I welcome this opportunity to appear before the select committee to consider the 2009 Estimates and the annual output statements for my Department's group of Votes. I am happy to appear before the committee to discuss Ireland's stability programme as updated for this year. My colleague, the Minister for State, Deputy Mansergh, will present the Estimate and output statement of the Office of Public Works to the committee separately on 18 June, so I will confine my comments to a number of significant areas within the Vote group of interest to Deputies.
This is the third occasion on which this committee will have an opportunity to consider an annual output statement with the Revised Estimates for the public service. The annual output statements were introduced in 2007 as a tool for Dáil scrutiny of the annual Estimates of expenditure, as part of the Government's ongoing budgetary reform measures.
I refer to the April 2008 OECD report on the Irish public service, Towards an Integrated Public Service, which was complimentary about the output statement approach, recognising it as a key element of Ireland's "sound trajectory of modernisation", and as central to the core recommendation for a more integrated, performance-centred approach to management of resources. The OECD called for a range of improvements to this approach. The useful feedback I received from this committee last December is broadly in keeping with the OECD's analysis and with the agenda set out in the task force report on transforming public services. The committee has also asked for changes along these lines.
This year, the format of the 2009 round of output statements has been refined so that it is more focused on the important headline outputs rather than on internal processes and activities. Administrative costs are also clearly shown alongside each programme with which they are linked. My Department has encouraged all Departments to give greater attention to the quality and relevance of the output indicators used in their statements, and work is progressing to improve and standardise the relevant indicators, having regard to best international practice in this area. I welcome further constructive views from this committee on improving the output statements.
In the course of this last year, the environment in which we operate has changed dramatically. We face the deepest and most widespread recession at home and abroad that any of us have ever seen. There is no point in hiding this message for short-term popularity purposes. Given this unfavourable context, it is even more essential that our public services are organised and delivered in as efficient and effective a manner as possible. I intend to continue to improve the budget and Estimates process and to ensure that a greater focus is placed on allocating resources on the basis of the outputs to be delivered.
Before I turn to the detailed Estimates, I would like to provide members with a brief update on the economic position of the public finances and then move on to discuss the Council opinion on our stability programme. The global economy is currently experiencing its deepest and most widespread recession for more than a half century. The vast majority of our export markets are predicted by the IMF to contract by close to 4% this year. Adverse exchange rate movements are presenting additional competitiveness difficulties for indigenous Irish exporters. Some optimism regarding global economic prospects has emerged in recent weeks, with tentative signs of stabilisation in some key regions.
My Department forecast in the supplementary budget in April that the economy will contract in GDP terms by a cumulative 13% during the period from 2008 to 2010. This implies a sharp fall in living standards, which reflects the extraordinary economic environment which is presenting severe challenges throughout the world. The Government's approach is to implement the appropriate policies to position the economy to benefit from the global economic upturn when it eventually emerges. Our economy remains flexible and resilient and this will facilitate an adjustment to a new economic environment. We remain committed to providing a pro-enterprise environment and to maintaining our relatively low tax burden on business. We also continue to invest in productive infrastructure.
In the past 11 months the Government has formulated a series of actions and submitted them to the House to deal with the considerable deterioration in the public finances. This began in July last year when a range of adjustments were introduced enabling savings of €1 billion to be delivered for 2009. The October budget took further action on expenditure, while revenue raising measures of almost €2 billion were introduced.
Following a continued deterioration in economic conditions, in February 2009, further expenditure savings of almost €1.8 billion for 2009 were announced, including the introduction of the public sector pension levy. The April supplementary budget will further improve the position of the public finances by €3.3 billion in 2009. The supplementary budget also set out a plan to bring the general Government deficit within 3% of GDP by the end of 2013 and this strategy has received the backing of the EU Commission.
As part of the multi-annual process, the Government is committed to achieving expenditure cuts of a further €2.5 billion in 2010 and €2.5 billion in 2011. These adjustments will entail further reductions in pay costs numbers and the full range of expenditure programmes. Sharper targeting of programme spending and more efficient use of resources across the board will also be required. I indicated in my budget speech that the indicative figure for saving on the expenditure side was a minimum. Further steps remain to be taken and the overall policy areas that will be examined in this context have been outlined. The Commission on Taxation and the special group on public service numbers and expenditure programmes are both due to report this summer. These will play an important role in identifying measures to further improve the budgetary position in the coming years. They are of even more fundamental importance in that they will introduce a realism into the public debate on these subjects that has been absent in many quarters to date. The scope for further income tax measures is limited if we are not to harm our capacity to recover. The majority of future budgetary adjustments will have to be borne on the spending side of the Government account. The Government has been clear that restoring order and sustainability to the public finances is a vital first step in renewal of the economy and our actions in this regard will continue.
I recently undertook a series of meetings in European financial capitals with potential investors. I highlighted the key strengths of the Irish economy including our proven track record of adjusting to changing circumstances and demonstrating our flexibility and responding with rapidity to the public financial crisis. Asset prices, wage levels and price levels are all adjusting rapidly to the new economic circumstances, particularly in the private sector, and this is improving Ireland's competitiveness. Exports are holding up reasonably well. There is a duty on all of us in the House to ensure that the public sector reform and the adjustment of expenditure there mirror the pattern in the private sector. Our debt levels will rise in the coming years but from an initial low level and are expected by the EU Commission forecasts to remain below the EU average in 2009 and 2010.
The end of May Exchequer returns revealed a deficit of €10.5 billion, including payment of €3 billion to the National Pensions Reserve Fund as part of the bank recapitalisation programme. Tax revenue was broadly on profile overall, however, some tax heads, notably VAT, showed weaknesses. Net voted expenditure was slightly below profile.
I will now deal with the Council's opinion on Ireland's stability programme. In view of the particularly difficult global economic situation, member states were invited to revise their stability programmes at the end of 2008 to reflect policy responses to the downturn and to provide updated budgetary and economic projections. In our January 2009 update the Government announced a five-year strategy to restore stability to the public finances by end 2013. The Council opinion, which has been circulated to members, urges us to contain the deficit in 2009 and to implement substantial annual consolidation efforts in subsequent years. It also calls for strengthening of the medium-term budgetary framework and implementation of further pension reforms in the interest of the long-term sustainability of the public finances. The Government's budgetary strategy as outlined in the supplementary budget has been welcomed by the European Commission. The related Council recommendation under the excessive deficit procedure invites us to pursue the budgetary targets we have set over the period to the end of 2013. While decisions on budgetary matters remain the responsibility of national authorities, Council recommendations support member states in pursuing necessary, if difficult, fiscal consolidation — an important consideration given that some 20 member states are expected to exceed the 3%of GDP deficit reference value this year.
I briefed my European colleagues and the EU Commission with developments and I am pleased to report that there is wide recognition and support for the steps already taken by the Irish Government and for our plan of action. Consequently, I believe the policies we are now pursuing, albeit difficult, are already restoring confidence in our economic prospects.
As a Government we have made a series of radical, coherent decisions to protect this nation's finances. This has not been popular, but it is unavoidable. We are determined to protect the most vulnerable and to promote equity by fair tax policies, by driving efficiency in the provision of public services and by reducing pay costs and numbers, by smarter working arrangements and by insisting on value for money and seeking procurement gains. We have introduced a sensible moratorium on numbers growth and a reasonable and realistic early retirement plan. We have switched resources to job creation, employment protection and less capital-intensive spending. More needs to be done and will be done. This task will not be easy. The forthcoming reports of the special group on expenditure and numbers and the Commission on Taxation will set out the plain, stark, severe choices we face to close the unsustainable gap between revenue and spending. That gap between revenue and spending exists because of the state of the public finances and it has nothing to do with the commercial cost of ensuring the recapitalisation and protection of the banking sector. These reports will provide the context for a sensible political debate on the policy choices we face. All participants in that debate owe it to the electorate to spell out their plans and to say what they propose to do. The reports will provide a basis for a good public discussion between the parties in this House and among the public generally, about the way forward. When they do, that is when the real test of confidence will begin and when the current warm glow of popularity will fade. There will be no hiding place in this debate and we will make sure of that.
I will deal with the particular Votes before the committee. Vote 6 — Office of the Minister for Finance deals with a further Revised Estimate for Vote 6 which provides for the administrative and non-administrative costs of the Department of Finance. This Estimate varies from the initially published Revised Estimate in that an additional €3.12 million for expenses associated with banking issues has been added to the gross provision. However, the net effect of the change is Vote and Exchequer-neutral as these additional costs can be recouped from the various institutions.
The gross Estimate for Vote 6 amounts to some €83.5 million which represents a decrease of some €14 million on the 2008 outturn. The net Estimate is €68.4 million, which is a decrease of some €21million on the 2008 outturn. The net reduction is accounted for by efficiencies achieved on the e-Government programmes, amounting to €7.5 million; reduced funding requirements on the Peace-INTERREG programmes by €8.1 million, as the current programmes reach a natural conclusion; and the addition of almost €7 million in appropriations-in-aid arising from the pension levy, projected recoupments from the banking institutions, combined with a reduction of €2 million in projected EU reimbursement of the Peace-INTERREG funding.
The 2009 Revised Estimate for administrative subheads is €48 million. This is a decrease of €0.7 million on the 2008 outturn. The decrease reflects full year savings anticipated as a result of the efficiencies sought under the Government savings directive issued in July 2008. Gross non-administrative programme expenditure of some €35.5 million accounts for 42% of the gross Estimate.
The largest single area of such expenditure in the current year is provided on the charitable lotteries programme under the Budget, Taxation and Economic heading of €8 million. This subhead was established in 1997 and payments are made from it to supplement the income of certain private charitable lotteries whose lottery products are in direct competition with comparable National Lottery products.
On Vote 9 — Office of the Revenue Commissioners — the net Estimates for the Office of the Revenue Commissioners at €403.255 million, is down 7.4% on the 2008 outturn and reflects Government decisions related to overall reductions in spending. While staff numbers will decrease in 2009, provision for salaries shows an increase. This arises because of the full year impact in 2009 of the 2008 pay increases, increments and the occurrence of a 53rd payday for weekly paid staff in 2009. In this context it is worth pointing out that staff levels in the Revenue Commissioners have remained significantly unchanged for several years despite large increases in the volume of business as considerable efficiencies became available, mainly through the use of information technology.
During 2009, Revenue will concentrate its efforts on maximising collection while simultaneously improving its delivery of customer service through on-line facilities and providing support to compliant taxpayers who may be experiencing temporary compliance difficulties.
In parallel with this effort, Revenue is committed to continue building its risk-based approach to compliance with interventions being focused on the highest risk sectors or taxpayers. Through 2009, Revenue's method of tackling evasion, frontier abuse and all forms of non-compliance will continue to be targeted and risk-based with increased efforts to identify, investigate and prosecute evasion and smuggling. In addition, Revenue will maximise the flexibility and capabilities of its organisation to respond effectively to the challenges set by the Government's plan to restore balance to the public finances by 2013 and any future Government decisions on adjustments to the tax system or revenue-raising measures which may arise in recommendations from the Commission on Taxation. Members may question the need for the Public Appointments Service in current circumstances. The budget of the service has been cut by 9% and so far 20% of its staff has been redeployed to help other Departments. The Public Appointments Service will have a more limited role in appointments but may be able to assist in redeployment of staff. Its role will change and I will make further reductions where warranted.
As regards the other Votes in the finance group, the members of the committee have been provided with background briefing by my Department on all of the Estimates which are presented today for the committee's approval. I thank the committee members for their attention and I commend the Estimates to the committee. I will of course be glad to supply any further information or clarification that members may request.
