Reforming the Fiscal Process

This post was written by Philip Lane

The Fine Gael “New Politics” document includes a number of proposals to re-shape the fiscal process.

Some extracts:

In Government, Fine Gael will implement a Responsible Budgeting Initiative that will make the budgeting process much more transparent and give the Dáil a clear and meaningful role. In particular, it will allow both the Opposition and the wider public to examine in detail the key underlying financial assumptions on which Government is basing its actions before the budget is published.

and

Fine Gael will overhaul radically the entire budget process. We recognise that these new fiscal processes cannot by themselves buy international credibility or fiscal stability. However, we believe that a different budget process, such as we areproposing, might have limited the worst excesses of the last few years and will help avoid any recurrence.
• We will establish a Parliamentary Budget Office (PBO), supported by an Independent Advisory Council (IAC) to provide members generally, and the proposed Dáil Budget Committee in particular, with expert input and advice into:
o The underlying structural state of the public finances
o The desirable borrowing / savings target for Government in the Budget, taking into account the economic cycle and longer-term fiscal pressures;
o The long-term implications of specific spending and taxation policies, taking into account likely demographic and other social and economic changes;
o Opportunities for rationalisation and prioritisation of public spending; and
o Performance evaluation of spending programmes.
• We will overhaul the annual Government Budget Documentation to include:
o Presentation of high-level service delivery and outcome targets alongside proposed spending allocations for public services;
o Quantification of the cost of all major “tax expenditures” and “tax shelters”;
o Assessment of the Government’s financial and non-financial assets and its financial and contingent liabilities, including public sector pension liabilities, future liabilities under Public Private Partnerships and possible liabilities resulting from the National Asset Management Agency (NAMA).
• A new Parliamentary Budget Cycle will be established:
o September - Publication by the new Budget Office of its recommendation for the fiscal stance (borrowing target) in the Budget

o October - Government presentation to the Dáil of its Pre-Budget Outlook, including macro targets for spending, taxation and borrowing (saving) in the year ahead. The Government would have a “comply or explain” obligation with regard to the target set by the Budget Office.
o November – Government presentation to the Dáil of its draft Budget.
o March – Government presentation to the Dáil of a new Public Service Delivery Report, audited by the C&AG, showing compliance in the previous year with the levels of spending authorised by the Dáil, as well as a comparison of service delivery and outcome targets promised and actual
results achieved
o March - Oireachtas Estimate Approval, following consideration of the Public Service Delivery Report.
o April, July, September, December – Government presentation to the Dáil of Quarterly Exchequer Reports (an expanded Exchequer Return), which would require the Minister to report on deviations from strategy and on the need for correction, at Departmental and macro-level
• Government will develop a new Medium Term Expenditure Framework which will
include:
o Presentation of aggregate envelopes for expenditure and tax based on the appropriate fiscal stance, recognising the different constraints that should apply to:
Capital
Demand-led spending
Stable programme spending
o An explicit cabinet “rationalisation and prioritisation” mechanism to drive restructuring and to divide up the spending envelopes among broad departments and agencies. Cabinet would also retain a “strategic reserve” which could be applied to cross cutting activities and to Government priorities

o Within the broad allocations set by cabinet; units within Departments would be required to bid publicly for resources and offer a set of quantifiable service delivery and outcome commitments that they would deliver in return.  New evaluation mechanisms within Departments would be established to judge whether commitments are being hit and to create an accountability framework.

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27 Responses to “Reforming the Fiscal Process”

  1. yoganmahew Says:

    If all this happens in public, no matter the outcome, it will be a great step forward. What is needed is a step back from private ’submissions’ and one forward for public debate.

  2. Oliver Vandt Says:

    @Philip Lane
    As the economic/banking/fiscal collapses have once more demonstrated our current establishment have to be made totally transparent and accountable in ALL areas. They simply can’t be trusted. We need to adopt best international practice in the social and economic area and then have mechanisms that compel continuous improvement. These proposals sound good but given the low standards of governance in Ireland are they world class?

  3. Pat Donnelly Says:

    Do we thank George Lee for these?

    They do sound quite good and yes, world class. But they are only theory. I do not recall any responsible opposition to the splurges and cockeyed fiscal policy of the late nineties and subsequent years that made this mess worse than it needed to be.

    Will glasnost go further or is that too Scandinavian for our corrupt pollies?

  4. Mokabaybob Says:

    “o Presentation of aggregate envelopes for expenditure and tax based on the appropriate fiscal stance, recognising the different constraints that should apply to:
    Capital
    Demand-led spending
    Stable programme spending”

    Gobbledy Gook!

    What is the economic ideology of Fine Gael, anybody know?

    Do they have a philosophy which imbues their economic stance with some identifiably Fine Gael cast?

    I’m not saying the two Brians are up to much. There is definitely no economic philosophy evident from these two clowns except survival of Fianna Fail in Government at any cost. Fianna Fail has become a straight up Socialist party with a slightly Fascistic cast of mind; where all the agencies of the State, the corporate elite, the unions and the large public sector are deployed in favor of the party and its friends.

    If Fine Gael were to adopt a recognizable economic policy stance in which de-regulation and restricted Government were the order of the day; where Socialism was rolled back a good deal, then they would get my vote. I fear however, that they too are Socialists but represent the interests of a slightly different constituency, namely agriculture, the Catholic church and Europe.

    This effort announced today is window dressing and designed to dupe people into thinking that Fine Gael are somewhat more “technically” capable than their blundering rivals in power. The passage quoted above shows the truth about what they are trying to put over, namely “we are smart people who will save you from these other idiots” I suppose that they are within their rights to advertise their wares, so to speak. Snake oil may prove to be an emollient but has the power to poison as well..

    Would they were smart! And would it were possible we get a proper understanding from our political parties as to the real issue facing us, that of our slavish attachment to the Euro. A currency designed and suited to the Germans and no one else. Not even the French. The rest are trapped in an over valued currency which allows no flexibility during busts, such as now.

    By all means get some additional scrutiny into the fiscal process but perhaps a new political/economic paradigm is what is really required to light a fire under this country.

  5. Mickey Hickey Says:

    “The Euro a currency which allows no flexibility.” If we were on the Punt the cost of money would be over 15% assuming there were lenders stupid enough to lend to us. Cost of production has been declining for almost two years if it continues its downward move we will be cost competitive within three years. NAMA is pure lunacy and will be the ruination of all of us. The gov’t continues to behave in a highly irresponsible manner as it takes the country to the brink of disaster. FG went to the same finishing school as FF and Labour, they talk the talk but they will fumble and bumble much like the incumbent gov’t. Vote out the incumbents of every stripe, each and every one of them. Start with a clean slate, it will take at last 8 years for them to learn bad habits after which the house can be cleaned again.

  6. Mickey Hickey Says:

    “The Euro a currency which allows no flexibility.” If we were on the Punt the cost of money would be over 15% assuming there were lenders stupid enough to lend to us. Cost of production has been declining for almost two years if it continues its downward move we will be cost competitive within three years. NAMA is pure lunacy and will be the ruination of all of us. The gov’t continues to behave in a highly irresponsible manner as it takes the country to the brink of disaster. FG went to the same finishing school as FF and Labour, they talk the talk but they will fumble and bumble much like the incumbent gov’t. Vote out the incumbents of every stripe, each and every one of them. Start with a clean slate, it will take at last 8 years for them to learn bad habits after which the house can be cleaned again.

    The link shows bank exposure of Fr, UK, DE and Su to EI, SP. GR, PR. The acronym for the creditors is F-UK-DE, rather apt. The graphic is from Societe Generale, sleepless nights for European bankers.

    http://3.bp.blogspot.com/_ngczZkrw340/S4peBlycTrI/AAAAAAAAQVw/leWLGSaP16M/s1600-h/Europe%27s+Exposure+to+Peripheral+Banks.png

  7. Michael Hennigan - Finfacts Says:

    @ Mokabaybob

    “perhaps a new political/economic paradigm is what is really required to light a fire under this country.”

    Perhaps indeed but in the long run we’re all dead.

    In the US, there is President Obama’s monumental achievement on health reform although imperfect it may be; the Republicans said, let’s start all over again and….wait how long? Sixty years ago President Truman presented a reform plan that was followed by so many doomed attempts.

    Given the depth of Irish conservatism, half a loaf is better than no bread.

  8. paul quigley Says:

    @ mokabaybob

    We spent hundreds of years on a currency union with Britain. Now we are in a larger curency union. As a small and formerly agrarian people, we are well used to following along the paths set in the metropolitan centres.

    Our moneyed and professional classes led a rampant misuse of the credit access which came with the Euro. They did it in the name of ‘dynamic business culture’, ‘free markets’ and ‘deregulation’. Although some real advances were made, the overall governance was manifestly unsound.

    We let the vested interests run the country, and now they have left us with a crippling debt. What is done is done, but it won’t be forgotten by the citizens. That’s not the first time we blew it in national development terms, and others have made the same uistakes

    Of course there is no brave new world of socialism, but neither is there any brave new world of ‘business’. Whille the need for reform of our state is obvious, it is even more obvious that deregulation is extremely destructive if the process is simply let rip. A race to the bottom won’t get us far.

    As has been stated above, any advance on the present culture of ‘private submissions’ is to be welcomed. We have to crawl before we can walk.

  9. Paul Hunt Says:

    This appears to be a serious and credible initiative by FG. The likelihood is that it will fizzle out - similar to most of their previous policy initiatives (many of which had commendable aspects). It seems that people, generally - and this is a universal phenomenon, pay little attention to how the “rules of the game” are devised, but can be encouraged to be spectators of how the game is played. The media have a lot to answer for in this respect. Media coverage has focused on how the FG leader’s proposals for some TDs to be elected on a list system and for quotas for women candidates have been rejected by the parliamentary party.

    FF has absolutely no interest in reform of this nature and Labour will most likely adopt the “dog approach” - if you can’t eat it or hump it, you pee on it.

    This will be regrettable since the proposals - particularly in the area of the design and implementation of budgetary and fiscal policy - have much to commend them. They may not go as far as I believe they should - and this is true for the entire set of proposals, but, if enacted, they would greatly strengthen the powers of the Dail to hold the entire machinery of government to account and increase the scope for robust economic analysis of policy design and implementation.

    On these grounds alone I believe they receive support from economists on this board, but I fear, as per usual, that the “hurlers on the ditch” wil puck this into the long grass.

  10. Joseph Says:

    Does anyone have a link to the full “New Politics” document?

  11. Paul Hunt Says:

    @Joseph,

    http://www.finegael.org/upload/NewPolitics.pdf

  12. Ribbit Says:

    This is a laudable and timely initiative, which should be fully embraced and actually implemented.

    The Annual Output statements of the departments at present are a bad joke.

    What is needed is a focus shift from line-item budgeting to performance budgeting - no more late December road repairs to use up the current year’s budget ahead of the next cycle.

    Congrats to R Bruton for a useful suggestion that not only makes sense, but also makes his party look competent.

  13. Joseph Says:

    @Paul Hunt - many thanks.

  14. Mokabaybob Says:

    Fiscal rectitude if this means anything in our context must surely require a significant reduction in the size of the Public sector. The dissolution of superfluous departments and quangos would lead to significant cost savings and as importantly, improvement in personal liberties.

    Fine Gael in calling for smarter overview of how government spends tax payers money, is not addressing the main issue; how to significantly and permanently reduce the need for our overly large tax take?

    Six hundred or more quangos are paid for by the Irish taxpayer. It has proven impossible to wrest the detailed information on costs from the various departments that support these. Estimates range from E2.6b to E5.0b annually.

    Fine Gael say they will abolish quangos. Here! Here! Lets see how far they get clipping the wings of RTE or the Road Safety Authority. These quangos demand, and get, significant revenues directly from the public and penalize savagely…

    Hundreds of other pointless quangos exist.

    It is important to cull the “organisational zoo” as the OECD refer to Ireland’s quangos.

    It is also vital to bolster the role of the entrepreneur in society. Cutting taxes and bureaucracy would help. It is the private sector at bottom, which pays for all expenditures.

  15. David O'Donnell Says:

    @Michael Hennigan

    “Perhaps indeed but in the long run we’re all dead.”

    You are being far too optimistic Michael - we are now but mere living zombie serfs whose only short-term purpose is to continue to feed The Systemic Zombie.

    On the Other Offaly Man’s achievement across the pond - yes - magnificent achievement …

    @All

    Richard the Silent has been stirred “shocked” into taking a risk by 2_of_7’s most recent press release:

    Fine Gael finance spokesman Richard Bruton said the public was right to be “deeply shocked” by the news of the pay rises.“It is beyond belief that the Government still intends to invest billions more into a bank which is of no systemic importance to the Irish State. It is wrong to expect taxpayers to take responsibility for Sean FitzPatrick’s debts. Anglo Irish Bank should now be handed over to its creditors when the bank guarantee runs out this year,” he said. [Breaking News - Irish Times]

    Has Richard read 1789 I wonder?

    4b in, 10b from central bank, loss 15b, 35b to nama, 6b more soon …. (to be continued …)

    ah - shur - what’s a few bob to the serfs within who are chained to their desks…

  16. Mokabaybob Says:

    @Paul Quigley

    “Our moneyed and professional classes led a rampant misuse of the credit access which came with the Euro. They did it in the name of ‘dynamic business culture’, ‘free markets’ and ‘deregulation’. Although some real advances were made, the overall governance was manifestly unsound.”

    Your use of these terms is typically disingenuous. Free markets allow people to vote with sound money each time they make a purchasing decision. Credit expansion and a flood of cheap money distorts the free market and befuddles the normally prudent mind of the citizen. This applies to businessmen especially, as they are forced to produce for future demand that may not exist when the time comes to deliver. They are forced to expand their businesses in order to not miss the boat. When credit stops, costs which were artificially low now sharply adjust and we get a bust. It is the adjustment which is the healthy part of this equation. The boom is were the damage is done. In our case the boom was precipitated by cheap money and reckless banking practices. Since the bust, mindless government interventions have chronically exacerbated the situation. The remedy which saves us from this cycle is found in sound money where no credit expansion by Government is allowed. If Government wants to indulge its ambitions it must tax to fund them.

    As to your parody of the idea of deregulation, let point out that we are a highly regulated society and this is a significant part of the problem. Regulation is the preoccupation of the of the Social Planner. This is a phenomenon common to the Socialist States of which we are one. Planning is anathema to freedom as it suggests that the tenured expert, be he intellectual or otherwise has a sufficiency of knowledge and data to make decisions on the citizens behalf. This can only rarely be the case and should not form the basis of governance in a free society in my opinion.

    As to your phrase “dynamic business culture” you might explain what this means.

    The Austrian Economists have understood and described these phenomena for more than ninety years. Through a agonizing silence during the thirties Keynes General Theory was allowed gain the upper hand (due to Hayek’s failure to rebut). The moment was lost and the world has had to endure the consequences of Keynes’ abject mis-comprehensions until now we witness the inevitable conclusion to the piece. A Fascist American State and a world wide crack up boom and bust.

    Ireland needs businesses to prosper and grow. You are right; there is “no brave new world of “business”", but remember Huxley was excoriating the full-on Socialist state when he penned “Brave New World”. Creativity will prove to be a huge factor in our revival as enterprise is a creative effort. Without enterprise we will sink down into the mire.

  17. David O'Donnell Says:

    @MockaBabyBob

    Do you have a ‘name’ to append to such puerile drivel? If you are an OSS_trian, practice the openness you preach. Otherwise, might I humbly suggest that you return to the randite_neo_con recovery groups from whence you have re_emerged.

  18. Paul Hunt Says:

    I suppose I should let it go, but find it difficult. This is Keynes, writing in 1940. It could have been yesterday. When he speaks of the Right he could be speaking of the super-rich elites and those who aspire to join them everywhere as well as the ideologues who continue to pander to their desires; and as for the Left he could be describing the left/progressives who cheerfully trample on individual liberty and have no understanding of the nature of enterprise.

    “The reformers must believe that it is worth while to concede a great deal to preserve that decentralisation of decisions and of power which is the prime virtue of the old individualism. In a world of destroyers, they must zealously protect the variously woven fabric of society, even when this means that some abuses must be spared. Civilisation is a tradition from the past, a miraculous construction made by our fathers…hard to come by and easily lost. We have to escape from the invalidism of the Left which has eaten up the wisdom and strength of many good causes.

    The old guard of the Right, on their side, must surely recognise, if any reason or prudence is theirs, that the existing system is palpably disabled, that the idea of its continuing to function unmodified with half the world in dissolution is just sclerotic. Let them learn from the experience of Great Britain and of Europe that there has been a rottenness at the heart of our society, and do not let them suppose that America is healthy.”

    from Skidelsky’s biography of Keynes, Vol III, p68.

  19. paul quigley Says:

    @ do’d
    Peace man. As Mao Zhedong used to say, let the thousand flowers bloom.

    @mokabaybob
    ‘Without enterprise we will sink down into the mire’.

    No one can disagree with that, but there are all sorts of enterprises in the world. For example there are cultural, political, and religious enterprises, and they all have some economic implications. It’s not easy to communicate when we are all coming from such different places, in every sense.

    Time does not permit a full reply, but it may be helpful if you could at least consider this. There is socialist ideology and there is the empirical verified reality of state socialism, warts, gulags and all. One is theory and the other is practice. The practice didn’t work, but that does not mean that socialism was, or is, rotten in every single resepect. Ditto for Christianity, Islam or neoclassical economics. Every system has flaws.

    It is a scientific task to analyse our economy, in order to distinguish those areas where private enterprise can and operates best. That means looking not just at the bottom line, but also the externalities.

    It is also a fact that business itself ends to limit competition through cartels and monopolies. In other words, Big Business sometimes takes on quasi-state functions. Organising citizens to combat that and other sorts of abuses could be called socialism, so lets just call it working together as best we can.

    @ paul hunt
    Lovely quote. Thanks.

  20. David O'Donnell Says:

    @paul quigley

    Not the dangerous weeds man - pull em in springtimes or the serfs starve in the wintertimes - Leonard Cohen.

  21. sam Says:

    Sorry not relevant but a comment on the education system and quality of public debate in this country.
    A panellist on Vincent Browne repeatedly said that 6 Billion was 600 Million. He repeated this and all nodded in agreement that this was a huge amount of money. There was six panelists including vincent and nobody picked up on this.
    I don’t know whether to laugh or cry

  22. David O'Donnell Says:

    @Mickey Hickey

    Anyway to break down that graphic in the great link you provided above - between De Banks and De Sovereign? Be great if one could - can we dig into it any deeper?

    BTW Anglo_Irish chief announces (in upcoming Irish Times front page) that we MUST - yes I repeat for the benefit of fellow serfs MUST - put another NINE BILLION EUROS into DE SO_CALLED SYSTEMIC ZOMBIE TO KEEP IT AFLOAT. We should drown it forthwith - the big boys in the graphic above can handle it.

  23. Mickey Hickey Says:

    http://economicresources.blogspot.com/2010/02/europes-bank-exposure.html

    Text included.

    Following a video clip by Sarah O’Connor a lovely irish woman with FT LEX. The videos are by Bloomberg and run in North America this one is a about Roll Over of Sovereign debt the major creditors France, DEeutschland, UK, Switzerland known by the acronym F-UK-DE rather apt I thought. The debtors in imminent trouble are Italy, Switzerland and Belgium, not the UK, Greece or Portugal because their short term debt exposure is low.

    Poor Ireland first we have the flood soon to be followed by the deluge.

    http://www.youtube.com/watch?v=juSDaEM7zjk

    These are light entertainment, they are of interest to me because they are widely distributed and if the tone and tenor becomes persistent there can be long term repercussions. There are obvious economic heavyweights on this blog who will find the science more satisfying.

  24. Mickey Hickey Says:

    The phrase “Italy, Switzerland, and Belgium” should be “Italy, Ireland and Belgium”. A freudian slip or wishful thinking I am not sure which.

  25. Michael Hennigan - Finfacts Says:

    Public debt of rich countries to rise to 133% of GDP in 2020 from 102% in
    2010; Ireland to spike at 118% - - up from 28% in 2007

    In the period 2010-2020, among developed economies, only Australia, Denmark, Sweden and Belgium are forecast to see falls in debt-to-GDP ratios.

    In emerging economies, the debt-to-GDP ratio will fall to 35%, from around 46% in 2010.

  26. David O'Donnell Says:

    @sam

    Yes - I tune to VB at times. Elaine Byrne tried to keep conversation on the NINE BILLION that we MUST etc and she noted that this over twice the KUTZ in the last budget ……… but main focus on the superficiality of personality politics ……… Great actor Alan Stanford - but like most serfs - mathematical and economic literacy levels so low that political ’spin’ holds sway no problem ……… the recent evidence of ‘brain activity’ in FG did receive some support here …….. but this of course subject to LB negotiation ……

    I await some substantive comment from leading academics on the options provided by Anglo-Irish CEO in today’s IT. And then we need them on the front page of the Sun and the Star ………

  27. David O'Donnell Says:

    @Mickey Hickey

    Thanks - Good Stuff! With Graphic above - big picture …..

    http://economicresources.blogspot.com/2010/02/europes-bank-exposure.html
    From Bloomberg:
    Feb 28, 2010

    “German and French banks’ “enormous” exposure to Portugal, Ireland, Greece and Spain explains why Europe’s biggest economies are moving to rescue their southern neighbors, Societe General SA said today in a report titled “Shotgun Greek Wedding.” The CHART OF THE DAY shows how much money German, French, Swiss and U.K. banks have at stake in the so-called PIGS countries. Banks in Germany and France alone have a combined exposure of $119 billion to Greece and $909 billion to the four countries, according to data from the Bank for International Settlements. Overall, European banks have $253 billion in Greece and $2.1 trillion in the so-called PIGS.”

    Lots of Green in there - Yes, we are EUROPEAN ….

    Now - can anyone bust this up into De Banks and De Sovereign?

    With apologies to Oscar Wilde - ‘There is only one thing worse than being screwed, and that is now knowing who is doing the screwing!’ Provocative Insights from the Black Hole, NAMA Press, Dublin, 2010.

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