During the week the Irish Fiscal Advisory Council, the budget watchdog, had another good go over the lack of control of Government spending in recent years. When asked about it, Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers both nodded their heads, put on their serious faces and said that this Government had plans to get things under control now and that this would be clear in next month’s budget.
So you might expect that the Department of Public Expenditure and Reform, the guardians of the public purse, would use a new document designed to be a guide for expenditure over the term of this Government to lay down the law. Instead, the grandly titled Medium-Term Expenditure Framework, published on Thursday, is one of the strangest official documents I have seen from an Irish government. And I have, over many years, seen quite a few.
A framework is meant to be a set of rules to guide policy for the future. But this bizarre 77-page document is nothing more than a gentle canter through spending trends in recent years, with little about the future, bar a bit of talk about pressure points and choices. There are two pages outlining three “scenarios” for possible growth rates in spending over the next few years. This might have been useful if the implications of these scenarios were spelt out in detail. But they are not. Nor are there any ceilings for spending by different departments - and the Government has a legal obligation to publish these at some stage. Nor is there any sense of, well, a framework.
This document is meant to be a key input into a new medium-term plan for Ireland’s public finances, to be published alongside the budget. The other bit of work feeding into this is the revised National Development Plan that was published recently. This covered State investment for the period to 2030 though it didn’t include detail of the projects that would be part of this. These, too, are due to come out with, or just in advance of, the budget. To say there is a lot of work to be done in the next few weeks is an understatement.
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A proper expenditure framework would have slotted in the State investment plans and married them with the required outcomes for day-to-day spending to provide a complete picture. It would have discussed the need for some kind of a rule to control spending increases. It would have examined how the efficiency of spending could be better examined.
The previous government developed a credibility problem – it could not deliver on big projects, and in its latter couple of years, its spending budgets were best filed under the “fiction” heading. This is fair enough when a big crisis hits, but not as the norm.
Donohoe and Chambers are trying to get this under control. They have set a target of keeping day-to-day spending growth to 6.1 per cent next year. And even though this is well ahead of inflation, it is going to cause all kinds of rows from a system used to spending more. The planned ending of once-off payments like energy credits is also politically incendiary with Bord Gáis Eireann and Pinergy following Energia this week by announcing electricity price rises.
Serious?
When you see a spending “framework” with no targets and no view of how things should develop over the next few years, you have to ask whether the Coalition is really serious, or intends to let spending freewheel along for as long as the gift of corporate tax keeps on giving. Is it all so vague because ministers have not decided yet whether they want to go with the flaithiúlach option mentioned in the document of letting spending rise by €9 billion a year (close to 9 per cent based on current spending totals), or the penny pinching approach of getting the increase back to around €5 billion year?
The document also raises questions about the department itself. What is it doing producing a document such as this? Why bother? No doubt Minister Jack Chambers has his hands full, but he should have refused to write the foreword to this and told his civil servants to throw it in the bin, or publish it as a general discussion document, rather than something purporting to set a path for spending.
When you publish a document that so clearly does not do what it says on the tin, then your credibility is damaged. And, while we do not know the political and administrative machinations that have gone into the successive breaching of spending targets in recent years, public expenditure control has been poor and so, in at least some areas, has been delivery. This, too, raises questions about the whole structure of spending management in which the department has a central role.
This may not seem to matter at the moment. Corporation tax seems to be holding up and the budget is in surplus. The Coalition is in a financial position that is the envy of most other EU countries. But the document does provide one useful function by pointing out that the underlying growth rate of taxation here - when multinational froth and the Apple money are excluded - has been around 7.4 per cent. And spending has been rising at around 9.4 per cent.
The gap has been filled by corporate tax receipts that have paid the bills each year for overspending. The figures outlined in the budget have been out of date as soon as they were published – but everyone knew the game and that the big US multinationals would pay the bill.
However, Ireland has been increasing its bets on this trend continuing. And there must be a good chance of corporate tax starting to flatline and a real risk of some fall-off, as Donald Trump attracts investment and tax revenue back to the US.
That is why a proper spending plan is important and why Donohoe and Chambers are right to try bring some control and agree some rules for the next few years. This, I suspect, will require a big scrap with their Cabinet colleagues in what looks like a defining moment for this Government.
