department of Finance after the split is provided below in Recommendation 28.

Structure:

28) Assistant Secretaries should report directly to the Secretary General of Finance.

Since the Wright Report was published in December 2010 there has been fundamental change to the structure of the Department with the split of the Department to DOF and DPER in July 2011. On the 10th May 2012 the Department under the leadership of a new Secretary General published the 2012 revision of the Departments Statement of Strategy 2011 – 2014. The statement sets out the revised organisational structure of the Department. This structure is based on four key policy divisions – EU and International, Financial Services Division, Fiscal Policy Division and Economic Division – and the establishment of a Corporate Office, and a Finance Office.