Announcement by Government8 July 2008
Public Spending Measures
Background
Economic growth is lower than anticipated due to a downturn in the global economy and the housing adjustment in the construction sector. As a result, the Exchequer Returns presented last week confirmed the trend already established this year of lower than expected tax revenue receipts. Tax revenue is down by 8% compared to the first half of 2007.
The outlook for tax revenues is to remain weak for the remainder of this year. Consequently a tax shortfall in the order of €3 billion has now been factored into the budgetary arithmetic for 2008.
In terms of Government spending, expenditure is running at 11 per cent ahead of the same period for last year. Furthermore, there are a number of spending pressures due mainly to higher unemployment. It is the Government’s policy that these pressures must be met without adding to overall spending this year.
The deterioration in the Public Finances in 2008 means that the General Government Deficit, based on our current assessment, could be close to the Stability and Growth Pact limit of 3 percent of GDP in 2008 and, in the absence of corrective action, over that limit next year.
For that reason the Government decided today on a number of spending measures to maintain a prudent fiscal out-turn for 2008 and to provide the basis for a sustainable approach to the financial situation in 2009.
This action is a reasoned and measured response. It has been decided on by
Government after careful deliberation. It seeks to balance the need for fiscal restraint to ensure domestic recovery with the need to protect the vulnerable and maintain overall Government spending and investment in the economy provided in Budget 2008. The economy is resilient and with this measured action, we will be well-placed to take advantage of a future recovery in the world economy.
Government Decisions
Bearing that in mind, and seeking to limit the negative effect on the economy and on vulnerable sections of the community, the measures the Government is taking are as follows: -
(i) All Departments, State Agencies and Local Authorities – other than Health and Education - will be required to reduce their payroll bill by 3% by the end of 2009 through all appropriate measures identified by local management in the light of local circumstances. Measures to be taken would include control of premium pay, management of vacancies, the organisation of work processes and the levels at which work is carried out, as well as control of numbers through recruitment and other measures.
The parameters of this exception for the health and education sector are to be agreed by the Departments concerned with the Department of Finance.
(ii) All expenditure by Departments and Agencies on Consultancies, Advertising and PR will be significantly reduced for the remainder of this year and by at least 50% in 2009 compared to 2008.
(iii) Further savings in 2008 and in 2009 are to be secured by a range of measures including those identified as a result of the efficiency review initiated by the former Minister for Finance in the Budget for this year.
(iv) There will be targets for savings in expenditure by State Agencies, Boards and other Public Bodies. This will involve a review of activities, staffing and costs, including the scope for rationalisation, shared services and other economy measures. This will include proposals for the amalgamation and rationalisation of agencies where this is appropriate. The Department of Finance will engage with each Department to bring this about and to set targets for savings in 2009.
(v) All capital projects will be examined and prioritised to ensure that resources are targeted in the first instance at construction-related investment in core economic infrastructure that adds to productive capacity, consistent with our international climate change commitments.
It has also been decided by Government, in the light of the current Exchequer position, that further expenditure for the acquisition of accommodation for decentralisation will await detailed consideration of reports from the Decentralisation Implementation Group.
(vi) Minister of State Martin Mansergh will head up a joint public procurement operation between OPW and the Department of Finance to drive a programme of reform and to produce a business plan for purchasing savings to be achieved by Departments and other public bodies in 2009. Minister Mansergh will report in the Autumn with specific proposals to target at least €50m savings in 2009 on this front.
In addition to these measures, the Government has decided that the Department of Finance and the Department of Health and Children will prepare proposals for a targeted surplus staff reduction scheme in the HSE as soon as possible, and consideration will be given to extending this scheme on a selected basis to other public service agencies where staff surpluses are identified.
Given that the Tribunals of Enquiry have indicated their intention to conclude their public hearings this year, the costs of their operations will be reviewed by the relevant Ministers as part of the overall review of spending so that expenditure is minimized, both in the remainder of 2008 and residual costs arising in 2009.
The Government has also decided that all of the pending increases for Ministerial and Parliamentary office-holders and for other senior public servants, recommended by the Review Body on Higher Remuneration in the Public Sector will not be implemented. The issue will be reviewed in September 2010 but without commitment at this stage to the outcome.
Finally, the Government has decided that it will be necessary to contain local Government net debt, which is counted in the Maastricht definition of the Government sector at the €200m limit already laid down for 2008 and 2009.
The Government is determined to achieve the savings required. To this end each Minister will report to Government regularly for the remainder of this year on progress in their area of responsibility on achieving the specified savings.
The measures agreed by Government are clearly focussed on
- savings in administrative spending,
- economising on the services we buy,
- driving efficiency
- reducing the proliferation of agencies,
- squeezing consultancy and PR spending,
- streamlining the delivery of services,
- re-prioritising certain capital spending going forward.
The measures seek to protect the vulnerable as far as possible and they are the minimum needed to get back on track as soon as possible.
The savings are estimated to deliver €440 million in 2008 and €1,000 million in 2009. Even with these savings, the fiscal position in 2009 will be demanding and all spending will have to be rigorously controlled.
The basic requirement for returning to growth is sound public finances. Mounting debt and interest costs reduce our capacity to maintain a low tax environment for workers and for business and limit our ability to spend on much needed social improvements and capital investment.
A short course adjustment now will ensure that we will be in a strong position to benefit from a future upturn in the global economy and return to our potential growth rate of 4% as soon as possible.
E N D S
8th July 2008