Tuesday, July 8, 2008

Irish Government plans €440 million in public expenditure cuts

Today Finance Minister Brian Lenihan announced plans to cut public expenditure by €440 million.
Effectively decentralisation appears to have been shelved. Manning levels in the HSE are to be reduced. All Departments, State Agencies and Local Authorities - other than Health and Education - will be required to reduce their payroll bill by 3% by the end of 2009. But is Education really excluded? FG spokesman on Education Brian Hayes has issued the following statement "...Brian Lenihan said that the Department of Education would be excepted from reducing its payroll bill by 3% but in his very next sentence he said that 'the parameters for this exception are to be agreed by the Departments concerned with the Department of Finance.' This means that Education is not exempted at all from payroll cutbacks and has to negotiate with regard to what cuts it faces...." This caveat applies also to Health.

I suspect that the Government is angling for a public sector pay pause in 2009. The Minister expects a shortfall of €3bn in tax revenue this year. To say the least this is in my view highly conservative. I suspect it may be €4 billion at least. An interesting question arises. What will fund manpower reductions in the public service? Many of those made redundant will be entitled to state benefits.
So the Government will gain with one hand and lose with the other. In addition there is potential for serious conflict in the Health sector. Frontline services in the Health sector will inevitably suffer from cut backs.

Much of what is announced today is aspirational and the details remain to be fleshed out. At last the FF/PD/Green Government appears to accept that we have a crisis. Prior to this critics were accused of talking down the economy. Interest in the next few weeks and months will focus on the actual details of the cuts. As usual the devil will be in the detail. Much of this could have been avoided by prudent action in the last two budgets.

Key points of Minister's Speech:

'The Exchequer returns published by my Department last week confirm we are facing a shortfall of €3bn in tax revenue this year.
'Government expenditure is running at 11% ahead of the same period for last year. And there are a number of spending pressures due mainly to higher unemployment.
Accordingly the Government has decided that all of the pending increases for Ministerial and Parliamentary office-holders and for other senior public servants, recommended by the Review Body on Higher Remuneration in the Public Sector will not be implemented.
'The issue will be reviewed in September 2010 but without commitment at this stage to the outcome.
'To meet current expenditure pressures, the following measures will be taken:

* All Departments, State Agencies and Local Authorities - other than Health and Education - will be required to reduce their payroll bill by 3% by the end of 2009 through all appropriate measures identified by local management in the light of local circumstances. The parameters of this exception for the health and education sector are to be agreed by the Departments concerned with the Department of Finance.

* All expenditure by Departments and Agencies on Consultancies, Advertising and Public Relations will be significantly reduced for the remainder of this year and by at least 50% in 2009.

* Further savings in 2008 and in 2009 are to be secured by a range of measures including those identified as a result of the Budget day efficiency review initiated by my predecessor.

* All of the above efficiencies will apply equally to State Agencies. In addition, I have asked that these agencies be reviewed to examine whether they can share services, whether it would be appropriate to absorb some of their functions back into their parent Departments or whether some agencies should be amalgamated or abolished. The outcome of this will be considered by the Government in the Autumn.

* Capital investment will remain a top priority. Capital projects will be examined and prioritised to ensure that resources are targeted in the first instance at construction-related investment in core economic infrastructure that adds to productive capacity.

* The Government has also decided, in the light of the current Exchequer position, that further expenditure for the acquisition of accommodation for decentralisation will await detailed consideration of reports from the Decentralisation Implementation Group.

* Minister of State Martin Mansergh will head up a joint public procurement operation between OPW and the Department of Finance to drive a programme of reform and to produce a business plan for purchasing savings to be achieved by Departments and other public bodies in 2009. Minister Mansergh will report to me in the Autumn with specific proposals to target at least €50m savings in 2009 on this front.

* Given the projected revision to GNP and other factors, there will be savings in Overseas Development Assistance of some €45 million this year. The revised total contribution in 2008 will be over €200 per citizen, totalling around €900 million. Ireland will still be far ahead of almost all other developed nations in our rate of ODA.

'In addition to these measures, the Department of Finance and the Department of Health and Children will draw up proposals for a targeted scheme to reduce surplus staff in the HSE as soon as possible. We will also consider extending this scheme on a selected basis to other public service agencies where staff surpluses are identified.
'In respect of the Tribunals of Enquiry given that they have indicated their intention to conclude their public hearings this year, the costs of their operations will be reviewed by the relevant Ministers as part of the overall review of spending so that expenditure is minimized, both in the remainder of 2008 and residual costs arising in 2009.
'The Government is determined to achieve the savings required. All Departments have been directed to stay within budget.
'These measures are designed to minimise the effects on users of services in the areas of Health, Education and Social Welfare. They seek to protect the vulnerable. But they are the minimum we need to get back on track as soon as possible.
'The savings are estimated to deliver €440m in 2008 and €1,000m in 2009. Even with these savings, the fiscal position in 2009 will be demanding and all spending will have to be rigorously controlled. In framing the 2009 Budget the Government is determined to maintain the right economic and fiscal conditions for sustainable growth.

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