I thank the joint committee for giving me an opportunity to appear before it to discuss AHBs. I am accompanied by Mr. Stephen McDonagh and Mr. Robert McLoughlin. All three of us are based in the economics division of the Department of Finance. Mr. McDonagh and Mr. McLoughlin are based in our statistics unit which is responsible for the application of statistical standards in the Department's medium-term fiscal projections.
I will begin by setting out the institutional framework for official statistics in Ireland. As Ireland's national statistical institute, the CSO is part of the European statistical system, the primary objective of which is to guarantee that European statistics compiled in all EU member states are comparable, reliable, relevant and usable. EUROSTAT, the EU statistical office, does not collect statistics from respondents but compiles and quality controls national statistics collected and reported by each national statistics producer, which in the case of Ireland is the CSO. The CSO is responsible for implementing the European system of accounts framework, known as ESA 2010. In that context, it determines which bodies are on or off the Government balance sheet. ESA 2010 is legally binding across all member states. Therefore, the CSO is the national arbiter in the classification of entities and subject to oversight by EUROSTAT. It has complete independence in the exercise of its functions and makes decisions on classification matters.
The Department of Finance respects the statistical independence of the CSO, which is enshrined in national and European legislation. While the Department does not have a direct role in reclassification matters, its statistics unit may provide preliminary ex ante statistical advice for Departments based on the information submitted. Such advice is always deemed to be provisional and dependent on the proposal being implemented as described. The process allows for engagement with the CSO, if necessary. When a proposal has been implemented, the CSO will review all relevant information and make a final ex post classification decision. The Department has no role in ex post classification which is entirely a matter for the CSO and EUROSTAT. The Department's main involvement in statistical matters is to collect the necessary financial data to ensure the public finances are compiled and reported accurately. It is responsible for current year estimates of general Government deficit and debt that are supplied to EUROSTAT and other European institutions. It compiles and publishes technical forecasts of general Government receipts and expenditures in the Stability Programme Update, Ireland's medium-term fiscal statement and budget publications. The medium-term fiscal projections are in accordance with ESA 2010. In the light of this, there is ongoing close co-operation between the CSO and the Department in the area of Government finance statistics. It is encapsulated by the secondment to the Department of CSO statisticians who are based in our statistics unit. The Department and other relevant experts participate in a variety of groups dedicated to specific topics to provide for quality assurance in the reporting of deficit and debt figures.
As we set out in our submission to the committee on 1 July, the Department has no direct involvement with AHBs. Each AHB is a delivery mechanism for housing, which means that its output is outside the scope of the Department's responsibilities. In 2017 the CSO's review of the AHB sector focused on the largest of the bodies in tier 3. It concluded that there was sufficient evidence within the funding schemes to indicate control by the Government. Accordingly, it decided that 14 AHBs should be classified as being on the Government balance sheet. The Department does not try to influence this or any other classification decision. Before the decision was made, AHBs were classified as being off balance sheet. If an entity is classified as being off balance sheet, its revenue, expenditure and borrowing are of no relevance in the calculation of general Government revenue, expenditure or borrowing.
In February 2018 officials from the Department of Finance appeared before the committee to discuss the reclassification of AHBs. On that occasion, there was a focus on the implications of the CSO's decision in the context of fiscal rules. In January and June 2018 officials from the Department of Finance attended meetings with their colleagues in the Departments of Housing, Planning and Local Government and Public Expenditure and Reform to discuss the impact of the classification of AHBs on the fiscal position. Officials from the Department of Finance met the Housing Alliance to discuss this topic on 1 May 2018. They advised on the impact of the reclassification of AHBs on the fiscal projections set out in the Stability Programme Update. The reclassification of AHBs is not a Government accounting issue but a statistical issue, which means that it is entirely a matter for the CSO.
When the on-balance sheet conclusion of the CSO in 2017 was confirmed by EUROSTAT, the Department of Finance began its preparations to gather the necessary data. The Department designed a data collection form aimed at collecting the necessary details and minimising the burden, insofar as possible, on individual AHBs. The Department issued the form to the relevant AHBs for its spring 2018 forecasts. Contact details of departmental officials were provided, as is standard on the issue of such a data request. Direct contact details for the relevant CSO statisticians were also included. A limited number of AHBs made contact with the Department to discuss the details being collected. The queries centred on understanding the form and ensuring data were being submitted correctly. Such contact took place by email or telephone call, with no requests for a meeting. There was a 100% response rate in the initial collection round. As the Department produces two official macro-economic and fiscal forecasts each year, we are in the process of gathering the information for the fourth time. On foot of the CSO's decision, the reviewed bodies were placed within the general Government sector for statistical reporting purposes. As such, expenditure by AHBs will count in the local government sector. This will worsen the general Government balance. Revenues to the AHBs from third parties will improve the general Government balance. Any borrowing will count as part of general Government debt. The 2018 Stability Programme Update included the first set of fiscal projections to incorporate the CSO's decision. General Government statistics were restated to reflect the activities of the reclassified AHBs. At present, there are no direct Exchequer implications. In addition, the projections do not present a particular issue in the context of the fiscal rules. However, this could change if the scale of AHB activity increases through increased borrowing.
The CSO was to review all AHBs. Taking into account the structure in place in Ireland, the initial focus was on tier 3 bodies which comprise the largest of such bodies. The CSO has committed to reviewing the remaining AHBs not covered in the original exercise. If further AHBs are reclassified as being on-balance sheet, their data will be counted in Government finance and excessive deficit procedure statistics.
The AHB sector undertook its own analysis to explore how changes to their governance, funding and scheme conditions could facilitate a future re-examination of their status. A submission was subsequently forwarded to the Minister for Finance and Public Expenditure and Reform in late 2018. Given that the proposals made in that submission centre on changes to the relationship with local authorities and the Department of Housing, Planning and Local Government, the Housing Alliance was advised by the Department of Finance that the proposals to reclassify tier 3 AHBs off-balance sheet were ones for the Department of Housing, Planning and Local Government. The submission also highlighted that clarification of aspects of the original reclassification decision made by the CSO was required. As such, the Housing Alliance was advised the matter was more appropriate to the CSO. The submission stated:
[T]he power to decide the classification of an organisation under ESA 2010 lies with Eurostat. However, in most cases Eurostat employs the services of the relevant national statistical agency to provide it with an assessment and recommendation. In Ireland's case that agency is the CSO.
The submission set out a number of measures required to place AHBs in a position where they could apply for reclassification as being off-balance sheet. At a later stage, once the substantive policy aspects of their proposal such as contractual arrangements, organisational structures and funding mechanisms had been worked through with the Department of Housing, Planning and Local Government, the Department of Finance could review any of the workable solutions with regard to balance sheet implications. The Housing Alliance responded and referred to the classification of AHBs as being "at its core a financial accounting issue". That is not the case. It is a statistical, rather than an accounting, issue and, therefore, a matter for the CSO.
More recently, the Housing Alliance submitted a statistical query to the Department of Finance. Broadly, there were two main aspects to the query. First, the Housing Alliance was of the opinion that the CSO's 2017 review was incorrect. The second part of the query was about a counsel's opinion of the classification decision. This is under consideration in the normal manner and a response to the query will be issued in due course. I assure the joint committee that the Department of Finance remains willing to engage in a supporting role with our colleagues in the Department of Housing, Planning and Local Government which has responsibility for housing policy.
I hope this provides a useful summary of the issue. My colleagues and I will be pleased to answer questions members wish to pose.