Committee on Budgetary Oversight debate -
Wednesday, 15 Nov 2023

Existing Levels of Service Costs: Discussion

An Cathaoirleach

I welcome from the Department of Public Expenditure, National Development Plan Delivery and Reform, Mr. John Kinnane, acting assistant secretary, expenditure policy division, and Ms Jasmina Behan, assistant secretary, work and pensions division.

Before we begin, I will explain the limitations to parliamentary privilege and the practice of the Houses regarding references witnesses may make to other persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means that they have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Chair to ensure this privilege is not abused. Therefore, if their statements are potentially defamatory in respect of an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment, criticise or make charges against a person outside the Houses or any official either by name or in such a way as to make him or her identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of the Leinster House campus in order to participate in the meeting. I will not permit a member to participate where he or she is not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts of Leinster House will be asked to leave the meeting. I invite Mr. Kinnane to make his opening statement.

Mr. John Kinnane

I thank the chairperson and the committee for the invitation to attend this meeting to discuss existing levels of service costs and to assist the committee as part of its post-budget examination.

A key part of the annual budgetary process is determining the amount of funding required for Departments to deliver services and supports based on the existing budgetary policy. This is referred to as the existing level of service, ELS. In any year, ELS represents a significant element of the budget package. It does not represent new policy decisions. However, to address demand pressures, including from demographic changes, the ELS provision will provide funding to deliver more supports and services, including additional staff to deliver public services such as more teachers and SNAs; additional places or beneficiaries on existing schemes such as more people in receipt of the State pension; and continued additional benefits for measures rolled out in previous budgets, for example, the full-year cost of decisions.

The summer economic statement, SES, in 2021 set out the medium-term expenditure strategy for the period to 2025, with an annual growth rate in core expenditure of 5%, which is broadly in line with the trend growth rate of the economy. This approach would see core spending grow in line with the trend growth rate while allowing the general government balance to fluctuate with the automatic stabilisers operating as the economy evolves.

The 2021 SES also set out a revised approach in relation to "pre-committed" current expenditure with a provision of 3% of the core current expenditure base for ELS costs across each year of the multi-annual period out to 2025. Previously, an amount was set aside for demographics in health, education and social protection, the cost of existing pay deals and the carryover of prior year budget measures. In the previous SES in 2019, covering the period 2020 to 2024, this provided an amount for pre-committed current expenditure equivalent to just under 2% of the expenditure baseline for the first year of the forecast horizon, falling to just under 1% in the two outer years.

The increased level of provision of 3% set out in the 2021 SES took account of trends seen in previous budgets. This is an overall provision rather than a set rate of increase for each Department. This aids fiscal planning by providing a better estimate of the overall costs of maintaining ELS and, therefore, a better assessment of the amount available for new measures to enhance public services and social protection supports over a multi-annual period.

The 2023 SES set out a budgetary package for 2024 that saw the level of core expenditure growth increasing from 5% to 6.1% and provision for €4 billion of non-core expenditure to address external challenges, including the humanitarian response to the war in Ukraine and the legacy impacts of the pandemic. Within an overall increase of €4.3 billion for core current expenditure, the mid-year expenditure report published in July outlined an estimated amount of €2.3 billion in respect of the additional costs arising in 2024 to deliver ELS. This amount equated to approximately 3% of the core current expenditure base.

Each year, both as part of the whole-of-year budget process and the finalisation of Estimates, ELS is considered in detail in each Vote. This requires an assessment of the specific needs of the Vote, including previous budget decisions, the impact of the existing public service pay deals and any demographic or other demand impacts. Following detailed engagement across Departments in the Estimates process, the additional costs of ELS were estimated at €1.8 billion in budget 2024, or 2.4% of the current expenditure base. Within this overall amount of 2.4%, there was significant variation, with some Departments having an additional ELS requirement equivalent to about 0.5% of their core current expenditure baselines. When this additional amount is added to the core current expenditure base of €74.3 billion, this brings the current expenditure amount to €76.1 billion for ELS and to €78.7 billion in total after providing for new budget measures.

Given the overall scale of expenditure, the whole-of-year budget process, monitoring and reporting on expenditure and financial management and evaluation processes across Departments support the effective management of overall ELS costs. Throughout the year, public expenditure is appraised, implemented and reviewed through a number of processes. These include the spending review, which has produced 170 papers since 2017. These papers facilitate all Departments to analyse the efficiency and effectiveness of their own key policy areas and act as an input to an evidence-informed budgetary process.

Another process is the fiscal monitor, published monthly, which monitors expenditure in the month in question comparing it to plans set at the start of the year. Quarterly reporting to the Government by the main spending Departments on their respective sectors also takes place alongside the overall expenditure management updates provided by the Department of Public Expenditure, National Development Plan Delivery and Reform. Another process is the work of the Irish Government Economic and Evaluation Service, IGEES, in assessing, analysing and using data to inform policy formation across Government. All of these aspects are considered as part of the process of determining ELS in budgetary negotiations.

I thank the Chair for this opportunity to address the committee and we look forward to answering their questions.

An Cathaoirleach

I thank Mr. Kinnane. Of the members who are joining us online and in the committee room, I will go to members who are present in the committee room first. Deputy Conway-Walsh will be first.

Deputy Rose Conway-Walsh

I thank Mr. Kinnane for his opening statement. First, what was the rationale in 2021 for setting the ELS at 3% of the core current expenditure?

Mr. John Kinnane

The previous approach was where we set out a precommitted expenditure amount. For example, in the budget year immediately following the summer economic statement, SES, we would have an amount for the carryover of existing budget measures, existing commitments from public service pay deals, and then an amount for demographics. Typically, that amounted to approximately €1 billion each year. Then, as we moved into years two, three and four of the forecast horizon, that dropped because we did not have carryover from budget measures to factor in, so we were only showing an amount for demographics. The precommitments would generally drop from approximately €1 billion to half a billion euro across the forecast horizon. What we had found was, just looking at budgets in the run up to 2021, the ELS costs exceeded what we would have set out as precommitted expenditure in the SES or in the mid-year expenditure reports. We looked at previous budgets. In general, it was running at approximately 2.5% to 3% of the expenditure base for ELS costs each year.

Deputy Rose Conway-Walsh

Okay.

Mr. John Kinnane

Precommitted expenditure we were setting out in the ELS was only amounting to 2% so what we found then was that the space for new budget measures was being squeezed by the existing levels of service. This provided a better picture of what was available for new budget measures across both the budget year and, as we moved out, over the following three years.

Deputy Rose Conway-Walsh

If the ELS was set at 3% in 2021, why was it then reduced to 2.4%?

Mr. John Kinnane

This is an overall provision. When the SES is published, we used the 3% figure based on assessment of that point in time of where we think the ELS might land but it also takes into account what we set out in the medium-term expenditure strategy back in 2021. After we publish the SES, there is very detailed engagement with the line Departments to go through the existing levels of service demands for the following year. It was as a result of that engagement that the overall amount we had set out to €2.3 billion came down to €1.8 billion.

Deputy Rose Conway-Walsh

I am trying to get the explanation for this. Basically, when Mr. Kinnane had the engagement with the Departments, one would imagine that, because of high inflation and all of that, they would go the other way rather than cutting it back down. Is that a technical decision, a political decision or a combination of both? How does it land?

Mr. John Kinnane

There is a detailed negotiation and when we look at the inflation impacts, if we take two of the big items of expenditure within the budget, approximately 30% of the core expenditure base is social protection. There is no inflationary impact on that because rate changes form part of the budgetary decisions. The other one is public service pay and pensions, which amounts to approximately €28 billion out of the €74 billion in the baseline. The carryover impact of the pay deal was approximately 1.5% to 1.75% so there were two very large areas of expenditure that are not being impacted by broader inflation because the decision as regards a new public service State pay deal is not factored into the ELS. Ms Behan deals with the social protection Vote she might be able to provide you with some-----

Deputy Rose Conway-Walsh

Last year, social protection had lower than anticipated expenditure. That was €300 million, so it was €300 million of a clawback and this year, it was €500 million. I cannot get a satisfactory explanation as to how the figure of €500 million was come at. We just have not had an explanation as to why it changed. Last year it changed by €300 million and there was a specific reason for it. There has not been a specific reason this year other than in general engagement with the Departments. How is that communicated to the Ministers then in terms of the ELS? Do they find out like everybody else on budget day or do they already know in advance what the ELS will be?

Mr. John Kinnane

They already know in advance.

Deputy Rose Conway-Walsh

I am trying to understand better what the process is.

Mr. John Kinnane

At a global level, the end result on social protection was certainly a driver of that reduction from €2.3 billion to €1.8 billion because we certainly would not have anticipated that it would have landed in broadly the same area as last year. Ms Behan can take the Deputy through that process.

Deputy Rose Conway-Walsh

The €500 million as opposed to the €300 million.

Ms Jasmina Behan

I can explain how we approached the existing levels of service on the social protection Vote. The process involves a number of sessions of engagements with the officials in the Department of Social Protection, with the Vote on our side meeting them regularly throughout the Estimates process. There are more than 70 lines of expenditure on the Vote. Each of these lines is looked at separately, looking at evidence to try to assess what the best assessment of what the Estimate should be on that line. There are a number of drivers for different lines but we have a number of lines that are driven by demographics. These would be the lines on pensions, carers, and disability. Here we use data; both administrative data the Department of Social Protection collects through transactions with the recipients and Central Statistics Office demographics data. We look at several elements on each line. We look at the number of recipients and what our best estimate is and how that will change. We look at the rate of payment because that also depends on the number of contributions people have made and so on. We do an analysis on that. We also have to look at how many payment periods there are because in some calendar years there could be 52 and on some lines depending on when the payment falls, whether it falls-----

Deputy Rose Conway-Walsh

At what point did the witnesses become aware of the fact that €500 million was overestimated across all of the lines?

Mr. John Kinnane

There is a Vote section within the Department that deals with all of the line Departments and as the settlements are reached on the ELS, that aggregate figure of €500 million emerges. The ELS negotiation is a major part of the budgetary process. It emerges fairly late in the process as some of the bigger Departments, in particular the Department of Social Protection, have a very significant impact on the overall figures. It is as each Department's ELS is settled that we then get a view on the aggregate figure but it happens very late in the process.

An Cathaoirleach

Am I correct that the Department of Social Protection's Estimate earlier this year was understated when it came to the budget itself or was it holding it in reserve? I am not saying withholding information but some information was not clear earlier in the year.

Mr. John Kinnane

No. The Department of Public Expenditure, National Development Plan Delivery and Reform, along with the Department of Finance, in publishing the summer economic statement, takes a view as to what the ELS requirements-----

An Cathaoirleach

Based on their discussions and negotiations around-----

Mr. John Kinnane

No, it is in advance of the detailed negotiations. Given the outcome of last year’s budget, the expectation was that we would not have the same additional ELS requirement for social protection in budget 2024 as in budget 2023, but the outcome was very close to where we landed. It is the outcome of a very detailed process. What we do at the outset in the summer economic statement is-----

Deputy Rose Conway-Walsh

I get that process and everything else. Regarding the Department of Health, there is a reference to €708 million. Last year, the figure was €896 million. Would that be communicated by the Department to the Minister for Health? When would it be done? Considering that we have had high inflation, and because it had increased so much, the figure just does not add up. You would imagine it would be higher, if anything. Looking at the inconsistencies over the years regarding ELS, things seem to be all over the place. You would imagine it would be fairly static, but increasing.

Mr. John Kinnane

Taking the example of the Department of Health, the figures the Deputy gave were €896 million and €708 million. One element of the difference is that responsibility for disability services has moved from the Department of Health across to the Department of Children, Equality, Disability, Integration and Youth.

Deputy Rose Conway-Walsh

It was €717 million the year before.

Mr. John Kinnane

The other item that affects it concerns the 2023 budget. As reflected in the mid-year expenditure report tables, €150 million unallocated for 2022 was reflected in the 2023 ELS. This related to the agreement on the additional Haddington Road hours. This had an impact on the amount that the Department of Health received for the pay deal. The carryover on the pay deal from 2023 into 2024 was between about 1.5% and 1.75%. The €343 million was closer to about 3.5% because there was an impact related not only to the pay increases under the extension to Building Momentum but also to the change in hours under Haddington Road. Broadly speaking, that was accounted for-----

Deputy Rose Conway-Walsh

What year was that?

Mr. John Kinnane

For 2023, €343 million is shown for a pay deal. That is equivalent to about 3.5% of the health pay bill. The element for the pay bill carryover into 2024, including the ELS, is between 1.5% and 1.75%. There is a lower percentage on the pay side regarding the carryover associated with the pay deals.

An Cathaoirleach

Is there any provision for the pay talks starting in June?

Mr. John Kinnane

That is included within the overall budgetary numbers, but it is not reflected on a departmental basis.

Deputy Patricia Ryan

I thank our guests. I have just two questions. Are there any specific calculations on future pension expenditure related to ageing? If there are such calculations, how are they done?

Ms Jasmina Behan

On ageing, we use several methodologies to calculate various lines on pensions expenditure. Our pensions system can be categorised around three pillars: the State pension, occupational public sector pensions and private pensions. On State pension expenditure, costs have been calculated by the Department of Social Protection through the actuarial reviews. The most recent review, published in March 2023, sets out the cost of funding State pensions to 2076. Expenditure is expected to increase from around €10 billion now to around €55 billion in 2076. The actuarial review is done every five years.

On the cost of public sector pensions, our Department conducts an analysis called an accrued-to-date liability analysis. This is an actuarial analysis that we do on behalf of the Central Statistics Office as a response to the EU regulatory requirements. The most recent one, which was done three years ago, estimated that expenditure on public sector pensions will increase from the current estimate, €4 billion, to approximately €8 billion by 2045, and it will have decreased to €6 billion by 2070. The decrease is expected to occur because of the impact of the single pension scheme effect and also the integration effect whereby an element of the public service pension is integrated with the State pension element. That will translate into the cost of the State pension and deflate a bit in the latter years. We do exercises regularly to understand the costs of both the State and public service pensions.

Deputy Patricia Ryan

I thank Ms Behan.

What provisions are in place where services are already so lacking or insufficient that existing levels cannot even be maintained, as with the recruitment and retention of health and home care workers? This area is chronically understaffed, even with existing levels of service.

Mr. John Kinnane

As part of the budgetary negotiations, the overall allocation was agreed by the Government for the Department of Health. The allocation of funding to particular funding lines within the health area is a matter for the Minister for Health. The overall allocation, €22.5 billion, was agreed by the Government, and that reflects the requirements for ELS and a range of new measures. The major significant change in the overall budgetary parameters that was made when we considered budget 2024 by comparison with the summer economic statement entailed the increase in the level of non-core funding.

An additional €500 million was provided in non-core funding to allow the Department of Health and the health service to deal with the additional pressures arising as a legacy of the pandemic. The Minister for Health and the Department of Health will have made the decisions on funding for the funding lines within the overall allocation of €22.5 billion.

Deputy Patricia Ryan

Sometimes I worry a bit more about the core funding than the non-core funding and I just wanted to ask for that reason. I thank Mr. Kinnane for his time.

An Cathaoirleach

I will put a question whiIe we are waiting to see if Deputy Durkan or Deputy Michael Healy-Rae want to ask questions. In regard to the health Vote in 2022 the ELS was described in three components: expenditure, report allocation from central pay agreement provision carry-over and other ELS pressures and demographics. In 2023 this reduced to two components, just central pay agreement provision and carry-over demographics and other ELS pressures. In 2024 it is down to one, simply an increase for existing levels of service. Could Mr. Kinnane explain these variations? Could he explain why the detail reported in previous allocations has declined and why we only have one heading this time?

Mr. John Kinnane

They were all consolidated into one heading, partly reflecting the nature of the negotiations that occur when the ELS is being settled. It may very well be that when the ELS is settled that there may be an agreement on the overall amount but there may not be agreement on how that is being allocated across particular funding lines. The example of social protection is where you can go through on a line-by-line basis and set out the number of recipients.

An Cathaoirleach

I hear what Mr. Kinnane says, which is basically that there was not agreement between the stakeholders on what the figure was made up of or there was unanimity.

Mr. John Kinnane

No. There is agreement, but with the time pressure involved in producing documentation with decisions very late in the day-----

An Cathaoirleach

I note that but to be honest I do not necessarily accept it. If the Oireachtas was adjudged to be properly briefed two years ago with three components, why is it not briefed with three components this time around? There may be internal reasons but we are a parliamentary budgetary oversight committee and we have a job to reflect the views and opinions of members not only in this committee but throughout the Dáil. If that information is being diminished in any way and leaves us with less information on the components associated with that increase then it is something we have to highlight. It is something we will refer to in our report. Those concerned may have their own reasons but to be quite honest with Mr. Kinnane, we are not happy with that. We will be stating that and we will make that point to the Minister when he is in here to discuss these issues.

Mr. John Kinnane

I think in particular-----

An Cathaoirleach

I appreciate where Mr. Kinnane is coming from.

Mr. John Kinnane

One of the issues in particular relates to the demographics. There are demand pressures on schemes. We do demographic analysis. We come up with estimates of the amounts that are required. As part of the spending review process we come up with estimates of the demographics requirement but there are other factors driving demand for schemes other than demographics, so it may not be strictly-----

An Cathaoirleach

We need to know what they are. That is all I am saying to Mr. Kinnane. In layman's terms the ELS has basically been standing still. If we want to offer the same service next year as we offered last year it will cost us an extra €700 million to do that. The reason for that is due to pay increases, pay agreements, and the revision of contracts associated with external help to deliver the contract, whereas it may not have been the case previously.

All I am saying is a budget is difficult enough for members to understand and they have a duty and responsibility to relay to their constituencies the issues associated with each Department and its ability to deliver. If, for example, there is an unwritten rule that the least we will do is continue with the service we had this year, and if there is a cost associated with that which impairs us from providing further services beyond that, then we need to know why that is adjudged to be the case.

It is all ELS now whereas two years ago the Department could tell us under three different headings. Now it can only tell us under one. That is a reduction in the service afforded to us. It is something we have to highlight and demand of those with responsibility into the future.

Mr. John Kinnane

I think that partly goes back to Deputy Conway-Walsh's question about the difference between the previous method of setting out demographics carryover and the carryover pay deals, is that it was all we were providing for. When we set out the SES and the mid-year expenditure report we set out these amounts for demographics carryover and public service pay deals but what we found is that it was not covering enough and there were other demand pressures across the board.

An Cathaoirleach

That is fair enough, but when we look at this budget, this figure and the explanation, we are left with no idea of what the components were. At least three years ago there was some breakdown but now we have no breakdown. We are not carrying out our duty to extract that information in order to impart it to those that we represent, and that is all we want to do.

It has been stated that variations in how ELS are reported make comparisons at Vote level difficult, both between different Votes and for year-on-year changes in specific Votes. What would the Department say is the best practice for reporting on ELS components? Again, that is an elaboration of what I have just been talking about. I hope that is taken on board and we are not left with less information than we had previously, especially in these times.

We were about to conclude but we are joined by Deputy Doherty who I am sure may well have some questions on his mind. We will let him know if they are a repeat of what was already asked. We will give him the floor for a few minutes.

Deputy Pearse Doherty

I will just pick up on the point that was made to the Chair. He talked about the previous calculations of ELS, which was made up of different components. They were set out in the summer economic statement and then the Department found out there were more demands on the ELS. Is that the correct position?

Mr. John Kinnane

Yes. That was the reason we moved from the approach in 2021 in the summer economic statement and mid-year expenditure report. What we found was we were generally setting out pre-committed expenditure of about €1 billion each year for the first year of the multi-annual cycle. Then that dropped down to just reflecting demographic provision across the later years but the reality is that it gave rise to a difficulty when we went back and checked across previous budgets. When we looked at the pre-committed expenditure, let us say, of €1 billion and compared that with the ELS calculations that arose following the budget negotiations the amount available was greater than the pre-committed number, which meant that in the SES and the mid-year expenditure report what was being shown as being available for new measures was actually less than what might have been delivered in a budget because those precommitments did not cover other demand pressures that arose to deliver existing levels of service.

Deputy Pearse Doherty

In 2021 the mid-term expenditure report outlined the mid-term expenditure strategy. Is that not the case? That report outlined that ELS would be calculated as 3% of current core expenditure. Is that not the case?

Mr. John Kinnane

Yes.

Deputy Pearse Doherty

Have we reached that level in the past two years?

Mr. John Kinnane

We were at 2.7% last year.

Deputy Pearse Doherty

And this year?

Mr. John Kinnane

We are at about 2.4% or 2.5%.

Deputy Pearse Doherty

It is 2.3%.

Mr. John Kinnane

But that compares with the figures. The pre-committed amounts would have been about 1.8% or 1.9%.

The ELS we are now arriving at is in excess of what we would have been showing as pre-committed expenditure before 2021. It is closer and gives a better estimate of what is available for new budget measures.

Deputy Pearse Doherty

I am not asking about new budget measures. I am asking about the ELS. There was a rule of thumb in the Department-----

An Cathaoirleach

A vote has been called in the Dáil but please proceed.

Deputy Pearse Doherty

We will pick this up after the vote. There was a rule of thumb that ELS, as a percentage of core expenditure, would be around 3%. It dropped significantly this year in budget 2024; it is 2.3% of current core expenditure.

Mr. John Kinnane

It is 2.4%. It is slightly below the level we had last year, which was 2.7%.

Deputy Pearse Doherty

And below what the strategy pointed out, which was that 3% is required. Some have argued that is even too low.

Mr. John Kinnane

When we look at the elements within the ELS, this area was covered earlier. There is €28 billion. We have a €74 billion core expenditure base, €28 billion of which is for Exchequer pay and pensions. There is a carryover impact of the existing public service pay deal, given that there was an increase on 1 March and another on 1 April, about 1.5% to 1.75%. The inflationary impact on €28 billion of expenditure is in that region. About 30% of the base - around €23 billion - goes on social protection, on which there is no price effect because it is impacted by budgetary decisions. When the detailed work was done with the Department of Social Protection on the demand side, it turned out to be a lot lower than we might have anticipated. That is a key driver in arriving at about 2.4%, rather than being closer to the 3% figure. The other thing about the ELS is that it takes a multi-annual view. The problem we had previously with pre-committed expenditure was that there could be €1 billion in year one but when you move into years two, three and four, you have €500 million or €600 million. You are then clearly overstating the amount available for budget measures because each year there will be a carryover and new public service pay deals, which will eat into the amount available for new measures. This is why-----

An Cathaoirleach

We need to wrap up.

Mr. John Kinnane

-----the change was made.

Deputy Pearse Doherty

I will not ask my next question until after we return from the suspension.

Sitting suspended at 6.33 p.m. and resumed at 6.50 p.m.

Deputy Pearse Doherty

The witnesses were saying that the difference between what they outlined in the summer economic statement, which was half a billion euro more in ELS, was because they go into negotiations with the Department. They find out - voilà - they got their figures wrong, are half a million better off, and the Minister has half a billion euro for new measures. It is because of negotiations.

Mr. John Kinnane

It is as a result of the negotiations. It is a high-level provision-----

Deputy Pearse Doherty

Does Mr. Kinnane accept that the Department has, every year for the past three years, got the figure of the ELS dramatically and spectacularly wrong in the documents it is publishing, which are not just for the benefit of this House but also as part of the European budgetary cycle.

Mr. John Kinnane

No. I would not accept that. Some 2.7%-----

Deputy Pearse Doherty

Mr. Kinnane does not accept it. The ELS in 2022 was what, €3.2 billion? It went down then to €2 billion as part of the mid-year expenditure report and then the expenditure report went to €1.5 billion in the budget. That is some drop, is it not?

Mr. John Kinnane

The ELS in budget 2023 was 2.7%.

Deputy Pearse Doherty

Will Mr. Kinnane give it to me as a figure in billions? This is from the summer economic statement-----

Mr. John Kinnane

The Deputy is adding a couple of numbers together there because he is including the budgetary decisions already taken which includes capital. He is not comparing-----

An Cathaoirleach

Does this go back to core expenditure?

Mr. John Kinnane

The Deputy is adding capital and current together there.

An Cathaoirleach

That is what I was saying: current expenditure.

Deputy Pearse Doherty

The ELS allocation for 2022 to 2024, which was done by an independent body here in the Parliamentary Budget Office, PBO, set out in the summer economic statement that it was just over €3 billion in 2022. Is that correct?

Mr. John Kinnane

I do not have the 2022 summer economic statement.

An Cathaoirleach

Is the Deputy referring to the PBO paper on the existing levels of service?

Deputy Pearse Doherty

Yes. Page 2.

An Cathaoirleach

You are talking about Page 2?

Deputy Pearse Doherty

Yes. ELS allocation 2022 to 2024.

An Cathaoirleach

The Deputy is quoting the figure excluding core capital expenditure for ELS in the summer economic statement 4 July 2023 which is given as €2.3 billion.

Mr. John Kinnane

Yes. The figure is €2.3 billion for the summer economic statement. It is not €3 billion.

Deputy Pearse Doherty

It is €3 billion when you include core expenditure but if we take that out of it we have €2.3 billion. Then on budget day, it drops by how much?

Mr. John Kinnane

It drops by €500 million.

Deputy Pearse Doherty

€500 million. That is way off the mark. Mr. Kinnane may not think that getting these figures wrong by half a billion euro or about 20% of a reduction is insignificant. It it is significant but the problem is that this trend continues. The same happened in 2023 and in 2024. The Department is presenting fictional figures to the Oireachtas in the summer economic statement, or the budget regarding ELS, which is more the reality of it, is completely fictional. It is made up. I have books that I used to read to my children that had more fact in them than some of the ELS figures the witnesses are presenting on health for next year.

Mr. John Kinnane

I would not accept that there is fiction in any of the documents that are published by the Department. The ELS provision that is included in the summer economic statement is an overall provision that is made in advance of the detailed negotiations that lead into the budgetary process. We need to make an assessment at a point in time based on where we think expenditure will land over the course of the coming months and demand pressures into next year. When one goes through the detail, and Ms Behan can take the Deputy through the details because she dealt with the detailed negotiations on the social protection side, you will find that------

Deputy Pearse Doherty

I appreciate that but I want to take Mr. Kinnane to the health side because that is the one I really want to focus in on, if that is okay. €708 million is the allocation that the Minister determined was required for standstill in health. The Department of Health, the HSE, says that is not credible and that it is a work of fiction. It is arguing that it is approximately €2 billion. I want to Mr. Kinnane to explain to the committee how he arrived at this figure. Of the €708 million, how much of it is carryover of wages, for example?

An Cathaoirleach

To clarify that, is it fair to say that ELS standstill is a delivery of this year's services next year? Is the HSE statement that the €2 billion is for other costs in addition to that?

Mr. John Kinnane

The Department of Health has an overall allocation of €22.5 billion for next year. That allocation has been agreed by Government. The Minister for Health will allocate that to the service areas but the overall allocation for the Department of Health has been agreed by Government.

An Cathaoirleach

We do not dispute that.

Mr. John Kinnane

Regarding the existing levels of service, and I went through this with Deputy Conway-Walsh earlier, the amount that has been provided this year, taking account the impact of the pay deal, is broadly in line with the previous year. We have €896 billion in the previous year; we have €708 million this year. There was €343 million included for the carryover impact of pay deals in the 2023 figure. That number is lower for this year because-----

Deputy Pearse Doherty

What is the number for next year? I want the component parts of the €708 million which the Department has provided for health.

Mr. John Kinnane

I do not have the component parts but what I can tell the Deputy is the carryover impact of the pay deal. There were a pay increase on 1 March------

Deputy Pearse Doherty

We understand the two increases this year.

Mr. John Kinnane

-----and 1 October and that has a carryover impact of somewhere between 1.5% and 1.75%.

Deputy Pearse Doherty

What is that in millions? Mr. Kinnane is able to give me the figure to the number - €384 million - for 2023, which the Department negotiated last year. How much of the carryover is assigned to pay and comes out of the €708 million for next year?

Mr. John Kinnane

I do not have that figure but it is about-----

Deputy Pearse Doherty

Is it not strange that Mr. Kinnane has the figure negotiated last year but he does not have the figure the Department agreed just four weeks ago?

Mr. John Kinnane

That is perhaps to do with, as the Cathaoirleach Gníomhach made the point earlier-----

An Cathaoirleach

I made that point earlier.

Deputy Pearse Doherty

I am making the point again. This is just fiction. It is complete and utter fiction. Does Mr. Kinnane not have the figure? What are the component parts that make up this figure? I am challenging him to put to bed this idea that what the Department has presented as the standstill costs for health next year, is a work of fiction. The Department of Health and the HSE say it needs to be about €2 billion and the Department has said €708 million is what is needed. Will Mr. Kinnane break it down for me and convince me that they are wrong?

Mr. John Kinnane

The allocation for health, of which the €708 million is a component, is agreed by Government.

Deputy Pearse Doherty

I do not care who it is agreed by. I want to know what it is made up of. A portion of that money is made up of wage increases so that is gone. Then I need to know what the other components are because we need to get to the bottom of this. People in my constituency and elsewhere are suffering as a result of this here.

An Cathaoirleach

Can I interject?

Deputy Pearse Doherty

The head of the HSE wrote to the Minister for Health saying there would be dire consequences for public safety if this went ahead and the Minister for Health went ahead with it.

Mr. John Kinnane

No. Sorry Deputy, can I clarify something?

Deputy Pearse Doherty

I want to make this point. I am asking Mr. Kinnane this question because the general secretary of the Department told the Joint Committee on Finance, Public Expenditure and Reform and Taoiseach, that he had no sight of the letter that the Minister for Health furnished to the Minister for Public Expenditure, National Development Plan Delivery and Reform. I am asking Mr. Kinnane if he had any sight or knowledge of that letter? This is a letter from the HSE warning of dire consequences if this budget were to be implemented. Was he aware of this? Did he see the letter? Has it been discussed within the Department? Did the Minister talk to the Department about it? Will Mr. Kinnane please answer any of those questions?

Mr. John Kinnane

The €22.5 billion that has been allocated to health was agreed by Government. That was the subject of detailed discussions at both official and ministerial level, and obviously with Government. That allocation is agreed by Government. I do not manage the negotiations with the health votes so I cannot go into the details of those discussions and any communication that came in would not necessarily come to me because-----

Deputy Pearse Doherty

Was Mr. Kinnane aware of the letter?

Mr. John Kinnane

Obviously, I heard about the exchanges at the committee meeting yesterday.

Deputy Pearse Doherty

Is it Mr. Kinnane's understanding that letter was furnished to the Department?

Mr. John Kinnane

I could not comment on that. I heard about the exchanges at the committee meeting yesterday------

Deputy Pearse Doherty

That is fair enough.

Mr. John Kinnane

I do not manage the health Vote, so-----

Deputy Pearse Doherty

That is a straight answer and I respect and appreciate it. Was Mr. Kinnane party to or aware of any discussions in the Department regarding the warning letter the HSE's chief executive officer issued to his line Minister, the Minister for Health, which was furnished to Mr. Kinnane's Department with commentary from the Minister?

Mr. John Kinnane

At what stage was this letter furnished?

Deputy Pearse Doherty

It was sent before the budget.

Mr. John Kinnane

With the job I have in the Department, which is to co-ordinate the overall budgetary documentation and to pull together the figures in detail, that is not something in which I would be getting involved.

Deputy Pearse Doherty

Whether Mr. Kinnane was involved in it or not, he was not aware of any discussions of the letter before budget day. Is that correct?

Mr. John Kinnane

As I said, that is not my area of responsibility. I have a job-----

Deputy Pearse Doherty

I know it is not Mr. Kinnane's area of responsibility but-----

Mr. John Kinnane

As a result, I would not have been involved in those discussions and I would not have been aware of any discussions.

Deputy Pearse Doherty

That is fine. That is all I wanted to know.

Mr. Kinnane made the point the Government agreed this, and absolutely, the whole of Government agrees this and has made this final decision. I assume he agreed with the allocation of the ELS for health, or did he? He is an acting assistant secretary general in the Department. Is that something he agreed? If that is the case, I genuinely think it is fair to ask him to break it down, given such senior people are saying that this is, in reality, a work of fiction.

An Cathaoirleach

I think that point has been made earlier and it is being made to the witnesses. The committee is not satisfied by the fact the level of detail that was applied in previous years has not been applied this year. We have asked for that to be noted and for consideration to be given to giving a breakdown to this committee, similar to what was given previously, in order for the committee to do its job insofar as it is entitled and expected to do on behalf of our constituents, namely, to ensure we will get classification and clarification of the components associated with that €708 million.

As for guessing about it or surmising as to what Mr. Gloster did or did not say, I am sure we could ask him to appear before the committee to account for his discussions with the Department and the Minister in respect of the ask he had. This, however, is specifically to do with standing still, the costs associated with maintaining the services, the facilities and the offering the Department gave this year, and repeating that next year. Mr. Gloster could very well be talking about many capital or other spending costs, in addition to that, that he had sought and have not been given. Likewise, there may be clarification to be got from others regarding that or whether an additional Covid payment is to be made to accommodate some of those requests. I do not know.

As far as the Committee on Budgetary Oversight is concerned, however, there is not adequate clarification or classification of the standing-still costs and that is disappointing, to say the least, considering the level of detail that was there previously. We would have thought that would be consistent and repeated, but it has not been and that is a failure. That should be called out and it needs to be accounted for by the witnesses and those within their Department by coming back before the committee and explaining it.

Deputy Pearse Doherty

To clarify, I asked whether Mr. Kinnane agrees with the ELS of €708 million for health next year and whether there has been any dissent within his Department in respect of that figure.

Mr. John Kinnane

I am not involved in the negotiations on the health ELS. The overall allocation, of which that ELS is a component, has been agreed by the Government and that is the position. In respect of the points the Chair made, that is something we will take on board and look at when we are undertaking the overall review of the budget and the budgetary documentation.

An Cathaoirleach

Mr. Kinnane might inform the committee secretariat when that review will be and when the Department will respond to it. The ask being made by the committee is that the breakdown needs to be in similar components to what it was the case previously, and we then might get clarification on the questions Deputy Doherty is asking.

Deputy Pearse Doherty

I would like to have the clarification now because I do not have representatives of the Government in front of me. We have asked Mr. Kinnane to come in and he is an official in the Department. Was there any dissent within the Department in respect of the figure that was agreed, namely, the €708 million? We know how this works. The officials deal with it and so on, and it is then presented to the Government, which will decide whether to change the number and all the rest. I want to know whether there was any dissent.

Mr. John Kinnane

In fairness, I might go back to the invitation issued by the committee. It was to talk about ELS and there were certain items on the agenda. The Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach dealt in detail with issues surrounding the health Estimate. I certainly-----

Deputy Pearse Doherty

I am not talking about the health Estimate.

Mr. John Kinnane

I certainly was not briefed in advance of coming before the committee that this was going to be a detailed discussion of the health Estimate. There could be-----

Deputy Pearse Doherty

It is not about the health Estimate. With respect, I am talking about the ELS provision. That is the subject matter of this discussion. The largest component of ELS in budget 2024 is health. It is absolutely acceptable to ask a question about it and Mr. Kinnane should have been prepared for one. It is a simple question and he does not have to answer in numbers or anything like that. To his knowledge, was there dissent within his Department in respect of the figure that was agreed, namely, €708 million for the health ELS?

Mr. John Kinnane

I am not aware of dissent.

Deputy Pearse Doherty

Does he know what rate health inflation is running at?

Mr. John Kinnane

No.

Deputy Pearse Doherty

Let us with finish with this-----

An Cathaoirleach

There would be an estimate within ELS, however, that would seek to give a figure within that €708 million to refer to and account for health inflation in the delivery of the same services as those we got last year, that is, to stand still.

Deputy Pearse Doherty

Yes, I would imagine so.

An Cathaoirleach

That is why we need the components.

Deputy Pearse Doherty

I agree 100%.

There will be a Revised Estimate next week in respect of the health budget. We talked yesterday at a meeting of the finance committee about how, on an accrual basis, that may be as high as €1.5 billion if we are led to believe what is in the media and, on a cash basis, what is needed between now and the end of the year could be €1.1 billion. None of that is being provided for next year in terms of ELS. The ELS being provided for next year relates to what would happen normally, if there were no deficit whatsoever, so the only way you can think about this is that all of that is going to disappear. None of it is going to be carried over, yet the CEO of the HSE is saying nearly all of it, despite what he has done through the recruitment embargo, is going to appear again next year because it is driven by inflation and demand.

That is why I am saying this to Mr. Kinnane, hand on heart, about what he is presenting. I do not know whether it is for political reasons or whether it is because officials in the Department are saying they know it is a work of fiction but that they will just do another Supplementary Estimate, which is probably going to be €2 billion next year, but this is a complete work of fiction. The health service cannot stand still next year on an additional €708 million. Everybody knows that and I do not know why there is an attempt to pull the wool over our eyes. I do not mean Mr. Kinnane personally, given these are political decisions and I do not mean any offence to him personally or any of his officials. These are political decisions but this is a work of fiction. The CEO of the HSE seems to be saying he is not going to go along with it and that he is not going to present a service plan suggesting we can do this. He went to the extreme of writing to the Minister saying the Government should be fully aware of the consequences of this, yet this is what was presented.

I will tell Mr. Kinnane why that is the case, in my view. It is because the Government has agreed to this target, which it keeps missing, of about 5% expenditure. It went up to 6% and felt it could not go any further than that, and this is really a case of nod-nod, wink-wink. The belief is that if we do it, the health budget will again be exceeded and we will write a Supplementary Estimate again this time next year, but that just makes a mockery of the whole thing. For officials and professionals within the Department of Public Expenditure, National Development Plan Delivery and Reform, it really raises questions about the assessment that has been made. Will Mr. Kinnane explain how the deficit in health this year is going to disappear?

We know the €708 million, even if we agree that is the figure for next year, is made up of public sector pay, inflation and all the rest. If there is €1 billion-----

An Cathaoirleach

But we do not know that. The Deputy is saying we want those details.

Deputy Pearse Doherty

Parts of it are going to be that. We know what the driver is.

An Cathaoirleach

Yes.

Deputy Pearse Doherty

We will already be between €1 billion and €1.5 billion in debt starting off, unless there is a way of making sure that none of the patients who were treated this year present next year or if the inflation we have seen this year simply goes away. We are going to have more inflation next year. We all know this. How is all of this going to disappear? How do these magical figures add up? How is it all going to work? How come Robert Watt is so wrong? How come Bernard Gloster is so wrong on this? If the Department is right and the Government are right, then their maths are out by billions.

Mr. John Kinnane

The €22.5 billion also included an additional €500 million that was not included in the summer economic statement for non-core expenditure. The non-core expenditure is being increased relative to where it was expected it would be. There was a lot of work to be done to work through the numbers and reach an assessment as to how much of this is being driven as a legacy of the pandemic and how much is recurring expenditure. That work needs to be done and is being done at the moment. That will continue over the coming weeks and months to arrive at an assessment. There was additional money provided to the health service over the course of the last number of years to deal with the pandemic. That allocation was reduced in 2023. At the same time, the health service appears to be dealing with a lot of demand pressures arising from the overhang of the pandemic. That work is ongoing. That is something the Department of Health and the HSE will be working through.

An Cathaoirleach

We are going around in circles. The bottom line is that the witnesses were brought before this committee for the purpose of discussing the standstill costs. The main issue members have with those is that there is not a breakdown or the detail required to identify what components contribute to that figure in its entirety. Regarding the Government decision to allocate €22.5 billion to the Department of Health, that Vote will be debated by the relevant committee and the relevant actors in relation to that will be before that committee. They will be answerable to committee members or the Dáil as they see fit to question, as has been relayed by Deputy Doherty.

Deputy Durkan has been waiting patiently and may have some questions in addition to those that have been asked or clarification on any other points.

Deputy Bernard J. Durkan

Along the same lines, in any Estimate in any Department, and it applies no less to this one, there is a provision in the system whereby you have to make a conjecture as near as possible to what the budget should be for the year. Otherwise we are shadow boxing. We do not know where we are going. We do not know what the various requirements are. In private industry, a prime cost, PC, sum is provided but we were told the health issue cannot be estimated with accuracy because it is demand led. Even where a service is demand led, you can calculate fairly accurately what the requirements are and how to deal with it in short and graphic terms. If we cannot do that and the committee cannot get that information, and we are being told we cannot have that information because the Department thinks this is best handled in another way, the public will think we do not know what we are at. They will say "They are short again and they are going to be short next year and they were short last year". We know all that. This is eating away at public confidence in the system to provide the service. That is hugely important in the context of the present conversation.

I have raised this myself on numerous occasions. In the last 20-odd years or more I have raised it, particularly around budget time, to inquire as to whether various Departments, the Department of Health in this case, had adequate resources available to run the anticipated services for the year. That question is still relevant. It would appear that was not the case and adequate provision was not made. Why was adequate provision not made? It is because it was impossible to identify what the target was. That is the only conclusion I can come to. It should not be that way. It cannot and should not be that way because that erodes public confidence in the quality of the service and the people who make provision for the funding of the service. That is not a tilt at anybody in particular. It is just a fact of life. We can go through various situations where the public will say there is an overrun again and that the service cannot do anything right. The Cathaoirleach rightly mentioned this himself, as did Deputy Doherty. It is important to restore public confidence in the ability of the system to make sufficient provision to provide the services it proposes to provide. If it cannot, why not?

Ms Jasmina Behan

I just wanted to respond to the Deputy's comments. I look after the Department of Social Protection Vote. As regards the work that goes into trying to get the best estimate to ensure we deliver services in the following year, we do a number of things that are evidence-supported, looking at data on recipients, demographics, administrative data, average costs paid in terms of the contributions people make and the number of days that have to be paid, which varies by calendar year. Regarding the number of lines of expenditure on social protection that are affected by the developments in the labour market, we do detailed analysis on the expected evolution of the live register numbers. We look at a number of methods to try to estimate how many live register recipients we can expect in the following year and what the cost per thousand recipients on the live register would be. We then use those detailed forecasts to apply to a number of lines that relate to the jobseeker's income supports and the employment supports. When the summer economic statement is published, a lot of that information is not actually visible to us because we have to go through the information the Department has from its administrative data and the analysis we have on the latest data on the labour market and the unemployment rate to analyse all of that and to go line by line. Say for this year, it would have summed up all those lines and we came up with the estimate of €117 million for the social protection Vote. I can also talk about the education Vote, where we also do analysis to understand the demographic movements and the demand for teachers at primary level and secondary level, in DEIS schools and the costs per teacher in terms of those both exiting and entering the service. There is a lot of analysis that goes into understanding and, as much as we can, accurately estimating the expenditure that is needed to deliver services in the following year.

Mr. John Kinnane

If I could add to that, an important part of this process of managing is not just about the incremental piece. I know we are looking at the €1.8 billion but that is being added to a €74.5 billion base, so we are looking at €76 billion for ELS before there is a new budget measure.

That is why the ongoing analysis through the Irish Government Economic and Evaluation Service, IGEES, and the spending review process looking at the effectiveness and efficiency of spending are important; because of the incremental piece. One of the moving parts within this whole ELS discussion is what efficiencies can be driven within the existing base to ensure there is sustainability over the long term. There has to be a critical analysis and the work we do through spending reviews and the IGEES supports that.

An Cathaoirleach

I thank members and the witnesses for their presentations, the manner in which they sought to answer questions and the detail they went into. The main thrust of our ask is to ensure there is an effort to provide the committee and, by association, the House, with the components within ELS provisions for next year and that they be divided into three, in each Department. It is incumbent on us as the Committee on Budgetary Oversight to allow people to have easier access to the information and to understand these better than they do currently to ensure that the budgetary process is an informed one for those we represent. I ask the witnesses to seriously consider providing that information.

The select committee adjourned at 7.21 p.m. until 5.30 p.m. on Wednesday, 22 November 2023.