Reforming Ireland’s Budgetary Cycle

Via Commenter @DOCM:

The final report of the Oireachtas sub-committe on reform is now available here.

It represents a major, even historical, change, including the introduction by 2017 of an IPBO, which we discussed here.

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 Oversight 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 the Minister of Finance:

“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.”

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

14 replies on “Reforming Ireland’s Budgetary Cycle”

At the MacGill Summer School in July 2009, Enda Kenny, then leader of the Opposition, asked why do we have a budgetary system in place that is unfit to run a corner-shop, let alone a nation of 4m people?

This is the type of issue that would in reality be excruciatingly boring to Kenny and most TDs but is crucial for budgetary accountability.

A report produced by an IMF team, which visited Dublin in March 2013 to investigate the level of fiscal transparency, both praised and damned Ireland. While the Fund said that “Ireland is approaching best practice in fiscal reporting and forecasting,” the content made clear that the accounting systems currently in place are closer to the times of Queen Victoria than the computer age.

There may have been developments since the IMF report was published in mid-2013 but I can find no public record.

This is an issue more than the existing cash accounting system that ignores issues like liabilities or depreciation of assets. There is no balance sheet. The current ancient system does not allow for easy tracking of spending by category, nevermind what’s happening at local authority level.

Today if Enda Kenny requests data on the total public spending on legal services in 2015, wonder how long it would take to provide an estimate? Ditto for information technology and so on.

Weeks or months at least if Freedom of Information requests are a guide. Usually, information is released before all central government departments respond. Some ignore internal requests for data. Add in agencies/ quangos and local government, and there would be lots of trawling.

So much for the corner shop and while that’s bad enough with little public transparency, ministers and TDs are typically as ignorant as everyone else.

The IMF said that the government “prepares two sets of annual accounts which are audited and published within nine months of year-end, but neither provides a comprehensive overview of the central government finances or follows international accounting standards though they do conform with domestic legal requirements.

Monthly Exchequer returns only include part of revenues and spending; the charts of accounts for central government departments, extra-budgetary funds and other non-market agencies, local governments, and public corporations are not able to automatically generate summary fiscal data in line with international reporting standards; there is no permanent official or unit in the Irish administration responsible for setting and enforcing financial reporting standards across the public sector. As a result, there is no uniform set of accounting rule and procedures applying to government departments, extra-budgetary funds, semi-state bodies, local governments, and public corporations. “This makes consolidating government-wide financial information and promoting system-wide improvements in financial reporting practices very costly and time consuming.”

The IMF report added:

The lack of a comprehensive and exhaustive program classification…blurs the line of sight between policy objectives, resource allocations, expenditures, and outcomes and makes it difficult to prepare COFOG (Classification of the Functions of Government) based statistics on the functional distribution of expenditure without resort to estimation.

Full debate. BSM.
Will it make any difference given the key weakness of the Dail viz the concentration of power in the executive which renders the chamber a talking shop ?

These proposed changes to Dáil procedures are very welcome and long overdue. But it is likely that it will take a long time for the benefits – in terms of re-establishing the Dáil as the primary forum to debate and decide matters of public interest, to adjudicate on the inevitable conflicts between special interests, to enact necessary and considered legislation and to impose scrutiny, restraint and accountability on those exercising power and influence – to emerge. Voters may have to shake the bag quite a few times before they’ll get TDs with the incentives and competence to get these changes to work in their (the voters) interests.

Neither FG nor FF have any incentives to make these changes work in the interests of voters; indeed, it is the opposite. These changes were the very least they had to concede in response to a plurality of voters deciding that they’d had enough of the two-and-a-half party system – and that were not giving either of them enough TDs to dominate and abuse the Oireachtas as they had done increasingly and successively since 1932. I suspect apparatchiks of both parties are furiously trying to figure out ways they can maniupulate these changes to party advantage.

As a result it is likely that it will take this and subsequent Dáileanna quite a while to apply effective fiscal and budgetary scrutiny and restraint. As I’ve mentioned previously, Ireland is in perhaps a unique position in that every member of the Dáil is focused on maximising public expenditure for his or her constituency and for the special interests to which s/he believes s/he is beholden. There may be some TDs, in particular in the bigger parties, who might wish to see a bit of German ordoliberalism, but they appear incapable of securing any political traction.

In any event, while Ireland continues to operate as a regional economy at the intersection of the Trans-Atlantic and EU economic spaces with inevitable highly volatile and often hugely distorted macroeconomic statistics most TDs are perfectly happy to ride this roller-coaster since, when things are on the upswing, the public coffers fill rapidly and they can pander to the whims of voters and special interests. And when the inevitable downswing materialises, let the devil take the hindmost.

In addition, and contrasting with the effective absence of any sort of Gaelic ordoliberalism, there are a variety of left-wing and pseudo left-wing factions, groupuscules and individuals comprising about 25% of the Dáil that, despite their collective delusions and esoteric disputes and doctrinal differences, shift the debate on public expenditure towards excessive statism and fiscal incontinence. (These include SF, AAA-PBP, the three-headed SDs, the four Independents4Change and three assorted left-wing veering independents – Connolly, Healy and Pringle).

The outcome is likely to be chaotic on occasion. And while this might annoy and frustrate it, the Government will probably seek to take advantage of it – as will FF. It may that the penny is dropping with sentient beings in both parties that voters are extremely unlikely ever again to allow either of them to dominate and abuse the Dáil as they have done in the past – and that they’d better mend and make do.

I would be interested to see stats on Government spending per head of population by income decile. Pension tax relief skews an awful lot of money upwards.

The Dáil debate on the motion adopting the sub-committee’s report does not inspire much confidence (see link below). On the other hand, the game-plan with regard to the most essential function of the Dail, that of approving the budget, is now clear. The chairs of the committees will be chosen by the d’Hondt procedure which will give FG/FF first dibs. The three key committees are, of course, the Budget Oversight Committee (BOC), the PAC and that shadowing DOF/DPER, or, as the MOF referred to it, the Finance Committee. There was a suggestion some days back that the last-mentioned would fall to Sinn Féin (which would allow for continued interesting exchanges between the MOF and the SF finance spokesman).
The most important word in the entire report, I would suggest, is the adjective “aggregate”. (The agreement between FG and FF states that the EU fiscal rules will be respected).
Deputy Broughan in the debate (page 20)
“I have reservations about the structure of the budget oversight committee proposed. We will have a sectoral finance committee in this area. One of the OECD proposals, reflected in the report the Oireachtas Library staff carried out, was that an Estimates or budget oversight committee would comprise the Joint Committee on Finance, Public Expenditure and Reform and the heads of the other committees. It was a different type of committee and would have had a major input into the structure of the budget during the preparation of Estimates each spring and summer and the bringing together of the budgetary process in September and October. I am not sure the committee will do this or whether it will be going over the work of the sectoral committees in this area again.”
This is, of course, a key, if not the key, issue which, from the wording of the report itself, is still up in the air. Maybe the version, when finally adopted, will correct this.
On the points made by MH above, and what has been described, aptly, as the “tennis club” nature of our government accounts, the fact that there is an unavoidable commitment to establish the IPBO on a statutory basis should finally cause that most hide-bound department of state (or rather the two departments that now make it up) to bestir itself (themselves). Less management waffle and real action by DPER, which has the main responsibility it would seem, would be in order. A webpage with a list of circulars will not do.
There must be immediate, and long-overdue, recognition that the system must be upgraded as an absolute priority. Otherwise, the IPBO will beat it to the pass or, more likely, there will be pointless disputes between the two based on a common shared inability to provide the required budgetary data.

This is an intriguing development.
(The correspondence, for those interested, can be found – discreetly – on the DOF site under ‘Publications’ on main masthead menu and on the DPER site under Corporate Information!).
Costing campaign commitments to add to the iceberg of government expenditure might, hopefully, lead to assessing individual elements of the main bulk of spending, which lies below the water, as between the main sectoral headings e.g. between primary, secondary (mainstream and technical) and third level education. A settled Oireachtas committee structure might also help remedy the central problem identified by the IMF as pointed out by MH when coupled with the expenditure ceilings to be observed by individual ministers.
“The lack of a comprehensive and exhaustive program classification…blurs the line of sight between policy objectives, resource allocations, expenditures, and outcomes and makes it difficult to prepare COFOG (Classification of the Functions of Government) based statistics on the functional distribution of expenditure without resort to estimation.”
Such a classification is a sine qua non for any real modernisation of government accounting.
And, hopefully, also lead to the ending of the functionally pointless division of responsibility between two departments in the matter of overseeing public expenditure!

According to a report in the Sunday Times, there is dispute between FG/FF on the allocation of the chairmanship of committees, the full implications of the introduction of the d’Hondt method for their selection not having, evidently, been fully worked out cf.
On the paradox of the country’s credit rating rising against the background of what appears to be a chaotic political dance by many politicians quite clearly not up to the job, John McManus in the IT on Saturday has a more than plausible explanation.
However, the politicians are IMHO far from being as impotent as he suggests. They are in charge on the basis of a mandate from the people. It – the mandate that is – happens to be pushing them in a direction which is viewed, externally at least, as the right one.

Numerous key questions, nevertheless, remain unanswered (i) will ministerial expenditure ceilings, once set, be observed (ii) on what basis will they be established (iii) how will they be related to the new budgetary process (iv) what procedures will be followed in the event that they are not (v) what legislative changes are envisaged (vi) what technical government accounting improvements will be introduced in order to make the new approach one of substance rather than appearance?

The existing relevant legal text, as far as I know.
It does not provide a basis for a meaningful medium-term-budgetary-framework approach to
budget management. Indeed, the approach is not clear on any point other than that the government is not limited in the slightest in what it may decide to do with regard to the proposed “ceilings”. Neither is there any discernible functional link between them and the budgetary year under discussion.

Minister for PER in this interview with Sean Whelan of RTE gives the most accurate statement of intent; and on where the balance between the role of the government and the Dáil will lie.
The EU fiscal rules get no mention! Or the fact that no budget can get passed without the approval of FF!
No matter. It seems that the die is now cast. The debate may now also change to the Dutch rather than the Scandinavian model.
The Dutch are, in effect, going their own way in the matter of trying to cope with the moving target of the structural balance under the fiscal rules aka calculating the appropriate available fiscal space. It is rather easier for them as they are (i) a large creditor nation and (ii) seem set to hit the Maastricht 60% GDP target.

The Dáil reform committee report as finally adopted.
A “preliminary Committee to be established [Select Committee on Arrangements for
Budgetary Scrutiny] to define role and function of Budget Oversight
Committee.” Page 10.
In short, how the BOC is to work needs further teasing out by still another committee! One wonders whether this will have happened by the time the in July of the submission of the first ever “Spending Statement, outlining spending limits for each department, and reporting on spending patterns over the first six months of the year”, as reported by RTE. And how this will fit into whatever version of an MTBF is considered best suited to the idiosyncrasies of the Irish economy.
Piecemeal presentation of the figures, liberally interspersed with party political bumpf, which has been a feature of Expenditure Reports at budget time up to this point, will hardly pass muster. A spreadsheet presentation would be the approach that most obviously comes to mind.

Of course an additional committee will be required to define the role and function of the BOC. This kind of thing happens in all jurisdictions when politicians simply don’t have the stomach to do the sensible thing or when one or more of the powerful special interests would cut up rough – or possibly both. But Irish politicians probably take the buscuit when it comes to establishing or empowering temporary or statutory bodies, committees, review bodies, task forces, tribunals, commissions of inquiry, whatever you’re having yourself to kick difficult issues in to the long grass. (The expansion of the number of bodies, boards and entities having some sort of Irish Water oversight role – I counted nine at the last reckooning – is a perfect example.)

In this instance there is no real political desire in the Dáil to exercise any sort of effective parliamentary scrutiny, restraint or accountability on public expenditure. As usual, Colm McCarthy hits the nail on the head in today’s Sindo when he describes the relaxation of spending constraints as “the sincerest wish, it would appear, of all 158 Dail deputies”.

I fear you could be right. However, as I have attributed no high-minded motivation of any description to the politicians involved, I am not disappointed.
This link, on the contribution of the DPER on how to handle the accounting impact of the latest re-juggling by the politicians of departmental responsibilities, will confirm one in a gloomy view.
One might say that, if there has to be chaos, it might as well be organised!
Any form of meaningful reform of government accounting – to provide real-time budgetary information – is impossible if the mind-set revealed by this approach is continued under the “new politics”. I remain of the hope that it is impossible for it to continue.
cf. the view of the IMF quoted by MH above at the start of this thread.

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