The most striking aspect of the summer economic statement is the profound shadow cast on the country by the 31 October deadline for Brexit. The statement sets out two radically different budget scenarios, namely, scenario A on page 25 and scenario B on page 26, which is unprecedented. The priority in scenario A – an orderly Brexit outcome – remains the avoidance of overheating. The report refers to avoiding adding fuel to the flames. However, one wonders how we can continue to ramp up housing output if this is the primary requirement in that scenario. The level of growth in this scenario is expected to be 3.3%. The report shows the Department targeting a surplus of 0.4% of GDP by 2020. It is notable that a €200 million expenditure reserve is proposed in 2020 to accommodate the funding requirements of the national broadband plan and the national children’s hospital. Perhaps the Minister might confirm whether approximately €65 million of that sum is intended for the national broadband plan, notwithstanding the significant question mark over it. Scenario A targets a headline surplus of 0.4% of GDP in 2020, taking into account carry-over costs from 2019, public sector pay increases and provision for capital expenditure and demographic changes. Will the targeted package of €2.8 billion in 2020 be remotely sufficient in the event that there is an orderly Brexit? In recent weeks Deputies, including on the Government benches, have met workers and trade union members and officials across a wide range of sectors, including education, health and childcare. In fact, a lot of the meetings took place only last week, while more are scheduled to take place this week. Clearly, significant additional State resources are badly needed across these sectors of the economy and society. However, the overarching aim of the authors of scenario A is simply to avoid overheating the economy.
The estimates of the severe impact on the economy included on page 26 in scenario B – a disorderly Brexit – may well be far too sanguine, notwithstanding the €6 billion figure quoted for the fall in Exchequer revenues. A crash-out from the European Union by the United Kingdom on 31 October would have a profound impact on the whole economy. The strategy of the summer economic statement report in scenario B is to implement the scenario A budget, with so-called “temporary targeted funding” for the worst affected sectors, while allowing the automatic stabilisers to kick in. Is this remotely sufficient? It is a basic approach, plus a scenario B approach. Is it not crucial to have a whole-of-society approach to provide whatever additional supports are necessary for workers, families and all lower income households? The question that has been posed is whether we will need another far-reaching budget if this comes to pass. I notice that 8 October will be budget day. Given the history of the European Union in respect of last minute decisions, will the Minister be in a position even then to respond adequately to the circumstances that may well confront us if the leading contender for the Tory leadership becomes Prime Minister?
There is little in the summer economic statement on broadening the tax base, which is disappointing. It is not even contemplated to provide a further buffer against Brexit. As other colleagues mentioned, Professor Stephen Kinsella of the University of Limerick was at the Committee on Budgetary Oversight today where he referred to Ireland as a dual-economy. There is the economy of the multinationals which employ 300,000 workers and produce massive but unstable corporation taxes and the real economy which is nearing full employment, with some growth in household income and consumption. One of the helpful aspects of the summer economic statement is box 3 on page 16 which looks at the extensive links between the economy and that of the USA. The €60 billion worth of imports and exports going in one direction or the other only highlights our vulnerability, in particular, during the administration of President Trump which has, unfortunately, 18 months left to run.
Chapter 3 of the report, Then and Now, compares Ireland as it was before the Great Recession with the Ireland of 2019. It has been included to give us some reassurance. Chapter 3.3 refers to initiatives such as the summer economic statement and the spending reviews and the work of the Tax Strategy Group, the Parliamentary Budget Office and the Oireachtas Committee on Budgetary Oversight, of which I am a member. It has to be said the Departments of Finance and Public Expenditure and Reform seem very lethargic in meeting the need to provide even more transparent information and responding to the various critiques of their performance during the years. Many Deputies have mentioned that, for the second year running, the IFAC has reported that increases in current spending are totally unsustainable without additional revenues. This key point has also been made by Deputies Boyd Barrett and Paul Murphy. The Government’s medium-term strategy is not credible. As the Minister knows, there is a motion on the clár of the Dáil in my name about last year’s IFAC report. This year’s report is very similar. It is hard to know why the Minister cannot respond in a very full manner to the challenges that have been put to him by the IFAC. While I accept Deputy Noonan’s point that there is no use having a dog if it does not bark, a response is necessary.
Chapter 5 of the report, Public Expenditure Strategy, mentions a number of expenditure reforms, including the 2017 and 2018 spending reviews. We hope these reforms are happening in the overall budgeting process. A spending review is promised for this year. Clearly, the existing supervisory mechanisms for expenditure failed very badly in the case of the national children’s hospital project. The Minister, the Minister for Health and their predecessors were seriously negligent in agreeing to the two-stage tendering process and failing to alert the Oireachtas last summer when the cost of the project careered out of control. The Secretary General of the Department of Public Expenditure and Reform and his staff have to be commended on their opposition to the inflated costs associated with the technological problems being encountered with the national broadband plan.
Chapter 5 focuses on expenditure overruns in the Department of Health. It refers to “the creation of a new oversight group chaired by the Department of Public Expenditure and reform, to monitor spending” and mentions that “monthly spending reports [will] be submitted to the Cabinet Committees”. We are aware of the work that has already been done by the new director general of the HSE in recent months. He obviously sees a need to control spending. The Committee on Budgetary Oversight examines each year’s Votes and Supplementary Estimates for the Department of Health. The total failure of successive Governments to fund the HSE in a remotely adequate manner since 2011 has been identified as a key issue by contributors such as Fr. Seán Healy of Social Justice Ireland. There is a lack of co-ordination between the HSE’s annual operational plans and the headings in the Vote of the Department of Health. In the past eight and a half years Fine Gael, aided and abetted by Fianna Fáil since 2016, has failed fundamentally to reform and fund this sector adequately. We heave heard shocking statistics for hospital waiting lists, early intervention assessments and the provision of many key health therapies for citizens. Unfortunately, Fine Gael is not prepared to create the necessary revenues to develop a national health system that is fit for purpose. The reliance on expenditure ceilings in the health, social protection and education budgets from 2019 to 2021 also seems to be problematic. The budgets seem to be based on changes driven by demographic factors only. They do not seem to address the need for significant improvements in the actual services being offered.
The Minister has told us today that he intends to come forward with proposals to ensure the sustainability of corporation tax receipts. Is he thinking about the kind of prudence fund that has been recommended by the IFAC? We have the rainy day fund. I presume we have other buffers. The Minister reminds us in the foreword to the summer economic statement that despite all of these structures, the national debt remains high, with a ratio this year of more than 100% of GNI*. As the foreword makes clear, “on a per capita basis, this amounts to €42,500 for every person in the State”. The Minister, his predecessor and the late Brian Lenihan foisted most of this debt on the people. I am one of many Deputies who are greatly concerned to ensure that in the coming months, at a critical juncture for the country, ordinary citizens will not have to bear the brunt of any remediation or measures aimed at protecting the country’s economy.
Transcript of Dáil Q&A on Summer Economic Statements – 25th June
Scenario B covers just a couple of lines in the report before us. Is detailed work being done on that? We have two major proposals about the automatic stabilisers and helps for areas of the economy that will be profoundly affected. In effect, is an alternative disaster budget strategy being prepared? Is there detailed work on that?
Will our net contribution to the European Union in 2020 be higher? Will that be one of the costs we will have to bear as one of the 27 member states? Echoing what a colleague said on green issues, one of the positive sides of carbon taxes is that they may well provide the Minister with more resources to enable a broadening of the tax base to be broadened, although I would obviously argue for the payment of a dividend and the protection of the most vulnerable in society.
Regarding controlling the health budget, we get reports that the recruitment embargo, which was supposed to end at the start of this month, has not ended. Does the Department of Public Expenditure and Reform have an input into that decision? Is the Minister able to direct the new director general of the HSE to continue an embargo beyond that time? Is that the kind of cost control the Minister will have?
It is very hard to square the overheating of the economy with what we have to do in Rebuilding Ireland, our infrastructural development and so on? How does that add up?
Deputy Paschal Donohoe
Regarding what the Deputy has described as an embargo, we are involved in decisions on health service recruitment and retention. That is part of my job as Minister for Public Expenditure and Reform. To reiterate what the Minister for Health, Deputy Harris, has said, we are saying that Departments need to stay within the budget available for the number of people they are to recruit. That is the case with the Department of Education and Skills and any other Department that has a large number of people working for it. That is the sum total of what the Minister and I are looking to do together.
The Deputy asked about the planning under way to deal with the different consequences of a disorderly Brexit. We were planning for some of that in the run up to 29 March. Clearly we have had an opportunity to continue with that work. The Deputy referred to disaster planning. I do not want to understate for a moment the serious difficulty we will face if a disorderly Brexit occurs. However, in such a scenario we will still have over 2 million at work in the economy. We will still have a diverse economy providing work for a large number of citizens. Employment is at an all-time high but parts of the country and the economy will face real and significant challenges. That is why I say when we make a decision on that in September it will have very important policy consequences.
On the overheating of the economy, the Deputy is right that it is a balancing act. On the one hand, we need to ensure we make progress in building more homes but, on the other hand, we need to avoid that causing prices to rise in the economy. At the moment, inflation is low and credit growth is exceptionally low. I believe we are getting that balance right but we need to monitor what happens with prices and wages in the construction sector.
Could and should our response to a disorderly Brexit have a green dimension? There is certainly a case for looking at that. If I look at it very broadly and only from an economic point of view, which is not the way I tend to look at the issue, we would of course want to try to move parts of our economy into areas that will be genuinely sustainable in the long run.
There is certainly a case for looking at it if I look at it very broadly, and from only an economic point of view, but that is not the way that I tend to look at the issue. We want to try to move parts of our economy to those that will be genuinely sustainable for the long run. It is obvious that in doing that, we have to play our part and respond to the change in climate, which will be part of what sustainable industry looks like in the future.