Item No. 4 on our agenda is a discussion with representatives of the Department of Finance on the Department's strategy statement 2005-07. We are joined by Mr. Tom Considine, Secretary General, and other officials of the Department. On behalf of the joint committee, I welcome our visitors and thank them for attending this meeting. Before the discussion begins, I advise that while the comments of members of the committee are protected by parliamentary privilege, those of the visitors are not. I remind members that they should not comment on or criticise or make charges against a person outside the committee or the Houses. We will commence with a short presentation from Mr. Considine which will be followed by an open discussion with members.
Department of Finance Strategy Statement 2005-07: Presentation.
Mr. Tom Considine
I thank the Chairman and the joint committee for inviting us. I am accompanied by my colleagues, Mr. Robert Pye, Ms Carmel Keane and Mr. Michael Errity.
The Department prepared its first strategy statement in 1994 and published its first statement under the 1997 Act. The Act requires that there be a statement every three years, or on a change of Government or Minister. To date we have published five statements, including the 1997 statement, and six annual reports.
The current strategy statement covers the period 2005-07, reviews the environment in which the Department operates and sets out the seven strategic priorities on which the Department will focus in the coming years. It identifies the objectives associated with each strategic priority and lists indicators of progress for each. It also outlines the approach we take to developing our relationship with other Departments as well as some of the measures we have taken to strengthen the way we do business and modernise our procedures.
All levels of management and staff are involved in preparing a statement of strategy, including the Department's partnership committee. The draft document is considered by the management advisory committee. When supplying their views, our managers pay close attention to the feedback from our customers, the effectiveness of policies to date and the environmental factors likely to affect the future direction of policy.
The work of government is becoming increasingly integrated to the point where progress in one sector often depends on progress in others. Through our strategic priorities and the structures we have in place internally to manage our business we endeavour to ensure these cross-sectoral issues are addressed. Our advice to the Minister and the Government takes account of the broad picture, its implications for the economy as a whole and the need for joined-up government.
As Secretary General, I agree with the Minister at the commencement of the process on the broad approach to be taken to the preparation of the strategy, the strategic priorities to be pursued and any other matters he or she considers ought to be taken into account. The draft final document is submitted to the Minister for consideration and forwarded to the Taoiseach for his approval and then the Government.
The Department advises the Minister and the Government on a range of issues associated with maintaining and further developing Ireland's economic prosperity. In particular, we advise and support them on the economic and financial management of the State and the overall management and development of the public sector. To this end, we are required to propose and deliver on policies that strike the right balance between taxation, investment in infrastructure, the improved delivery of public services and sustainable debt levels. The basic framework we follow to achieve this is set out in the statement of strategy.
The Department's mission is to promote a growing economy which will deliver a high level of sustainable employment, social progress and living standards. This mission involves promoting policies which deliver international competitiveness and internal efficiency; advising the Government on and managing the overall process of resource generation and its allocation between investment and consumption to secure sustainable economic and social benefits; and achieving ongoing improvements in efficiency and effectiveness across the public sector. In pursuing our mission we consult widely across all sectors and take into consideration the views and needs of many groups. This process of consultation also involves close contact and co-operation with other Departments and Offices, as well as experts on aspects of public policy such as decentralisation.
In achieving its mission the Department is focusing on seven strategic priorities, as follows: to support sustainable growth and employment creation, social progress and improved living standards through the formulation of appropriate economic and budgetary policies; to maximise delivery of the Government's economic and social objectives through the development and management of effective taxation and public expenditure policies; to develop policies which continue to promote Ireland's interests at EU and international level and support social and economic progress within the European Union; to promote the effective regulation of the financial services sector; to promote and implement policies in relation to incomes, with particular reference to the public service, which take account of the financial position of the Exchequer and promote competitiveness and the delivery of better public services; to support and improve public service management and, in that context, to facilitate the effective implementation of the programme of decentralisation; and to provide an efficient, high quality service for our customers in line with the standards and targets set out in our customer service action plan and customer charter.
These strategic priorities and the objectives associated with each of them are supportive of the programme for Government and prevailing Government policy across all sectors. Each of our strategic priorities includes a number of specific objectives. Of necessity, these have a high level focus, for example, promoting price stability, contributing actively to the formulation of advice on high level EU policy issues, or underpinning competitiveness and sustainable employment. Each of these high level objectives may be subdivided, in turn, into a number of lower level objectives which are pursued actively by appropriate policy measures. We do this through our formal business planning process.
As the high level priorities and objectives outlined in the statement of strategy flow from the programme for Government and Government policy in general, the role of the Minister and Government is central to their delivery. The management and staff of the Department are charged with providing quality advice to enable the Minister and the Government take the optimum decision in each case. Once decisions are taken, the management and staff of the Department are responsible for their effective implementation. The progress eventually made is, therefore, a function of the Government's policy, the quality of the advice provided by the Department, the decisions made by the Minister and the Government, how effectively decisions are implemented and the external environment. Given that the economy is small and very open, changes to the international environment have the capacity to swamp local decisions. However, it is reasonable to expect policymakers in Ireland to take this on board when formulating policy.
Subject to the points I have made, we measure our success in achieving these objectives through a number of indicators of progress. These too are at a high level, reflecting the nature and broad reach of the objectives to which they relate. They include, for example, a competitive economy, the adoption of regulatory policies at both EU and domestic level which facilitate the continued development of the financial services sector in Ireland, and the effective representation of Ireland's interests at the ECOFIN and budget Councils. We endeavour to provide, through annual progress reports to the Minister on our strategy statement, a progress report on what we have achieved under each of the strategic priorities by reference to these indicators of progress. As such, each of the reports represents an annual statement of performance by reference to the priorities and objectives set out in the statement of strategy.
Preparation of annual progress reports and the ongoing monitoring of progress generally under each of the objectives is supported by the Department's business planning process. Each section has a business plan that focuses on the outputs required to deliver on specified higher level objectives. These include developing proposals in areas such as public expenditure, taxation and pay as well as financial and other regulation. They also include monitoring the decisions already taken, whether on spending, taxation, pay or whatever, to ascertain if the outturn is developing in line with expectations. The business plans for each assistant secretary division are reviewed and discussed in depth each year at a meeting between the management advisory committee and management and staff of the division.
The business planning process enables us to take a detailed look at all aspects of our policies and to do so in a systematic manner. By conducting our business in this fashion, we are able to identify emerging problems more easily, assess progress in a co-ordinated manner, take account of the needs of the wider public service and economy and stimulate discussion and the generation of new ideas. In this way we seek to promote a common understanding of our objectives and how we can best use our resources to achieve them. The business planning process is complemented by the performance management and development system, which relates to individual performance. Together they enable us to link the role of the individual with the objectives of the Department. It helps individual managers and staff to identify and develop the skills they need and to fully appreciate their contribution to the achievement of corporate objectives.
The business planning process has been working well. With my colleagues on the management advisory committee, I greatly value the opportunity it provides to review the work of the Department in a methodical way and to engage with various levels of management and staff in a fruitful discussion of our priorities.
The effectiveness of our statement of strategy is reinforced by the management structures we have in place to consider issues as they arise and to oversee and co-ordinate the general management of the Department. These include regular management meetings with the Minister and regular meetings of the management advisory committee and the assistant secretary group. The assistant secretary, principal officer and assistant principal officer groups have specific functions delegated to them by the management advisory committee. In addition, we regularly discuss a range of issues at the partnership committee, which I chair, relating to the effective management of the Department. These include the draft statement of strategy and draft annual progress reports.
The statement of strategy is the formal instrument used by the Minister for Finance and the Government to communicate to the Department the strategy required to support the formulation and implementation of policy. The annual progress report, on the other hand, is my formal report to the Minister on the progress made in the course of the previous year to advance the objectives set out in the statement of strategy.
Overall, the statement of strategy and the strategic management process that flows from it help to inject greater clarity and cohesiveness into the management of the Department with a view to helping it make the most effective possible contribution to achieving the strategic priorities that have been agreed by the Minister and the Government. This, in turn, has made it easier to formulate quality policy advice across all sectors, engage effectively with Departments, elicit and harness feedback from our customers and, most importantly, ensure that the Department's objectives are fully aligned with the programme for Government.
My general feeling about this document is not dissimilar to what I felt about the previous one in that it does not set timeframes or priorities. Tangible responsibility is not being imposed for delivering some of the outcomes. Clearly straightforward performance indicators are possible in respect of some of these areas and the strategy statement has chosen not to set them. For example, it is stated, under the taxation heading, that one of the objectives is removing more of the lower paid from the tax net and reducing the effective higher tax rate for those on average pay. That is manifestly open to measurement and could be monitored by setting two-year or three-year targets.
Mr. Considine may say that there is also a fiscal element involved here. This is a political document comprising the work of the Department and the Minister. It is influenced by Government priorities and supposed to reflect its objectives. In this context, I do not understand the coyness upon which Deputy Murphy remarked. It seems saying nothing is the best strategy, even when measurements can easily be made.
In a broader context, the Secretary General has clearly said the Department's core mandate is to improve the expenditure management process, co-ordinate the development plan, ensure resources are used efficiently, promote a systematic review of expenditure programmes, and promote improved service quality and performance measurement. However, given these as the Department's key objectives, does the delegation agree we have made minimal progress in attaining a systematic review of expenditure programmes? The report on the expenditure review initiative from the Secretary General was pathetic, indicating that less than one in five of the proposed expenditure reviews was conducted.
In particular, it seems the Department of Health and Children was given a free pass. It has conducted no expenditure review, even though it has more than trebled its spending in the past eight years. There is widespread public concern as to whether we are getting value from our spending on health. The reason offered for the lack of an expenditure review from the Department of Health and Children was that it was undergoing substantial restructuring. That is not a reason that is acceptable at any level.
Public concern is to be expected when spending on health has increased threefold but fewer people can access primary care. Persons on the minimum wage are regarded as too wealthy to be entitled to free primary care and although the numbers attending accident and emergency departments have fallen, there is greater chaos at those facilities. It is surely a core element of the Department of Finance's objectives of improving expenditure management, promoting a review of programmes and encouraging performance measurement to demand an explanation from the Department of Health and Children of what it is trying to achieve with its funding, why it is seeking three times as much money as it received before 1997 and what the public can expect to see for this money.
These are core issues in terms of the Department of Finance's responsibility as controller of the expenditure system but insufficient action is being taken in this regard. Mr. Considine, like the previous Secretary General, did not see it as his job to rattle the cage and set penalties for those who did not comply. However, if the Secretary General and his Department are not willing to rattle the cage of other Departments and ensure they comply with the requirements that have been objectives of the Government for more than a decade, who will do so? It is frustrating that this is not being done.
One of the progress indicators concerns the Department's intended review of all relevant tax reliefs and exemptions. The Minister recently indicated the commencement of this work. Is it the Department's intention that the Oireachtas will receive an annual report, similar to the Estimates, which will indicate the cost in that year of the various elements of the tax relief code? Will a note be provided describing achievements in this area, why it is good public policy and what will cost more in the coming year, similar to the procedure we hope to see in place in regard to spending? Will we see this type of report in regard to tax expenditures, as the economists call them, in order that we can treat them on a level with other spending? Alternatively, will this information be closeted away for Ministers framing finance legislation and budgets and not made available to other Oireachtas Members?
I notice the Department has introduced into its strategic statement for the first time an objective of complying with the provisions of the spatial strategy. One will be forgiven for being somewhat sceptical as to why this was introduced after the Department implemented a decentralisation programme which, by common acknowledgment, did not respect the spatial strategy. It seems the Department is aspiring to this objective after the major tool it had at its disposal has been utilised. How did this come about? Decentralisation is not set out as a strategic objective or priority in the document. This lack of mention is surprising. It seems it is a background factor to be lived with, which is strange, given its major impact on the public service.
A successful outcome to the second round of benchmarking is set as a key indicator, although the Department does not state what comprises success. Will delegates be a little more specific with regard to what would be considered a successful outcome on the next occasion? For example, there has been widespread criticism that the last process was not transparent and people did not see the basis on which awards were made. Does the concept of a successful outcome include transparency?
Some 75% of the deal was conditional on the introduction of a new public service reform programme. I am among those who believe the Government did not put sufficient impetus into the reform programme to get what was necessary out of the benchmarking arrangement. Will delegates tell the joint committee how the Department intends to address the reform element of a second round of benchmarking? Will it instruct institutions that they must have tangible processes and indicators of best practice in order that we can measure significant change as opposed to the previous action plan system which involved a lot of box ticking? Those at the coalface did not see change.
The Department of Finance has core responsibility with regard to the national development plan. However, any time this issue is raised in the Dáil and the Minister is asked whether we are getting value for money in respect of the roads, schools or health programme, he replies it is the responsibility of the line managers. He states his job is to provide documents to be circulated to these managers and that it is too bad if they do not observe them. Am I correct in saying the Department is getting tougher in its approach to other Departments and will no longer accept such reports in the future?
It also seems that the Department will take responsibility for the management of projects away from the Departments of Justice, Equality and Law Reform, Education and Science and Health and Children. This is a radical departure from existing policy where no monitoring occurs to place projects in a new quango. What is the background to this decision? How we can be confident that a quango which knows nothing about the health care system will design and introduce better projects? The Departments of Education and Science and Health and Children are not great in terms of being accountable to the Oireachtas but this new agency will not be accountable in any way. It will be like the NRA. How does the Department intend to handle this dilemma?
The National Development Finance Agency, NDFA, has a mandate from the Oireachtas to raise €5 billion to fund PPPs. Can it be a player on both sides as well as the gatekeeper? Can it decide what projects should be PPPs and then sit on the other side of the table and set out the funding arrangements, for which there is some €5 billion available? Is there not an inherent conflict of interest? This was exposed in a recent case when a pension fund was rolled into one arrangement. There were supposed to be Chinese walls as to who was doing what but it effectively smacked of a conflict of interest. What was the outcome? Will this not occur in spades under the new arrangement when the NDFA will do everything?
Mr. Considine
As many issues have been raised, it will take me some time to answer the questions asked.
With regard to performance indicators, in my statement I tried to set out that they must be seen as part of the process of governing. One starts with Government policy as to what must be done on taxation matters, for example. These instruments are ways to ensure Departments support and try to assist the promotion of Government policy. Out of necessity, I was obliged to summarise this point but essentially it is part of the system. One starts with Government policy. The Department of Finance then provides advice on how it might be implemented. Thereafter, the Minister and the Government take decisions and we move to implement them. This is not a stand-alone document. I appreciate this, although it can be difficult to read them as stand-alone documents. Nonetheless, they must be seen in the proper context.
As far as our role in the expenditure system is concerned, our first job is to try to forecast the amount of money which will be available for spending in any particular period such as the coming year, for example. Obviously, this is done by trying to forecast the economy's performance in terms of the tax revenues likely to flow from an economy growing at a particular pace. Thereafter, it is for the Government to decide what the balance will be and when put together, one gets a gross expenditure figure. The next job is to provide advice for the Minister and the Government in respect of dividing it up between Departments. Obviously, this is extremely difficult to do as it is not simply a question of priorities within Departments but of priorities across the whole spectrum. At the end of this process Departments have a certain budget which has been agreed by the Government.
The Department of Finance tries to set out frameworks of best practice in this respect. As the Secretary General of the Department of the Taoiseach, Mr. McCarthy, stated to the joint committee, we try to spell out what constitutes best practice in getting value for the money spent. In many cases we are not good at explaining the outcomes. If the committee wishes, I can return to this issue in terms of outlining the measures of productivity in the public service. One such measure — I understand the committee asked for it from my departmental colleagues the last time they appeared before it — is the number of public servants as a proportion of people at work or whatever way one wishes to phrase it and to ask whether we would get more in terms of output for a similar or smaller input. These are valid measures which can be used and are available. We are not particularly good at highlighting them.
As for the review of all relevant tax reliefs, essentially, this involves conducting a detailed examination. The Minister's view was that they should be examined in the round rather than one at a time in order to get an overall view of tax expenditures. They should be examined to ascertain their purpose, whether they deliver what was intended of them, if there a case for their continuation and so on. Studies are under way to acquire the necessary information to take those decisions. This is not dissimilar to the way in which reports from the tax strategy groups are produced as inputs into decisions on the budget. It is for the Minister to decide if and when they are to be published. However, there is a history of publishing tax strategy group papers, subject to some exclusions for various technical reasons. For the most part, the same strategy as that adopted under the freedom of information legislation was adopted even though there is no specific legislative provision with regard to it.
Strategic priority six focuses on decentralisation. This aims to support and improve public sector service management and in that context, to facilitate the effective implementation of the decentralisation programme. I was responsible for public service management and development when the decentralisation decision was going through. It was discussed in detail by the Secretaries General in advance and I discussed it with each union, as did the Minister for Finance at the time. The final decisions had to be taken by the Government because we are talking about seven Departments in their entirety moving outside Dublin in addition to the Office of Public Works. All the information on the issues surrounding decentralisation was considered, including many representations.
The committee which held hearings on this matter never saw a business case from the Department of Finance for the proposed decentralisation programme. It was essentially a large list of locations and Departments. There was no strategic case set out stating that, for example, Ordnance Survey Ireland was moving to a new location for certain regional benefits and benefits to its operation and that the Department of Finance believed the decentralisation to be feasible and beneficial. The committee saw nothing like this, which I believe it had a right to expect but perhaps it did not.
Mr. Considine
Obviously, Deputy Bruton might have different views on this but as I see it, it came about slightly differently. There was a very widespread view that Dublin was choking up and that it was a good policy decision to move parts of Government to the provinces or out of Dublin. There was a general announcement to that effect and the consultations I am talking about then took place. Various submissions were made. There was consideration of the national spatial strategy and the various submissions made by approximately 130 locations which believed that they would benefit from decentralisation. Eventually, the Government made a decision, including to move seven Departments in their entirety and the Office of Public Works, on 53 locations.
This is a slightly different slant on it. It depends on where one breaks into it. If one breaks into it from the perspective that there was a perceived need to move people out of Dublin and that it was a good strategic move because there were many pressures in the Dublin area and decentralisation would benefit areas outside Dublin, the decision looks different. This is another way of looking at the matter.
The important thing about benchmarking is that before it was introduced, there was no great logic about how public service pay was determined. Having a system whereby if a person got a pay increase and another person then looked for one because the first person received one was not a good way to handle public service pay and everyone recognised that. In the simplest possible terms, benchmarking means that public service pay should be compared with equivalent private sector pay. The public sector is always following the private sector, not leading it.
I fully accept there were many criticisms concerning transparency. I went to Canada to speak to people who enacted benchmarking there before we did here. No country ever carried out as extensive an exercise on comparing public and private sector pay as Ireland. The committee produced a report and everyone has taken on board the comments about what some consider to be a lack of transparency. However, I must be honest and say that in most arbitration systems, part of the reason they work is that the arbitrators come to particular conclusions after hearing both sides.
Concerning benchmarking, there is a degree of science involved. To what extent is it profitable to tell someone that they do X, Y and Z while another person does something else? If one goes too far down this road, one will give rise to endless debates about whether one person or another was short-changed. The principle of making the best efforts and using the most competent people to try to measure public sector pay against private sector pay is a much better way to do business than what was in place beforehand. This is the nub of the argument. Notwithstanding what I have said, I understand the point concerning seeking to do this in as transparent a way as we can, which will not be lost on the new body set up to carry this out.
Regarding the national development plan and the exercise, the Deputy is correct. We are trying to improve the way we conduct matters. I partly accept that people are impatient and want something to be done quicker and so on but we are seeking to have a more rigorous analysis of what is to be done and to have independent people examine and review the outcome to ensure intentions are being met. Some of the commentary is unrealistic. Despite initial estimates of a project, such as an extension to my house for which I needed to call an architect, the project always costs more. In my experience, I do not believe the architect was trying to fool me. One only knows the cost of a project when one puts it out to tender. There is no point in telling people that I have a terrible gripe because the architect told me it would cost €80,000 but the lowest tender I received was €100,000. There is an onus on everyone to recognise the reality.
In any process, such as the NDP, several years can elapse between the time of the original estimates and the time that delivery takes place. Much tends to happen. For instance, some people may become organised to get a better price for land or so forth. These are real issues. I am not saying we should not seek to get the best results as we should do everything we can. If the debate is to be meaningful, it must recognise there are issues involved that must be addressed.
Regarding the National Development Finance Agency, it is not a new quango but attaches new functions to an existing organisation. Certain parts of the public private partnership system, irrespective of whether one agrees with them, work reasonably well. For example, good progress is being made by the National Roads Authority and in the area of wastewater in this respect. One difficulty is that in individual Departments there are different administrative systems and the movement of numerous people.
Mr. Dermot McCarthy referred earlier to mobility policy. Every Department has such a policy because it is a way of keeping people sharp, whereby staff are moved around every few years. However, a downside of that policy is that Departments do not have a continuity of expertise in certain areas. The NDFA proposal is an attempt to ensure that projects are completed in a timely and cost-effective manner. The intention is that individual Ministers will be responsible for deciding what projects are to be undertaken and the paperwork, up to the point of a completed specification, will be done within the Department. The project will then be handed over to the NDFA which will be responsible for getting the job done, for example, for ensuring a school is built.
The NDFA enters the process at the point where the capital project is ready to be built. This will require that the NDFA hires people with a certain kind of expertise. That is at the core of this proposal, namely, the centralisation of expertise of the type needed to get projects built in the fastest possible time. There is no doubt that in certain areas, such as the building of schools, there is great demand to make rapid progress and the NDFA proposal is seen as a way of meeting such demand.
I welcome Mr. Considine and his colleagues to today's meeting. It is important to bear in mind that the Department of Finance plays a central role in implementing Government policy. The Department's statement of strategy, or more particularly its mission statement, refers to the intention to promote a growing economy that will deliver a high level of sustainable employment,. social progress and improved standards of living. By any yardstick or benchmark, the Department's performance has been a roaring success.
The Irish economy and its performance in recent years is the envy of every European country. This has been expressed to me by commentators and parliamentarians I have met, both here and abroad. Furthermore, the envy is not confined to the European Union but is evident in most of the Western world.
The Department of Finance, in implementing Government policy, can be proud of what it has achieved in this country over the last ten years. We now have approximately 2 million people in employment, an increase of 500,000 in ten years. We have the second lowest GDP debt ratio in Europe, bettered only by Luxembourg. We have a growth rate that is twice, or in some cases three times, that of many other European countries. The Department of Finance has been an extraordinary steward of the economy in recent times and has provided opportunities for employment and investment in the country. There has also been an improvement in social and living standards that could not have been imagined 25 years ago. I have no problem in complimenting the Department of Finance and the various Ministers for Finance over the last ten years for their work.
There are a number of specific questions I wish to address to Mr. Considine, the first of which relates to the construction industry. Various commentators have pointed out that the construction industry plays a major role in our development and growth. The boom in the construction industry is fuelled by demand and, to some extent, by low interest rates. What complications might there be in the event of a rise in interest rates? I am aware that the European Central Bank has stated today that there are unlikely to be any changes over the next 12 months, but it is something of which we as an open economy should be conscious.
In recent weeks there have been disturbing developments involving the availability of 100% and, in recent days, 120% loans. Will Mr. Considine comment on what the implications might be of those for the economy and for individuals who avail of them?
Decentralisation has been tossed around this committee for a long time. Deputies Bruton and Burton, the latter of whom is not here today, have been bad-mouthing decentralisation for a couple of years.
I object to that comment.
I have listened to attempts to undermine at every opportunity the decision of Government to decentralise eight Departments to different locations throughout the country and to relocate 10,000 civil servants. It is conveniently forgotten that Deputy Bruton's party issued a statement some years ago, when it was in competition with my party on the issue, that it wanted to relocate 18,000. The Government has taken this decision. How does Mr. Considine view the progress of decentralisation and, although this might be a policy matter on which he would not wish to comment, does he envisage a further announcement regarding locations this year?
Tax reliefs have received bad press over the years but I put it to the joint committee and to Mr. Considine that some tax reliefs are beneficial and have not yet been allowed to deliver their full potential to certain locations throughout the country. In particular the rural renewal scheme, based mainly in the Border, midland and west region, while it has contributed positively, has not been implemented fully because infrastructure such as water and wastewater systems and, in some cases, road systems were not and are still not in place.
The continuation of the scheme is necessary to attract people back to areas that ten years ago were being denuded of their population. Some urban centres in rural areas, such as county and rural towns, are still in a dilapidated condition so urban and rural renewal should continue to allow for the enhancement of towns and large centres of population that have been allowed to decay over the years. There may be other examples but those are ones in which I have some expertise.
The special savings incentive accounts scheme is due to reach maturity from spring 2006 through to 2007. That will have an impact on the economy. Has Mr. Considine any comments on this? Does he see any pitfalls involving major consumer expenditure at that time and has he any advice for the committee on the matter?
Mr. Considine
With regard to the construction industry, it is true that the level of housing output in Ireland is extraordinarily high for the size of the country. This is influenced by the demand for housing and low interest rates. I also read the statement by Mr. Trichet, and one would hope that the housing situation will unwind gradually. The general view is that the level of housing output now is above what would be sustainable into the future, or in other words, that enough demand will not be evident to sustain output. If this is correct, and virtually everyone agrees that it is, the level of housing output will decrease in due course. If it does so gradually, one can expect no great problem. If a shock were to occur to the system from something happening outside the economy, for example, concerns would arise. However, there is no sign of something like this happening at the moment.
There was a dramatic headline in one newspaper this morning about 120% home loans and so on. Since this morning, the chief executive of the Irish Financial Services Regulatory Authority, Liam O'Reilly, has issued a statement on the issue. He stated that the authority would be very concerned if a financial institution offered any mortgage in excess of what the borrower can afford to repay, whether it is 50% or 100% of the value of the property. He specified that it is the responsibility of each financial institution to ensure that their credit standards and lending policies are appropriate and that account is taken of the borrower's ability to repay now and in the future. He also stated that although ratios as high as 100% are now being marketed, it is anticipated that the take-up will be low as more stringent criteria are required for the higher ratio. He also pointed out that ratios higher than 100% are not on the agenda.
This is a very difficult issue and the level of private sector debt has been discussed extensively. There is no doubt that individuals and financial institutions have a particular responsibility to ensure that when debt is being dealt with, it is at a level that can be sustained. Account must be taken of factors that could upset levels in future. If a first-time buyer seeks to purchase a house, this advice probably does not make a great impression because the buyer is so intent on getting a property.
There is a particular onus on financial institutions because of this to ensure that people who borrow money are in a position to service the debt. There is an onus on the regulator to continue advising people of the risks and highlight the pertinent issues, which is what has been done with Mr. O'Reilly's statement today. With regard to the broader issue of the level of debt, the problem is not specifically the high level of debt but the rate at which it is increasing. That is what is worrying people.
With regard to decentralisation, the present position is that 21 Civil Service organisations are in the early movers category, with indicative dates ranging from 2006 to 2008. In addition to this there are seven priority State bodies. Property is a first step, as places are needed to locate these personnel, and work is well advanced on 31 locations. Purchases have now been agreed in 13 locations and State-owned sites have been selected for a further 14. The preferred option is to lease in at least four other locations. We expect that four locations will be available for occupancy in 2006, 13 in 2007, three in 2008 and one in 2009.
The implementation group, which is chaired by Finbar Flood and which was mentioned earlier, stated in its November 2004 report that while the Civil Service organisations with early mover status should command priority, the remaining organisations and locations should also receive attention. That is still the position. The group now believes that these remaining Civil Service organisations can move to a more active stage in preparing for their relocation. Accordingly, the group has set out indicative dates by which accommodation could be made available in the decentralised locations for each of the remaining Civil Service organisations. That timeframe ranges from 2007 to 2009. The group recognises that these dates are aggressive and their achievement will require a vigorous and focused approach on the part of all Departments and offices. Industrial relations and other issues continue to be addressed but progress is being made.
As regards my Department, 131 people are scheduled to go to Tullamore and our date for getting them there is the middle of next year. Contracts have been signed for the building and construction is under way. We are putting the people into the jobs. Although few people who were doing the jobs wanted to move to Tullamore, we are making good progress in terms of switching people around. We will have the required numbers and competencies in place in good time.
As regards the SSIA scheme, 39% of it is due to mature in 2006 and the remainder will mature in 2007. It should have a positive impact on the economy. The difficulty is trying to figure out how much of it will be spent and how much will continue to be saved. The driving force behind it was to create the savings habit and, given that it will be in force for five years, one hopes there will continue to be a level of savings. Whatever the level of spending, however, it will be positive in terms of its impact on consumer spending.
Will Mr. Considine comment on tax reliefs?
Mr. Considine
As regards tax reliefs, they are being examined in the way the Deputy mentioned. That is why the Minister wanted to do it this way. He wants to look at the schemes objectively to see what they are expected to do, if they are doing it or if there is a better way to do it. He wants to make a decision which is informed by as much evidence as can be collected about the specifics of their performance. That is positive.
When can we expect the consultants to report?
Mr. Considine
They are expected to report at the end of August. We must have all that material to make decisions on the budget.
As regards the level of debt and the amount of money people borrow to buy houses, Mr. O'Reilly, the financial regulator, was quoted as saying that mortgages in excess of 100% are not on the agenda. I would be surprised if most Deputies had not encountered young married couples who have not only borrowed the maximum for their house purchase but have also borrowed an additional €30,000 for their wedding and honeymoon, which is added on to the mortgage. It is a normal occurrence and, thus, the level of debt is very severe. However, since Mr. Considine has mentioned it, I think the level of debt into which younger couples are getting is phenomenal. They are not getting into debt for the bricks and mortar but for the cost of a honeymoon and wedding reception that will be long gone. It seems to be a new feature of Irish life in terms of borrowing and financial difficulties. It is one about which people should be cautious. There is a tendency for people to want big weddings but it is wrong to mortgage oneself for 25 years for one evening's event. None of us slightly older people would have done it.
I wish to pick up on that point. Does Mr. Considine believe that 100% mortgages will have an impact on house prices? I think there is every possibility that such mortgages could drive house prices upwards. That pattern is starting to emerge now.
As regards the discussions Mr. Considine had prior to the decentralisation announcement, he said the national spatial strategy featured as one of the components that he discussed. Did he have a view that the identified hubs and gateways would have been the receiving locations of the decentralisation plan? Did that feature in the discussions? From memory, only a small number of those identified locations received any proposed decentralisation.
As regards benchmarking, it is valid to have some sort of measurement between the public and private sectors in determining pay rates. I do not dispute that but the expectation was that it would produce improvements in the public sector. A component of benchmarking was intended in that respect. What measurements have occurred at this stage, or is it too early to have a global view measuring the outcome? Is that being examined on a sectoral basis?
I would have thought the effect of expenditure would be a strategic priority. There have been several serious headlines recently and two figures jumped out at me. One was that €70 million was returned from the Department of Health and Children unspent. Also, in excess of €500 million was returned globally unspent on projects that did not go ahead. I doubt if the sums referred to were savings. How does Mr. Considine view that situation in terms of maintaining a balance in apportioning money to various Departments when there is an ineffective expenditure of funds? If infrastructural projects are concerned it would be quite wasteful because there would be an inflationary factor if they are postponed.
Mr. Considine said one of the issues he examined was competitiveness, as well as other factors that might influence costs. Some of the key industries in my constituency of north Kildare, which are also important nationally, complain about indirect costs, such as power and water. The perception is that wages drive up costs but that is not the item to which those industries draw attention in particular. How seriously does Mr. Considine take such concerns when fairly extensive increases have been proposed from the beginning of 2006 in one of those sectors? Obviously, this has an impact on competitiveness in that people will demand increases in their wages if the price of services, such as power, which are fundamental to their daily lives, increase.
Mr. Considine
On 100% mortgages and the impact on price, it depends on the response on the supply side. If the supply is fixed, the more people there are who have the capacity to buy, the more prices will increase. However, the supply is not fixed. There has been a substantial response in terms of supply where, in most years in the recent past, output has exceeded that of the previous year. There are two sides to this matter.
The discussions which preceded decisions on decentralisation centred on a number of issues, including: the group of Secretaries General and the views of its members on how their Departments could contribute to moving people out of Dublin; the unions' views; existing policies; and submissions from all over the country. I think 130 people made cases for their particular areas. All those issues went into the melting pot and a decision was made on that basis. Some of these consultations are difficult because, for example, some members of a union may wish to decentralise, while others may not. One does not always get a straight bat in regard to these issues. However, the procedure was gone through in regard to them.
In regard to benchmarking, I neglected to refer to the improvements that occurred in the public sector on the previous occasion and what we intend to do in the next round. A detailed system, with outside representation to validate that the measures and improvements agreed were delivered, was established. One of the aspects that has emerged as very valuable is industrial peace. There have been very few disruptions in the public sector or, indeed, elsewhere in the economy since the most recent agreement. That is an extremely positive development.
There has been much movement on many policies of modernisation, such as promotion, computerisation and so on. There has been no problem in that regard. We have expanded the range of jobs into which we can recruit directly because there was an unhealthy situation where we only recruited at university and school leaving levels. That has been jettisoned and we can recruit to fill skills shortages at higher levels.
As a general rule, the Department of Finance is never too upset about moneys unspent. However, I say that partly in jest. Some of the schemes for which we provide money are demand led. For example, even if the numbers of unemployed turn out to be higher than we expect, these people still must be paid so we must provide the money. Equally, if the numbers are lower than we expect, the money is not, and should not, be spent because it is voted by the Oireachtas for that particular purpose.
The position is different on the capital side. There always has been a problem regarding continuity. People rushing to spend the money before 31 December can lead to bad decisions being made. To try to deal with that, we have instituted a new system where Departments, or those with budgets on the capital side, can carry up to 10% of their provision in the current year into the following year. This allows a more meaningful management system to be put in place.
We have also instituted a system of capital envelopes to try to give people as strong a signal as we can of how much money they will receive over the next five years or so. There are long lead times on capital projects and people need to know in advance what they will have available. This is a positive way of dealing with the issue. It is a question of trying to get a longer term view on the needs of each area while providing them with as much certainty as we can with regard to their budgets. If they do not spend the amount they get this year because of that long-term view, we allow them to carry over a fair chunk of it into the following year.
Competitiveness is a difficult issue to which we are all contributors. The quality of the public service is important as the taxpayer pays for it and it is a charge on the system. We talk about the cost of power and water, but one of the factors driving those costs is wage levels. The bottom line is that companies must be profitable and pay their way. They must increase charges if they are to meet pay increases, unless they can find some way of reducing their other costs. Costs to customers rise as a result. There are also, perhaps, cycles involved and there are different stages in those cycles, for example, there is currently very heavy investment in the electricity sector. Costs accumulate across a range of areas such as pay, insurance etc. and these all go to determine what the company must charge its customer. Competitiveness is a wide issue.
The Houses of the Oireachtas is generally an expenditure head that consistently comes in under budget, simply because the generality of Members do not claim the maximum of the allowances for which they might be eligible. I welcome the Secretary General and his colleagues from the Department of Finance. I agree with the comments of Deputy Finneran that the Department has much to be proud of in the economic performance of the past 20 years, whether in terms of healthy public finances, high employment or relatively low taxation. When the history of the Department is written for this period, it will, perhaps, read even better than some of the earlier chapters.
As far as indicators are concerned, if Deputy Bruton was still here he could look at the recently published Government report. As a Civil Service department, the Department of Finance is quite correct vis-à-vis Government that it should not suggest, any more than the Department of the Taoiseach from which we heard earlier, that it has an agenda of its own that competes with Government rather than works with it. As far as rattling cages are concerned, if Ministers or departmental officials along corridors are to be believed, they still give out about the Department of Finance. Perhaps the day they stop doing that is the day the Department will have ceased to do its job properly.
Decentralisation is well covered on page 22 of the report. Since there is a tendency to caricature the process that preceded the decision, I am glad the report sets out that there was extensive consultation. I always understood that was the case, but it has been insufficiently stated. When people talk about hubs, gateways and spatial strategies, they tend to forget that most of these had decentralisation under previous programmes.
I regard the decentralisation programme as complementary to the national spatial strategy. There are very few hubs and gateways which will not have decentralised offices as a result of either the new or the old programme.
A recently published second implementation report is of particular interest to the town of Tipperary which is close to where I reside. Will the Department of Finance give the maximum assistance to Departments wishing to move swiftly on decentralisation? Are there any significant budgetary constraints, bearing in mind that if civil servants are moved, a Department will sell or dispose of property and the gross cost is not anything remotely like the net cost?
I endorse the Department's comments on benchmarking. If multiple reasons are given, then these are available for people to challenge and debate. Decisions were given which were accepted and not challenged and we have industrial peace as a result. The critics totally ignore all that benefit.
Some years ago I was in France at a university which had considerable financial problems. An official from the French Department of Finance was sent out to this provincial location. There was a reign of terror in operation but the finances were in order. I have in mind a couple of public bodies and suggest the Department might consider decentralising a departmental official to the Abbey Theatre and to the National Roads Authority.
To continue the French analogy, I did my doctorate on French history. One of the problems that led to the French revolution was exorbitant bills and charges made by suppliers to the French court which caused expenditure to rise. It is a great matter of regret that under a democratic and republican Government such as ours, there are unfortunately many people who regard the State as a soft touch. In the case of the Abbey Theatre, one of the sites suggested which was near O'Connell Street had to be discounted because when the seller realised the State was involved he decided he could ask for another couple of million. People think they can demand more compensation from the State than they can from their neighbour. How can businesses, landowners and property owners be stopped from treating the State — which is composed of all of us — as a soft touch?
Mr. Considine
The Department will provide support to decentralisation and the budget is not a problem. The gross capital figure of €900 million must be considered after the yield from disposables, rent savings and so on, is taken away. The Department expects to break even at some point. The Department is also tracking current costs which we expect to be much smaller. There are not many of those emerging at this point. A significant management effort is required to make sure that when one moves something to another location one has all the right circumstances in place, such as the building, quality IT infrastructure and so on. One also needs people who are trained and able to do the job which takes a great deal of organisation.
We have worked to put the people in place to create those circumstances. Of the 128 posts we must get from here, 33 have been filled already, 20 have accepted offers to move into the jobs and are in the process of being assigned. Approximately 50 more applicants are being processed. We are moving to complete the project. The cost is not high but it requires significant effort by management, making sure all these procedures are carried out in the right order and to the proper standard.
We are trying to improve the assessment of projects when they are completed. The first move is to get management in every Department and office to evaluate a project when it is finished, see whether it delivered what was intended and whether the costs were in line with what was reasonably expected. They are reporting back to the Department of Finance and we will run spot checks on those reports. We are trying to be more rigorous in our approach to management.
Anyone perceived to have deep pockets tends to be a soft touch. It is hard to see how that can be avoided if one declares that one is to build a road from A to B. Expectations rise accordingly. There is a real problem in matching that with property rights and so on. This issue has been around for a long time in this jurisdiction and in Britain.
I was interested in Mr. Considine's comments on value for money. Senator Mansergh mentioned the NRA but innocent parties are involved in a case with which I am familiar and I wonder can Mr. Considine do anything about it. I was at a meeting yesterday where the N9, the major Dublin-Waterford road is being constructed because in my constituency, County Carlow, a Gaelic club that is also a community centre is being isolated from the community it serves. The local community and GAA club negotiated with the NRA to try to find a solution to this problem. They were unable to do so and went to arbitration and to Bord Pleanála which made a decision.
The decision did not reflect the views of the community, the GAA, the NRA or the local authority. Bord Pleanála decided to run a tunnel under the main road to accommodate the people in the community. Nobody is satisfied with this decision. It was made quite clear that the community will not use this tunnel for security reasons. It will be in an isolated area which the local gardaí say they cannot police.
The Department of Finance and the Committee on Public Accounts reflect on decisions taken and on construction costs. This is a blatant example of a project that will cost up to €2 million and will not be used. In two years' time a committee will ask how this was allowed to happen. The tunnel will be built because of the structures in place and we can do nothing about it. I do not know whether Mr. Considine can advise me on this matter or what we should do but I put him on notice the proposal will go ahead.
Mr. Considine
I had better not comment on that issue. I do not know the case.
We have had an extensive discussion, longer than I had expected. On behalf of the committee, I thank Mr. Considine and his officials for attending. We have now concluded our discussion. There being no other business, the committee stands adjourned until 7 September at 3 p.m., when we hope to have in attendance Mr. Finbar Flood, subject to his availability, to discuss in detail the progress in decentralisation.
The joint committee adjourned at 5.45 p.m. until 3 p.m. on 7 September 2005.