I thank the committee for giving me the opportunity to make what I hope will be a short opening statement. A number of issues were raised at this forum last year, and where we promised to provide notes and so on we have done so. As the committee knows, this is my first time to come before it as Accounting Officer. I am not sure whether I have the best or worst job in the Civil Service, but it is a great honour. As it is my first time, I hope the committee will permit me to speak on the broad issues, as the Chairman suggested, before we discuss specifics.
As the committee knows, developments during 2008 marked a very negative turning point in Ireland's economic performance, which had its precursors in previous years, and in the stability of and outlook for our banking and financial system. International and domestic factors combined to create some of the most difficult conditions the State has ever had to face, which required a speedy and definitive response on all fronts, including civil servants, financial institutions, Government and the Oireachtas, to seek to restore a competitive economy and to stabilise the public finances. Thankfully, we and other forecasting bodies anticipate that we will be pulling out of economic recession shortly — there are certainly some helpful signs in that regard. I will return to that point towards the end of my presentation.
The role of the Department in all of this is to advise the Minister and Government on economic, financial and fiscal issues, and to implement Government policy. In other words, in terms of where we fit in the structure we work for the Minister and the Government in delivering on their policy priorities in these areas. We give frank advice to the best of our ability. From time to time, we get things wrong; that is very clear. We also get things right; but our advice is given honestly and directly, without fear or favour.
The Department prides itself on being able to react quickly to events and tries to be ahead of the curve. In the case of banking, it had to readjust its organisational structures, methods and skill base very quickly in an area in which the detailed expertise traditionally resided elsewhere.
In regard to banking issues, economic and fiscal issues, pay talks and all the various crisis management functions that have arisen, staff in the Department have worked very hard and unstintingly in an unprecedented situation. Genuinely, they have given their all to avert an even worse outcome than that which has unfolded. We will hold a discussion about the quality of advice and the Department and so forth but I wish to be clear that I have not encountered one moment, even during the work-to-rule, when I did not receive a great deal of support and co-operation from Department staff in trying to deliver what the Government, the Minister and the country required of us. Appropriately, we had to seek the advice and assistance of other bodies, including the NTMA, for which we were very grateful. The Department and these bodies also retained various advisers throughout the crisis period.
As a Department, our overall aim is the Government's aim and, I believe, that of all parties in the Oireachtas, that is, to create a stable, growing, employment-sustaining economy. These words almost sound hollow since we have been in the situation in which we have found ourselves during the past year or two. Nevertheless, they still underpin our policy advice, thrust and the aims of restoring fiscal stability, safeguarding the financial system, regaining national competitiveness and improving the efficiency and effectiveness of public services.
The Chairman used the word "transformative" and this is the challenge. I do not know if we are there yet but it is certainly the challenge. To these ends, the Department has focussed its energies on implementing the Government's medium-term strategy, designed to allow Ireland to resume economic growth as soon as possible and to achieve the Stability and Growth Pact target of a deficit below 3% of GDP by the end of 2014. Our tax system should seek to be as fair as possible and remains targeted on supporting competitiveness and maintaining employment, notwithstanding that tax rates have increased for our citizens. We have concentrated our effort in expenditure control on value-for-money and overall cost effectiveness of both current and capital expenditure. We sought to achieve these aims through the major expenditure control exercises in 2009, the comprehensive analysis of the Special Group on Public Service Numbers and Expenditure Programmes, the policy development work on public service pensions reform and the comprehensive review of capital expenditure initiated in 2009. All of these initiatives support the Government's budgetary consolidation strategy and prepare the ground for future economic growth. They also provide the basis for considerable debate, such as the debate at this committee. Perhaps we have not been as good as we should have been in pointing out the sheer volume of data and information we have made available, including approximately 3,000 pages on our website on the Special Group on Public Service Numbers and Expenditure Programmes. We must do more to facilitate this in a better way and to ensure people have it in a more accessible form than we have provided to date.
We have consistently sought to drive efficiency and effectiveness throughout the public service through the implementation of the Government's transformation agenda and the ongoing management of the industrial relations situation. In particular, this means the development of a range of initiatives on redeployment, decentralisation, e-government, shared services, State agencies, performance management and maintaining control of public service numbers and the pay and pensions bill.
In the financial services area, the overarching objectives since the crisis began were to stabilise the financial system, to facilitate the availability of credit in the economy and to protect the interests of taxpayers. Throughout 2008 and 2009, the Department advised the Government on policies to protect the economy and the financial system. We know that availability of credit, the continuity of payments systems and the security of deposits for savers and investors are essential for economic development. To ensure these outcomes, the Government has had to help the banks to stabilise their funding, improve the quality of their balance sheets and rebuild their capital. An appeal mechanism has been set up to allow for an independent appeal where credit is refused. Perhaps someone would do me the favour of asking me a quick question on this matter at some stage in the discussion and I can provide an update. In addition, the two main banks are currently preparing lending plans to support business and households in the next two years. We have reorganised our work and re-oriented our focus to achieve these objectives. It will take time, patience and effort. As we have seen, the international economy and financial system is still fragile and needs to be monitored. We must all seek to understand the dynamics of what has happened in the past two years, the mistakes we have made in the past five to seven years, the things we should have done better and the things we need to improve upon, but also the things we did well. We must seek to discover the causes and precursors of the crisis. However, we must also ensure that the work on rebuilding continues. We cannot rest on our oars and that message must be understood by all of us, especially the Department, nor can we rest on our oars in respect of fiscal matters, the financial system or the reform of the public services.
I will refer briefly to some of the more specific issues on the agenda. The financial outturn for 2008 shows that total Exchequer expenditure was €55.25 billion, of which some €49.25 billion relates to Voted expenditure. The Vote group allocations set out in the Revised Estimates for public services in 2008 amounted to €49 billion. Therefore, the outturn of €49.3 billion represents a relatively small overspend. Other expenditure of €6 billion brought total expenditure for the year up in excess of €55 billion which compared to receipts of €43 billion, resulting in a budget deficit of €13 billion. It is important to note that debt to GDP ratios, general government balances and so forth always refer to the Government deficit as a proportion of national income. They do not refer to the Government deficit as a proportion of Government income. That figure is also important and somewhat more worrying. When one examines that figure, one sees the reasons for the need for a fairly robust response to the crisis fiscally. In July 2008, the Minister for Finance announced a range of efficiency and savings measures designed to reduce public expenditure by €440 million in 2008 and €1 billion in 2009. As a result, the majority of Vote groups demonstrated savings against their initial 2008 allocation.
On Vote management, I welcome the conclusions of the Comptroller and Auditor General in chapter 2. The emphasis on control of public spending must continue and active containment of public expenditure remains a priority. The difficult but effective action taken in this regard so far has reflected to Ireland's credit on international markets and is providing Ireland with some breathing space. Current events show that markets are real and forceful influencing factors in considering our fiscal position. They simply cannot be ignored. I do not suggest anyone at this committee is saying as much but simply make it as a general comment.
I will not detain the committee long on individual votes. I refer to Vote 1 — President's Establishment. Traditionally, the Accounting Officer from the Department of Finance notes that while he does not run the Office of the President, for perfectly appropriate constitutional reasons, he is nonetheless the Accounting Officer for the Vote. The staff of the President's Establishment do not report to me and I do not authorise individual expenditures but I hope I can answer individual questions the committee may have or refer any questions to the office. The committee may wish to note that Department of Finance internal audit staff carry out internal audits in the President's office.
I refer to Vote 6 — Office of the Minister for Finance. There was a net outturn of €87 million in 2008 compared to an Estimate of €97 million, leaving a surplus of €10 million to be surrendered. The drivers of this saving included a 20% saving on the non-pay administrative budget.
I refer to Vote 12 — Secret Service. The sum expended in 2008 was €700,000, on which the Comptroller and Auditor General has signed off. Given the way this Vote operates, I do not have details for the committee. In fact, I had hoped to be brought into a secret room where someone would hand over a set of keys and a lot of secrets but, unfortunately, that does not happen.
I refer to chapter 4, financial commitments under public private partnerships, PPPs. This is a good and useful overview of where we are in respect of the programme. It will be a very useful tool for the Department in improving the openness and transparency of these long-term commitments. The role of my Department is to facilitate the PPP process centrally by developing the general policy framework and providing central guidance to Departments and other State authorities. The principal issue is in finding ongoing viable sources of private funding for such projects and to keep up a pipeline of projects. It is also very important to monitor the ongoing commitments to projects such that we understand not only what we have done this year but what we have committed to in future years. These can build up over time.
As regards EU funding, chapter 6 sets out details of the contributions to and the receipts from the EU budget in 2008. Ireland is projected to be a net recipient of funds until 2013.
The Comptroller and Auditor General's report sets out an overview of the main measures implemented for the banking stabilisation process, for which I thank the Comptroller and Auditor General. I will not repeat those measures now but will briefly update the committee on the measures taken since.
Since June 2009, the National Asset Management Agency Act has been passed by the Houses of the Oireachtas, NAMA has been established, EU approval has been received, although it keeps an oversight role, and the first tranche of loans have been transferred from the banks except for Anglo Irish Bank where the process will be completed by next weekend. The process will help cleanse the banks' balance sheets of the land and development loans and ensure losses are recognised up-front. It will also help to cleanse the banks of some of their biggest exposures and, therefore, make them less vulnerable to shocks.
The Financial Regulator carried out an exercise on the capital needs of the banks in the aftermath of the NAMA process and the results were announced on 30 March. The Minister also indicated the actions the institutions and the Government were going to take to meet the new capital requirements. I will not repeat the full list here but will say that, since then, Bank of Ireland has announced successfully raising capital of €1.7 billion from the private sector and a further €1.7 billion from the conversion of State preference shares. No new State money has been put in. AIB Bank is currently putting various assets up for sale and, having done that, it will presumably attempt a private sector response.
The Department also developed proposals to reform the structures for financial regulation through the creation of a single, fully integrated Central Bank Bill amalgamating the powers and functions of the financial regulatory authority. The first Bill dealing with these proposals is before the Dáil. A second Bill will follow and then a consolidation Bill to bring all the disparate strands together.
We are still forecasting a gross domestic product contraction of 1.3% this year, although we may revise that in June. That forecast is a combination of the recessionary picture continuing for the first part of this year and an upturn in the second part. We expect a change in the direction of the economy, with a bottoming out by mid-year and positive growth resuming in the second half. Most economic commentators now broadly share this perspective. Some are more optimistic and there is mounting evidence that the economic risks are towards the upside. Recent data and a range of indicators support this perspective, although international events continue to complicate the picture. Consumer sentiment is also strengthening, which is a positive for growth. Industrial production data and other leading business indicators are also showing signs of positive improvement, although not every sector is as positive.
The Government's underlying finances are on target, as evidenced by yesterday's Exchequer returns. They are in profile but in a year in which we expect a change in direction, we must watch this closely. The expectation among international forecasting bodies is that the global economy will improve modestly this year. While there are some concerns over the pace of change, our major trading partners are projected to return to growth this year. This will generate demands for our exports, which have held up well overall, and provide increased support for economic activity in this country. The challenge is to embed this upward trend and to strengthen our ability to take maximum advantage of it.