What should an Irish Parliamentary Budget Office Do?

Parliamentary Budget Offices (PBOs) exist around the world and typically provide budget projections, budget risk analyses, estimates of policy changes, impact assessments, flow of funds analyses, macro-trend analysis, and financial analysis where, prospective policies can be independently costed. The PBO also has an outreach function to show the public the work parliament does in assessing the fit of new proposals.

PBOs are different from Fiscal Councils, in that fiscal councils occupy a watchdog function, evaluating the health of the economy generally and assessing compliance with constitutionally-mandated fiscal rules. Ireland has a fiscal council, it does not have a PBO. The new programme for government commits (on pages 14 and 15) to establishing one.

Much of the work of a modern PBO is already done, either by the Oireachtas Library Service, the Departments of Finance and Public Expenditure and Reform, the Central Bank, and the Fiscal Advisory Council.

For example, the Oireachtas Library Service commissions pieces of work on costing different policies through e-tenders, we find the Stability Programme Update from the Department of Finance containing a set of risks to the economy; we find the Central Bank’s Macro-financial Review looking at trend analysis, we find the Department of Public Expenditure and Reform doing work on open data and database management, we find the Comptroller and Auditor General looking at costing exercises, and we find the Fiscal Council doing lots of work on fiscal spaces and debt sustainability.

Right now, there are two ways most political parties or interest groups do their costing of policies in Ireland.

First, the Departments of Finance and Public Expenditure and Reform have a series of models (spreadsheets, basically) which give their best guess as to what happens when you do things like cut income taxes or abolish USC or something like that. Typically a TD submits a Parliamentary Question to the Department of Finance, or the Revenue Commissioners if it’s just a tax matter. The diligent civil servants will then do their best to come up with a number for you for how much it will cost to implement your policy.  The problem is these costings are both static, partial, and sometimes based on weak assumptions.

Second, the estimates are run through a model like HERMES or COSMOS or something else. Models are a good way to cost some policies, but the Departments’ existing models only go so far. If you want to introduce a new policy like a tax on net assets over €1m, then the model can’t run that because it has no previous data and the work to include the new equations for the model is beyond the scope of a simple ‘costing’ exercise.

A PBO would allow parliament more consistent access to a suite of models for policy costings and would relieve the Departments of some of the difficulties associated with these costings, because the PBO’s office is independent and a creature of the Oireachtas, while the Department of Finance is bound to serve the Government. It is also true that committees would benefit from the PBO’s existence because members of the PBO would be required to appear before the committee to discuss the costings of various policies.

Take the 10 year plan for Health currently mooted by 89 TDs and endorsed as an idea by the new Minister for Health, Simon Harris. The estimates of the costs of re-organising the health service could be put to the PBO to figure out. We would also see where the data stores were, and how they should be aggregated. The PBO could also sponsor new data-gathering processes and hold a central data-repository functions, and there is a large OECD network of PBOs to tap into, which has already produced a review of budget oversight by parliament (.pdf)

The PBO could form a part of the new budgetary process as soon as next year, and it’s a very exciting policy initiative and a big opportunity.

 

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

23 replies on “What should an Irish Parliamentary Budget Office Do?”

What problem is the proposed establishment of a PBO supposed to solve?

Unlike most other parliaments or legislatures, every single TD in the Dáil is seeking to maximise public expenditure and to maximise the share allocated to his or her constituency and to the interests to which s/he believes or perceives s/he is beholden. The last government and almost certainly this ill-begotten government (with the assistance of the best brains in the DoF) are straining every sinew and twisting every number to maximise public expenditure while affecting to comply with the SGP’s revised asinine rules on minimum required improvements in the structural balance and expenditure benchmark. And in doing this it will have the unanimous support of the Dáil. The Government won’t have to secure the formal approval of the Dáil; it can assume it has it.

It solves three problems, all related to information. First, a standard response format and information set for questions TDs might wish to ask. Second, it centralises a lot of the work DOF et al does now. Third it places a research and costing function under the aegis of parliament and not the government.

By Post Author

Stephen, thank you for this response. If, as you indicate, the primary objective is the provision of timely and relevant information and some analysis, I have long argued that the Oireachtas should have access to the relevant resources and capability. For example, those who spend their time in government departments, in particular the DoF and DPER, responding to questions from TDs and Senators and doing so in a manner that minimises the amount of useful information provided and twist the Eenglish language to avoid revealing anything that might expose government incompetence or chicanery should be moved and assigned to work directly for the Oireachtas – but with full access to the relevant departmental information and data. As another example, the ESRI gets funding directly from government, gets funding from separately from departments, other public agencies and semi-states and generates revenue from providing “consulting services”. The ESRI should be broken up and the part that performs policy research and analysis should be assigned to the Oireachtas.

And this information provision and analytic capability should not be confined to budgetary matters; it would be wonderful if enough TDs were prepared to ask the question: “What is the cost of living in Ireland more than 20% above the Euro Area average?” and to authorise a properly empowered and resourced investigation. But there’s the rub. Even though many, if not most of them, are well aware that the excessive and unjustified cost burdens being imposed on households drive the demand for pay increases, tax cuts and increased welfare transfers they live in fear of antagonising the powerful special interests who are making out like bandits at the expense of the majority of ordinary citizens.

And so we are where we are.

Paul:

The SGP defines a ‘max’ for politicians to ‘max out’ to. The ‘grown ups’ have set boundaries , and there is a naughty step.

A PBO might reduce the entertainment value of opposition politics and allow the batteries in your Bullshometer to last a bit longer.

A PBO won’t help with the Groupthink issues which plague Irish finance. The global financial system is in an exceptionally volatile phase. Government needs to tread softly .

Should help. The purpose of the model is to sharpen the questions. DOF needs to work on this.

@grumpy,

That indeed is the perception the EU’s Grand Panjandrums wish to convey. But governments of the major economies can ignore, and do ignore, this ‘max’ with impunity. Ths anally retentive “schwarze null” obsession of Germany and the mercantilist nature of its internal EU policies – supported by other Northern European countries – are both stupid and counter-productive. But the strategic economics and politics are understandable. Individual EU member-states will struggle in a world of “big beasts”. And having expended so much treasure – with Germany being the dominant net contributor – to help lift the PIIGS out of backwardness, economic misery and dictatorship or repression, there is a justified reluctance to spend any more than has already been committed. It’s a case of “Fool me once, shame on you; fool me twice, shame on me.”

When English people who have some understanding of this fundamental economic and political impasse ask me why I believe the UK should remain in the EU, I’m beginning to struggle to provide a convincing answer.

The bodies mentioned do NOT have the required financial information. If they did, budget overruns and supplementary estimates would not be the order of the day, still less a near total collapse of the state’s finances.
This is how its is done in a meaningful sense.
http://www.esv.se/contentassets/827db7e731934fff82f9254a72cd5ee4/financial-information-of-good-quality.pdf
What we are witnessing is a continued game of budgetary charades, from bogs to whatever you are having yourself. Curiously, however, the requirement to cost the various commitments in the “programme for government” is, for the first time, unavoidable. Will it be done in a high-powered Budget Committee or dispersed among various sectoral committees? That is the politically burning question. The PBO will have a walk-on part. There would be no need for it if a proper system of rolling national accounts existed.

Also of interest!
http://bruegel.org/wp-content/uploads/2016/03/pc_2016_07.pdf
The paper makes eminent sense but there is no chance of the clock being turned back.
http://www.euractiv.com/section/euro-finance/news/commission-to-recommend-sanctions-against-spain-and-portugal/
The luck of the Irish, courtesy FDI, continues to hold.
The political impetus for introducing top-down budgeting has to be home-grown i.e. as a matter of national self-interest. The behaviour of the Irish political class, however, since an inconclusive election, shows little evidence of this. The near total administrative failure of the main department of state with the legislative responsibility has been a major additional contributory factor.

The Swedish one!
The idea is simple in theory but very difficult to operate in practice because politicians do not like to be tied down by binding budgetary ceilings. (If one needs confirmation of this, one need look no further than the debate on “fiscal space”). It means that the budget horizon is three years in terms of ceilings, but “rolling forward” one year when the current annual budgetary cycle is completed (including approved adjustments within the annual ceiling). Theoretically, that is what Ireland is supposed to be doing under the Medium Term Budgetary Framework (MTBF). Indeed, the necessary legislation is already in place but, as IFAC has pointed out, the “ministerial ceilings” are not observed.
http://www.irishstatutebook.ie/eli/2013/act/29/enacted/en/html
Neither a PBO nor any other party political gimmick can resolve the budgetary management problem without (i) the necessary financial information on ALL expenditure on an ongoing real-time basis (ii) binding expenditure ceilings for each minister and their accounting officers for the relevant votes.
Needless to say, one department of finance, and not two, would be a further help.
One powerful parliamentary Budget Committee is also an essential feature. But it must doubtful if this will happen as the desire of the two main parties is to land others – and notably Sinn Féin – with the responsibility of establishing that their pet ideas are impossible in budgetary terms.
The sophistication of the Swedish system is obvious. The opposite is true in our case. Hence, the scramble to get some deus ex machina to cost new proposals while ignoring the 95% of spending which is recurrent expenditure while failing abysmally to maintain the necessary levels of investment.
The effective management of a modern economy is probably impossible without the type of top-down budgeting exemplified by Sweden and other, mainly Scandinavian, highly successful economies. The two facts are not unrelated.

@DOCM,

I fear that, irrespective of however long you may advocate it or however much you might wish to achivee it, you will never turn Irish people in to good little Scandinavians. And I don’t think I’d lie it if it were to happen. Colm McCarthy and Dan O’Brien are displaying their usual capabilities in today’s Sindo, but I fear, they too, are missing the point.

Because extortive corruption is relatively rare in Ireland, more Irish people are prepared to place a reliance on public provision and public administration than might be the case in many other advanced economies. But the downside is the endemic and pervasive collusive corruption practised by those exercising political and economic power. However, it is a trade-off that a majority of Irish citizens, to the extent that they are aware of it, seem prepared to accept.

FYI
http://ec.europa.eu/eurostat/documents/2995521/6899478/2-07072015-AP-EN.pdf/797f4af9-c37f-4631-8211-5dd0b32fcb31
I think we are agreed on the fact that Ireland is a country with low tax, low public expenditure and a high level of social transfers. The facts are staring us in the face in the matter. Why the parties involved are unwilling to face up to them is a more complicated question. My own view is that the single transferable vote and dominance of public sector unions are the two main reasons, the first because local issues dominate, the guiding factor for all TDs being “mind your seat”, and hang the national economic consequences, the second because the lack of a balanced trade union representation across both the non-traded and traded sectors of the economy leads to the public sector (which includes the bulk of the professions) grabbing a larger slice of the national expenditure cake than that to which it is entitled. This situation is long-standing and repeating itself, despite the fact that there is clear evidence that the electorate wishes to see fundamental changes.
They idea that the general populance would, however, turn into Scandinavians overnight never crossed my mind. I have consistently referred to the coincidence of circumstances which appears to be nudging the country towards the trade-offs that have to take place to improve the situation. (An example would be the point I made weeks ago on the “Programme for Government” thread to the effect such could not exist in any real sense, something which seemed obvious at the time but which it took – seemingly – recent events to confirm in the minds of both politicians and electorate).
P.S. “Pervasive collusive corruption”? An overstated case is a massively weakened one.

This somewhat dated OECD study on top-down budgeting, to which I have linked before, is nevertheless very useful in that it contrasts the experience of a number of different countries and covers the various models then (2006) in use.
https://www.oecd.org/gov/budgeting/43469596.pdf
Page 10.
“The MTBF cycle can either be rolling or periodical. Rolling frameworks
are drawn up during budget preparation every year or every two years.
Year 1 in the previous year’s framework becomes the basis for the budget
and a new year 3 is added (in case of three-year frameworks). Thus an
MTBF cycle in a rolling framework will necessarily overlap with the
previous and subsequent cycles by one or two years, by design. In contrast, a
periodical framework has cycles that run in sequence one after another.”
The EU fiscal framework would appear to encompass both approaches. The most successful are clearly in the first category, the UK being the most egregious example of talking the talk without actually walking the walk (still another example of the poor performance of the “Westminster model” which the Irish public service has, hitherto at least, been unable to see beyond!).
The requirement that parliament have PRIOR involvement in budgetary matters may also be noted. There is still no sign of the final report of the cross-party sub-committee on Dáil reform. An omen, perhaps, of a recognition of the political difficulties of actually walking the walk. A “two to one split between public services and tax cuts” is not a meaningful policy statement. If anything, it simply adds to the derision which the political class in Ireland seems increasingly to merit with every passing day.

Similar to Leona Helmsley’s self-serving assertion that “taxes are for the little people”, it appears the EU’s fiscal rules are for the “small economies”.

The latest on the “new politics”.
http://www.irishtimes.com/news/politics/reformed-d%C3%A1il-may-not-be-fully-functioning-until-autumn-1.2651240
The mooted PBO, curiously, gets no mention.
On the point made by Dan McLaughlin, the IMF has not hidden its rather dim view of the EU’s fiscal rules.
https://www.imf.org/external/pubs/ft/sdn/2015/sdn1509.pdf
The wider issue is a political and institutional one i.e. the main impetus for the creation of budgetary arrangements which favour rather than hinder the correct macro-economic management of an economy must be home-grown i.e. as either a broad-based political recognition of the need for change or, as I have argued, and possibly uniquely, in Ireland’s case, a fortuitous coincidence of electoral circumstances. Outside frameworks, and the bodies implementing them, can only try to prod the reluctant participants in the right direction. (Both the German finance minister, and the head of the Bundesbank, are of the view that the last-mentioned task, one way or the other, should be taken away from the Commission and given to a more “independent” body).
Being a small country, and less capable of resisting such prodding, might be viewed as a blessing in disguise, and viewed in that light by a majority of the electorate.

The final report of the Oireachtas sub-committe on reform is now available.
http://www.oireachtas.ie/parliament/oireachtasbusiness/committees_list/committeeonprocedureandprivilegesdail/dail-reform/
It represents a major, even historical, change, including the introduction by 2017 of an IPBO.
There remain, however, a number of major ambiguities e.g. no definition of the “budgetary cycle”, lack of clarity in the role of the Budget Ovesight Committee (BOC) and its relations ship with the the sectoral committee “shadowing” Finance, PER and the Taoiseach’s department and, in particular, the other sectoral committees (page 9) “Committee also to consider option where Departmental Estimates would be considered by sectoral committees which would make their views known to Budget Oversight Committee for its consideration of aggregate position.”
In short, plenty on the form but very little in the matter of the substance of the involvement of the Dáil in deciding the levels and allocation of expenditure and taxation. It seems. however, that the split between PER and Finance will be between these two issues cf. the remarks by MOF.
http://oireachtasdebates.oireachtas.ie/debates%20authoring/debateswebpack.nsf/takes/dail2016051800028?opendocument
“The Spring Economic Statement will become a summer statement and it should be ready by June. There will be a full debate in the House. I am providing all the text papers to the finance committee so that there will be a full debate on taxation at that point, in advance of the budget.”
A brave new world, nevertheless.

Noted. I agree that it is an important issue, possibly the most important facing the new government. There is, nevertheless, a remarkable lack of any organised debate in the matter. The key consideration is, of course, that there is, in practice, major cross-party acceptance of fixed expenditure ceilings for each major expenditure area (now seemingly to be organised on the basis of the new departmental distribution) over the accepted three year period BEFORE the debate on taxation and the detailed estimates. The issue of a margin below the ceilings to cater for the unexpected must surely also arise. (The “rainy day” fund?). Spending up to the limit of an annually recalculated expenditure benchmark is NOT a credible macro-economic policy approach. The rolling three-year cycle approach is the only one that is.
The existing archaic annual budgetary cycle cannot, in logic, continue as is.
The action, if any, the two departments involved are taking to deal with these two major issues has not been made clear.
Budget day promises to be a very interesting experience for all concerned if it is decided to simply muddle through on the basis of existing budgetary procedures.

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