Barry Cowen
Question:62. Deputy Barry Cowen asked the Minister for Public Expenditure and Reform the Supplementary Estimates that will be required in 2019 based on current information; and if he will make a statement on the matter. [39878/19]
Ceisteanna ar Sonraíodh Uain Dóibh - Priority Questions
Estimates Process
Deputy Cowen has 30 seconds to introduce his question.
I will use those 30 seconds after the Minister replies to it.
Managing expenditure within allocations is a key responsibility of every Department and Minister. A number of measures are in place to ensure that expenditure and budgetary targets are being achieved on an ongoing basis. There is regular reporting to Government on expenditure levels and expenditure profiles, which are published every month. The drawdown of funds from the Exchequer is monitored throughout the year and reported on against profile on a monthly basis in the Fiscal Monitor.
As set out in the most recent Fiscal Monitor, total gross voted expenditure at end-August was €42.015 billion. This is €262 million, or 0.6%, below profile. Gross voted expenditure is 0.3% below profile. Of the 17 ministerial Vote groups, 14 are on or below profile on current expenditure for the end of August. Gross voted capital expenditure is €130 million, or 3.7%, below profile but up €683 million, or a quarter percentage versus the same period a year ago. The end of September figures will be published later this week.
Due to the scale of Government expenditure, which is over €66 billion in aggregate for 2019, and the cash basis of Government accounting, the need for Supplementary Estimates can arise for a number of reasons. This includes in-year policy decisions, timing issues, overspends in particular areas and the need to respond to emerging events where Departments do not have the scope to deliver offsetting savings.
The key issues that were highlighted in the mid-year expenditure report include where we are with the health sector and, in particular, expenditure pressures in the Department of Justice and Equality arising from pressures regarding asylum seeker accommodation.
I thank the Minister for his response. In the event of a Supplementary Estimate being required and based on the fact that since 2012 €6.3 billion in total has been used - I presume from corporation tax revenue - to meet those Estimates, will the Minister go down that road again in respect of corporation tax revenue or will he put that to the basic figures next year?
I did not catch the last part of what the Deputy said.
In the absence of using revenue from corporation tax receipts, how does the Minister intend to meet the Estimate if a Supplementary Estimate is required? Will it be from underspends going into next year?
It will be a combination of a number of different things. At this point in time, I am confident that our level of Supplementary Estimates will certainly be reduced versus where we were a year ago. They were at a very high level a year ago and I said at that time that the total volume of underspends and the way they materialised so quickly was not acceptable.
In terms of how we will pay for it, there will be three ways. First, with respect to what we can do to reduce the level of Supplementary Estimate for this year, a huge amount of work has gone into that to date. The second is whether over-delivery on certain tax heads later on in the year will cover the Supplementary Estimate. The third is our ability to pay for any Supplementary Estimates out of the overall budgetary framework that is included in the summer economic statement.
At this stage, the Minister sees no impact on the 2020 figures as a result of any Supplementary Estimate that might be required.
It could have an effect because it depends on how we treat those figures. What has happened in the past, for which I have been criticised, is the level of Supplementary Estimate that has been brought into the base that was spent and then the budget day package came on top of that. The Irish Fiscal Advisory Council has been critical of two things. First, it has been critical of the level of total Supplementary Estimates and, second, it has been critical of them being brought into the base and then the budget day package being on top of that. In the coming days, I will need to see what is the best way of managing this issue for 2019 and 2020.
Departmental Properties
Pearse Doherty
Question:63. Deputy Pearse Doherty asked the Minister for Public Expenditure and Reform the rent paid by the Office of Public Works for the rental of properties (details supplied) in each of the years 2014 to 2018, inclusive, and to date in 2019; and if he will make a statement on the matter. [39622/19]
The Office of Public Works, OPW, has paid Green REIT €10.5 million to rent 85 to 93 Lower Mount Street and €5 million to rent a property in Harcourt Street since 2014. Given the lenient tax structure and treatment backing up this international investors group, which is pricing families and domestic businesses out of the market, I ask the Minister why the Government, through the Office of Public Works, is renting properties in Harcourt Street and Lower Mount Street from Green REIT.
The Deputy's question asked me to make the levels of rent in those two properties available to the Dáil, which I have done.
In terms of why we are making use of those properties and paying those rent levels, it is because the OPW has judged that this is the best way of securing property for the State offices using these properties and that the rent is at a level it believes offers best value to the taxpayer.
The Minister needs to examine a number of issues before we dismiss the fact that we are pumping millions of euro into this company through rental income. The first aspect that concerns me is the sale of Green REIT itself, which is the landlord in this case. Under the Minister’s watch, Green REIT and its shareholders have enjoyed tens of millions of euro in tax being avoided through the sale of properties earlier this year under the capital gains tax, CGT, exemption. We now have Henderson Park, which will purchase the Green REIT shares. There is a loophole in the legislation which allows for it not to pay the 6% commercial stamp duty, which should be paid on commercial property and the sale of shares, but instead 1% on Green REIT shares will be paid in respect of this transaction.
This is despite the fact that Green REIT’s portfolio consists entirely of commercial property. Given that Green REIT was sold for €1.34 billion, this is a loss to the taxpayer, who has paid over €15 million in rent on these two properties. This comes to a loss of €67 million to the taxpayer because of this loophole. If the Minister will use public moneys to rent from Green REIT, will he at least ensure that the company pays its taxes? Will he give us a commitment that he will close down the capital gains tax exemption and fix the commercial property stamp duty loophole in the forthcoming finance Bill?
It would not be appropriate for me to comment on the rental or even the tax arrangements of any particular company or organisation in the State. However, this is an issue which I did investigate in the context of the tax strategy group papers we published during the summer. In these, we assessed the contribution entities like this are making to housing and commercial property output in the State and what is the information we can make publicly available regarding the levels of tax they are paying. However, it simply would not be appropriate for me to comment on any single organisation or company such as this, let alone the tax it pays.
I have already asked parliamentary questions on this matter. The replies are clear that Green REIT will not pay the 6% stamp duty on this transaction. Instead, it can avail of a loophole in the tax code that will allow it to pay 1%. The latter means that the taxpayer is being screwed over to the tune of €67 million on foot of this one transaction. This is a structure which does not pay capital gains tax on the disposal of assets. We also have limited taxes on these structures in the first instance. We know, for example, that rental income is paid out in dividends which are then paid to investors. The Central Bank believes that half of the total equity in Irish REITs is held by overseas investors. The dividend withholding tax - the introduction of which I argued for - is set at 20%. We know, however, that this is only a rate on paper because many of these companies, as a result of double tax treaties, can reduce their rate to on average 15% and, indeed, that many more can reduce it even further.
As far back as 2012, the Department of Finance was forecasting significant tax leakage as a result of the REIT structure. I have pointed out three different areas in which that leakage is happening. The Minister needs to close these loopholes in the finance Bill.
As a result of the debate I had with the Deputy on last year's Finance Bill regarding the level of tax associated with the organisations and companies in question, I put in place a process which led to the publication of the tax strategy group paper this summer. My strong view is that all companies, large and small, must pay a fair level of taxation. The Deputy knows I cannot comment on any particular organisation and the tax it pays.
The Deputy asked me for information regarding the rent from properties that this entity earns from the State. I have made that information available to him.
Capital Expenditure Programme
Barry Cowen
Question:64. Deputy Barry Cowen asked the Minister for Public Expenditure and Reform the estimated cost of the national broadband plan and the national children’s hospital from 2021 onwards; the area from which funding for the projects will come; if no project will be impacted upon as a result of these spends; and if he will make a statement on the matter. [39879/19]
The Minister will know only too well that the costs associated with the national broadband plan and the national children's hospital have ballooned out of all proportion in recent years. Will he make a statement as to how they will be funded beyond 2021 in light of the alterations which will have to be made on foot of the information becoming available in respect of their costs? I am also mindful of the commitment given on the broadband plan that a contract would be signed in September for its delivery, even in light of these massive costs and notwithstanding our opposition to it. Where does the Government stand on that commitment?
Earlier this year, I inquired of the Minister as to how the Government gave preferred bidder status to a consortium involved in the broadband tendering process. In the event of the Government not proceeding with the signed contract, is there a penalty and what costs would be incumbent on the State?
The Department of Public Expenditure and Reform is responsible for monitoring expenditure allocations on a monthly basis at departmental level. Responsibility for individual projects rests with the relevant Departments. Accordingly, managing the cost of both the national children’s hospital and the national broadband plan projects is a matter, in the first instance, for the Departments of Health and Communications, Climate Action and Environment.
Regarding the estimated cost of these projects from 2021 onwards, I am informed that spending on the national children’s hospital will be in the region of €650 million and the national broadband plan will cost up to €3 billion, albeit for a long period after 2021. In both cases, annual funding will be voted through the Dáil in the Revised Estimates and will subsequently issue from the Exchequer.
The funding for these two projects forms part of the overall capital allocations for their Vote groups. As with all Vote groups, it is for individual Ministers to prioritise the projects to be funded from their allocations.
My role is to oversee the implementation of the National Development Plan 2018-2027, including the capital ceilings underpinning it. To ensure the efficient implementation of the plan, there is a Project Ireland 2040 delivery board, an investment projects and programmes office, a capital projects tracker and a construction sector working group to ensure how best to deliver these projects.
I have published our Estimates ceilings beyond 2021 until 2025. Given the commitment I made that these projects would go ahead and that they would not push out any other projects Departments had in these areas, the capital allocations for these Departments were added on during the summer economic statement. It comes from either running a lower surplus in the event of being able to avoid a no-deal Brexit or a slightly higher deficit if we must deal with a no-deal Brexit.
During a discussion on the cost of the national broadband plan on "RTÉ News: Six One", the Minister stated that, despite it going to a headline rate of €3 billion, the country could withstand it and that it would be paid for out of surpluses and provided for in the coming years. As he has rightly recognised, however, we could be heading into a series of deficits as a result of Brexit, an event that will have implications for the State's finances. Does that leave the Minister in a precarious position regarding his commitment on signing a contract while that wider issue prevails?
Conferring preferred bidder status to a consortium in the broadband tendering process has some legal basis. Has the Minister any estimate of the costs which will accrue to the State in the event of it not proceeding to sign the contract or is there a penalty built in?
My recollection of what I said on “RTÉ News: Six One” is that it would be paid for from Government revenue. However, the Deputy is correct that if we move into a no-deal Brexit scenario, then the country is likely to be running a deficit for a period as we respond to the consequences of dealing with that shock. If that were the case, the Government has not made a final decision on the signing of the broadband contract.
It is at preferred bidder status. My view is that the national broadband plan is still the form of plan with which we should be going ahead. First, for those counties and communities which are likely to experience the most shock from the impact of a disorderly Brexit, the national broadband plan is one that will benefit them the most. From all the modelling we have done on the effect of a no-deal Brexit on different sectors of our economy, it tends to affect more those located outside the larger cities. To help them respond to the shock that a no-deal Brexit could bring, broadband connectivity is exactly what we should be providing.
The point at which we will get into a debate is when we are about to sign a contract. If we do not go ahead with the project, as I believe we should, we will all need to explain, as I know Deputy Cowen will, whether there are alternative ways of delivering the outcome within the timeframe we all want.
The Deputy asked whether there are penalties involved. I understood he had received an answer on that but that is clearly not the case. I will ensure he receives a reply tomorrow.
It would appear that the decision not to sign a contract in September, as had been envisaged, is the result of the implications that signing the contract would have for the State because it now appears that we would borrow much of the €3 billion cost, rather than providing for it from revenue sources based on the projections that had been made, as the Minister indicated in answer to a question on "Six One". Is it the case that a revision is taking place or the matter is being reconsidered in light of the circumstances? The Minister may answer that question in writing tomorrow and answer my question on the obligations of the State in respect of penalties now.
I am happy to give the Deputy Cowen an answer now. I was apologising to him because the question on legal penalties had not been answered and I thought it had been answered. I will make sure he receives information tomorrow, insofar as it is available to me, to clarify where the Government stands on the national broadband plan.
Any delay in the Minister, Deputy Bruton, bringing a memorandum to Government, which I expect soon, is entirely unrelated to Brexit or any of the macroeconomic concerns that the Deputy and I have touched on. Lest there be any doubt, I still believe we should go ahead with the national broadband plan. A no-deal Brexit would most adversely affect the same communities and parts of the country that would benefit from the national broadband plan. As the Deputy can imagine, when we reach the point of signing a contract, those who believe we should not sign it or that the contract could be improved will need to make a case for how that could be done. As somebody who grappled with this issue for a year, I ask anyone who is committed to 100% coverage and believes fibre optic is the best way of delivering nationwide coverage to come up with a better way of delivering those objectives and making the service available soon.
Question No. 65 replied to with Written Answers.
Public Spending Code
Barry Cowen
Question:66. Deputy Barry Cowen asked the Minister for Public Expenditure and Reform when the public spending code will be updated; the specific changes to the public spending code that are being envisaged; and if he will make a statement on the matter. [39880/19]
I ask the Minister to respond.
As part of the ongoing reform of the public investment management systems, we are updating our public spending code. The purpose of this update is to strengthen the existing guidance to better align with the realities of project delivery and with a particular focus on improved appraisal, cost estimation and management. Clearly, our experiences with the national children's hospital earlier in the year have informed and influenced the work.
In terms of what is under way, we are looking at a number of different areas. The first of these is how we can better appraise big capital projects far earlier in their life cycle and before decisions are made on them. The second focus is on achieving greater clarity on who decides what and when. We also need to be clearer on what cost estimates are and to be able to compare them with the business case for the projects. More realistic expectations regarding how a project can be delivered are needed for big projects and we need to be more transparent regarding the publication of business cases and evaluation reports. The work on these issues is almost complete and I anticipate publication of the conclusion of all this work in the coming weeks.
I thank the Minister for his response. This came to a head earlier this year when a contract was awarded by the HSE in Limerick to a company with a fractured history in the delivery of a capital programme. The Taoiseach stated at the time the children's hospital issue was being debated in the House that previous performance in the delivery of capital projects would have to be given weight in the procurement process. We had hoped and expected the update to be forthcoming much quicker but that has not been the case. I acknowledge the Minister's comment that much work has been done and the conclusions of this work will be before the House soon. It is imperative that this happens as soon as practically possible. People want to see that lessons have been learned from the children's hospital debacle and that it is not repeated. This requires correcting the appropriate legislation or procurement policy to ensure the same thing does not happen again. While I do not like mentioning names in the House, I will do so if I have to. After the children's hospital debacle, the HSE awarded a contract to a company which had a poor record in delivering another project. However, its record could not be taken into consideration as part of the process.
I am aware of the issue to which Deputy Cowen refers and it is one that we are evaluating. The challenge we have is that if a company submits a tender for a particular project, unless there are exceptional extenuating circumstances, we must evaluate that tender for the project. The Deputy has been understandably careful in referring to this issue. Some companies that experience difficulties with individual projects subsequently demonstrate that they are capable of delivering other large and demanding projects on time and on budget. I am considering the issue of how we weigh up the performance of a company in its entirety versus its ability to deliver a particular project. At this point in the process, it appears to me that we must continue to give weight to the value of tenders submitted against the project itself, as opposed to allowing the process to be influenced by other broader considerations. We are weighing up that issue.
If a player who played poorly in the semi-final says he can improve his performance in the final, I still have to make a decision not to pick him when picking the team for the final. The public has seen the performance of the procurement process and the evaluation, preparation and recommendations of a contract for the children's hospital, and these have left much to be desired. People expect that lessons will be learned and new structures and mechanisms put in place to ensure this does not happen again but, lo and behold, it appears it has happened again. Let that be the last time. Hopefully, the spending code will be before us sooner rather than later in order that we can address it.
To use the Deputy's analogy, if the same player had a bad outing in the semi-final but played well in the quarter final and did very well in the group stage, how should we assess all of his performances? This is the calculus that we have. I understand the point the Deputy is making. If things do not go well in a project but the company in question had delivered many other projects very well, how should we weigh everything up? This is the challenge. In the case of a company of scale where the Deputy might point to things that went wrong, one could also point to many other projects which went well and were brought in on budget and on time. As I said, I am aware of the issue to which the Deputy refers. We are weighing up whether we can recognise this issue in changes we might make to the public spending code. However, if we do so, we must look at a player's overall performance as opposed to his performance in a single game.
Now that the Members are using sporting parlance, I hope the 11 changes will make a difference this week.