Ireland’s Comprehensive Expenditure Report 2012-14 by Annette J Dunlea
The CRE report states that each government department prepared a Comprehensive Expenditure Report in respect of the Department and its associated agencies, to identify expenditure programme savings, scope for savings arising from efficiency and other reforms, proposals for reducing and/or merging of agencies and associated reductions in staff numbers.The objectives of the Expenditure Review process was, it stated, to provide the Government with a comprehensive set of decision options:to meet the overall fiscal consolidation objectives, both as regards spending and numbers reduction targets, to re-align spending with the Programme for Government priorities and in this context, to consider new ways of achieving Government objectives in the context of public sector reform. Under the CRE, Ministers and Departments had the responsibility to evaluate every budgetary programme for which they are responsible, within both Departments and Agencies.Parallel to the CRE a Capital Expenditure Review was undertaken.
The document sets out a programme of current expenditure measures which complement the capital programme published on 10 November 2011, in Infrastructure and Capital Investment 2012-2016: Medium Term Exchequer Framework, and it implements various commitments set out in the Public Service Reform Plan published on 17 November 2011 by the Minister for Public Expenditure and Reform.Closing the Government deficit is an economic policy imperative and the Government’s Medium- Term Fiscal Statement sets out the path of fiscal adjustment over the coming years. It says that considerable progress has already been made towards stabilising the public finances. This year’s General Government deficit is now expected to be 10.1% of GDP. This is below target for the year.Yet substantial challenges remain for Ireland, it notes. Continuing to run large deficits and borrowing to fund them is simply not viable. While revenue raising measures will play an important role, the need to reduce expenditure further is an inescapable reality, it warns.
The report says there have already been substantial reductions in voted current expenditure since the onset of the economic downturn in 2008. A range of consolidation measures have been taken on the current expenditure side, in particular:The February 2009 Expenditure Adjustments, making savings of €3.1 billion, April 2009 Budget, expenditure savings of €1.2 billion, Budget 2010, expenditure savings of €3.1 billion, Budget 2011, expenditure savings of €2.1 billion and in 2011, total voted current expenditure was lower by almost 5% compared to 2009. In 2012 it will be almost 7% lower than its peak. This gross trend masks the fact that much deeper reductions were necessary in order to counter a number of very significant increases in certain areas.The rise of unemployment has exerted heavy pressure on the Social Protection budget. In terms of direct payments, spending on payments to Jobseekers in 2011 was over three times the 2006 level. It notes that this has knock-on effects in terms of health expenditure as entitlements to medical cards and other benefits have increased as a direct result. A necessary corollary to the reductions in public service staffing numbers has been some measure of increase in public service pension expenditure.Demographic pressures are manifest in a number of areas. Growth in birth rates has implications for education programme expenditure in particular.Reductions have had to be made elsewhere to counteract these effects.
It says that taking account of the significant investment made to close our infrastructure gap, the decline in the size of the economy and the fall in tender prices, major reductions in capital expenditure have also been achieved. From a peak of over €9 billion in 2008, capital investment was €4.5 billion in 2011. In its Infrastructure and Capital Investment Framework, the Government has set out plans for further reductions while protecting investment in healthcare, schools and jobcreating investment.To date, reductions in staffing numbers and pay have had a vital role in consolidation. While both have fallen, the net public service pay cost has been more markedly reduced than overall staffing levels. This reflects reductions in staffing numbers and pay rates as well as the introduction of the pension-related levy on public servants. While public service staffing levels have been reduced by 6%, the net paybill has been reduced by 14%. The implementation of the provisions of the Public Service Reform programme will see a reduction in the net paybill of over 20% on 2008 levels. Reductions in the public service paybill and staffing numbers will continue to play a part in expenditure consolidation. Implementation of the Public Service Reform programme will deliver a slimmer and more cost-effective public service and allow us to ensure that front-line services are protected as far as possible.It says this demands a more sophisticated and systematic approach: short term and ad hoc approaches of the past will not suffice. The Government,therefore, has undertaken a Comprehensive Review of Expenditure (CRE) and put in train a range of other expenditure reforms.
The CRE process is marked out from previous spending plans and budgetary allocations in that it is not simply about cuts and numbers. While it is an unavoidable fact that public expenditure will be lower in the coming years, achieving spending reductions is not the sole focus of this Report.Afforded equal importance is the need to get priorities right, and crucially, embed expenditure policy within the reform agenda.The Government’s commitment to this last point is firm, and is most clearly evidenced by the establishment of a new Government Department to combine the ‘expenditure’ and ‘reform’ agendas together and on an equal footing.The interaction of public expenditure and the reform agenda is essentially two-fold, relating to:the need to reform how we deliver essential public services to reduce unit costs, the need for structural budgetary reforms of how we manage the economy, allocate scarce resources and evaluate performance. This Report is one of a series of budget-related policy documents published by the Government and should also be viewed in the context of the Government’s Public Service Reform Plan. The Plan sets out a means of delivering a modern, flexible and innovative public service. The key commitments of the Plan are as follows:placing customer services at the heart of everything we do; maximising new and innovative service delivery channels;radically reducing our costs to drive better value for money;leading, organising in new ways; and focusing on implementation and delivery.
The principles that underpin the CRE complement these elements and arise from the same set of values. The Government is in the process of implementing a wide-ranging reform of the State’s budgetary architecture. It says that these important changes will operate within a new legal context and be underpinned by new administrative arrangements. The key elements of the new architecture will be provided for in law by means of a Fiscal Responsibility Bill in 2012. Refocused administrative arrangements can give effect to other components such as aspects of the Medium-Term Expenditure Framework, strengthened value-for-money arrangements and the advancement of performance budgeting across the Government system.Together, these reforms can help guard against imprudent management of scarce public finances. Further details on the Medium-Term Expenditure Framework, updated and refocused value-for-money (VFM) arrangements and the move to performance budgeting.It warns that the CRE is by no means a once-off exercise, it will become the keystone of public financial management. The Government has decided that next CRE will be undertaken from autumn 2013 to spring 2014 to inform the next phase of fiscal planning. It says that the new budgetary architecture, with the focus upon ongoing evaluation, performance and VFM, will be key inputs to this process.At a more detailed level, the CRE process is designed to provide the Government with a complete set of decision options which can:re-align spending with the priorities set out in the Government Programme;meet the overall fiscal consolidation objectives, both in terms of total expenditure and staffing numbers reduction targets; and explore new and innovative ways of delivering Government policy in a reformed public service. The foundation of the CRE is a move away from traditional Estimates processes of the past towards a more rigorous approach to budgetary allocations, informed by Government priorities and responsive to economic and societal demands. The primary input to the process was the compilation of an Expenditure Report by each Government Department.The Expenditure Reports represent a line-by-line examination of the spectrum of public services designed to refocus delivery and achieve better value for money. In common with the suite of budgetary reforms the emphasis is on service delivery and final impacts, as opposed to simple financial inputs. Government Departments were provided with a standard method for assessing spending areas, using three Value for Money ‘Tests’. A standard approach was developed as an aid to prioritisation. This involved assessing each programme against three VfM Tests in order to ensure maximum impact of spending:vfM Test 1 Rationale, Objectives, Relevance, What are the objectives of the programme? Is there a valid rationale for undertaking the programme? Is the policy consistent with the Government Programme? VfM Test 2 Effectiveness: is the programme achieving its objectives? VfM Test 3 Efficiency Is the maximum being delivered with the resources invested? How can greater efficiency be achieved in the context of a lower level of expenditure?Within this framework, Government Departments also considered specific issues which could realise savings and maximise impact. These included rationalisation of grant and subsidy schemes; simplification of systems; rationalisation, merger or abolition of agencies; potential for shared services or external service delivery; and more widespread use of eGovernment.
The Government Programme sets out an ambitious agenda for reform of service delivery and for targeting resources on priority areas. It notes that in the past, expenditure growth was allowed to run far ahead of the economy’s underlying ability to finance it. Arising from this, value-for-money tended to suffer, along with the efficiency of delivering services to the public and the effectiveness of public expenditure in achieving its objectives.The Government has determined that all of this must now change, to put an end to poorly planned, unsustainable spending and wasteful, inefficient practices. Instead, the Government has decided to introduce a completely new way of fiscal planning. On 4 November 2011, the Government produced its Medium-Term Fiscal Statement. That document spells out, for the first time, the total quantum of public expenditure that will be available for allocation in 2012,showing the levels of both current and capital spending. The expenditure allocations for 2013 and 2014 are also laid out clearly, again broken down between current and capital, along with the overall contribution from taxation.This marks a decisive shift away from the old way of doing business. Now, the Government is setting out its plans clearly in advance. The Government Programme puts a new emphasis upon performance and delivery across public administration. The Government intends to modernise the Estimates process by building performance information right into the heart of the budgetary documentation. Through performance budgeting, Dáil Committees will in future know what public service outputs and outcomes are being delivered with public funds. Ministers and public service managers can for the first time be held accountable against these targets.Under the new Performance Budgeting approach, the key information needed by decisionmakers, and by those who scrutinise public policy, is available at a glance:Financial and Human Resource Inputs – The amount of money going to each spending area is laid out, even more clearly and succinctly than under the old system. The money is broken down between Administration Costs – both Pay and Non-pay – and the actual costs of programme delivery. In this way, areas of relative efficiency and inefficiency can be identified. It notes that up to now, the entire budgetary process has been a closed and secretive affair, with expenditure allocations effectively decided by the Government behind closed doors. Dáil Éireann is formally responsible for voting through the Estimates of Expenditure each year: but in practice, the precise allocations brought forward by Government tend to be a fait accompli, as there are no mechanisms for advance parliamentary input into the resource allocation process.It says that instead of waiting until the end of the year to produce Estimates, the Government will be starting from now to make clear exactly how much money is planned to be available to each Department not just in the coming year, but over the next three years. As well as the detailed 2012 Estimates, today’s Comprehensive Expenditure Report sets out the allocations for each Department for 2012, 2013 and for 2014.The first task of the Dáil will be to consider and vote upon the 2012 Estimates, armed as it now is with the new performance information. Immediately after that,the Dáil will be in a position from the outset of each year to engage with Ministers and Departments on their spending plans for the following year. Dáil Committees will be able to engage in constructive dialogue and input their views on which areas of spending should be prioritised. It notes that the new budgetary process is also in keeping with the evolving EU economic governance framework.
The new system of budgeting being introduced by the Government, with an overarching medium-term framework, fiscal rules, an independent Fiscal Advisory Council and multiannual expenditure ceilings and will adhere to the new economic governance package adopted by the EU in October 2011. The report says that by going further in the direction of transparency, openness and parliamentary input, Ireland is also well placed to participate in ongoing EU developments, which place a higher premium upon the assessment at EU level of all Member States’ budgetary proposals in advance of finalisation.The new timetable also makes clear how each of the reform measures outlined in this Comprehensive Expenditure Report provides new opportunities and new tools for the Oireachtas to engage with the expenditure process more fully.The Government is living up to its commitments: it is putting in place a completely new budgetary architecture, with openness, transparency and accountability at its core. It is now up to all participants in the budgetary process – Departments, Ministers and most of all parliamentarians to make the process work.