Committee Reports > List of Committees > Joint > 1998 > Committee on Finance and the Public Service > Report - The Department of Finance Statement of Strategy 1998-2000

FINAL REPORT

TITHE AN OIREACHTAIS

An Comhchoiste um Airgeadas agus an tSeirbhís Phoiblí

Tuarascáil ar Ráiteas Straitéise na Roinne Airgeadais 1998 - 2000

HOUSES OF THE OIREACHTAS

Joint Committee on Finance and the Public Service

Report on the Department of Finance Statement of Strategy 1998 - 2000

Nollaig, 1998

December, 1998

Table of Contents

Joint Committee on Finance and the Public Service

ORDERS OF REFERENCE

Dáil Éireann

13th November, 1997: (**28th April, 1998),

Ordered:

(1) (a)That a Select Committee, which shall be called the Select Committee on Finance and the Public Service, consisting of 14 members of Dáil Éireann (of whom 4 shall constitute a quorum), be appointed to consider such—

(i)Bills the statute law in respect of which is dealt with by the Department of the Taoiseach and the Department of Finance, and

(ii)Estimates for Public Services within the aegis of those Departments,

as shall be referred to it by Dáil Éireann from time to time.

(b)For the purpose of its consideration of Bills under paragraph (1)(a)(i), the Select Committee shall have the powers defined in Standing Order 78A(1), (2) and (3).

(c)For the avoidance of doubt, by virtue of their ex officio membership of the Select Committee in accordance with Standing Order 84(1), the Taoiseach and the Minister for Finance (or a Minister or Minister of State nominated in their stead) shall be entitled to vote.

(2) (a)The Select Committee shall be joined with a Select Committee to be appointed by Seanad Éireann to form the Joint Committee on Finance and the Public Service to consider—

(i)such public affairs administered by the Department of the Taoiseach and the Department of Finance as it may select, including bodies under the aegis of those Departments in respect of Government policy,

(ii)such matters of policy for which the Taoiseach and the Minister for Finance are officially responsible as it may select,

(iii)the strategy statement laid before each House of the Oireachtas by the Taoiseach and the Minister for Finance pursuant to section 5(2) of the Public Service Management Act, 1997, and shall be authorised for the purposes of section 10 of that Act, and

** (iv)such Annual Reports or Annual Reports and Accounts, required by law and laid before either or both Houses of the Oireachtas, of bodies under the aegis of the Department(s) specified in paragraph 2(a)(i), and the overall operational results, statements of strategy and corporate plans of these bodies, as it may select.

Provided that the Joint Committee shall not, at any time, consider any matter relating to such a body which is, which has been, or which is, at that time, proposed to be considered by the Committee of Public Accounts pursuant to the Orders of Reference of that Committee and/or the Comptroller and Auditor General (Amendment) Act, 1993.

Provided further that the Joint Committee shall refrain from inquiring into in public session, or publishing confidential information regarding, any such matter if so requested either by the body or by the Minister in charge of that Department; and

(v)such other matters as may be jointly referred to it from time to time by both Houses of the Oireachtas, and shall report thereon to both Houses of the Oireachtas.

(b)The quorum of the Joint Committee shall be 5, of whom at least 1 shall be a member of Dáil Éireann and 1 a member of Seanad Éireann.

(c)The Joint Committee shall have the powers defined in Standing Order 78A(1) to (9) inclusive.

(3)The Chairman of the Joint Committee, who shall be a member of Dáil Éireann, shall also be Chairman of the Select Committee.

SEANAD ÉIREANN

19th November, 1997:

Ordered:

(1) (a)That a Select Committee consisting of 5 members of Seanad Éireann shall be appointed to be joined with a Select Committee of Dáil Éireann to form the Joint Committee on Finance and the Public Service to consider -

(i)such public affairs administered by the Department of the Taoiseach and the Department of Finance as it may select, including bodies under the aegis of those Departments in respect of Government policy,

(ii)such matters of policy for which the Taoiseach and the Minister for Finance are officially responsible as it may select,

(iii)the strategy statement laid before each House of the Oireachtas by the Taoiseach and the Minister for Finance pursuant to section 5(2) of the Public Service Management Act, 1997, and shall be authorised for the purposes of section 10 of that Act, and

(iv)such other matters as may be jointly referred to it from time to time by both Houses of the Oireachtas, and shall report thereon to both Houses of the Oireachtas.

(b)The quorum of the Joint Committee shall be 5, of whom at least 1 shall be a member of Dáil Éireann and 1 a member of Seanad Éireann.

(c)The Joint Committee shall have the powers defined in Standing Order 62A(1) to (9) inclusive.

(2)The Chairman of the Joint Committee shall be a member of Dáil

JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE

List of Members:

Introduction

The Joint Committee on Finance and the Public Service was established by Order of Dáil Éireann of 13th November, 1997 and by Order of Seanad Éireann of 19th November, 1997. In addition, Standing Orders state that the following powers may be conferred on a Committee:

“(1) power to take oral and written evidence and to print and publish from time to time minutes of such evidence taken in public before the Select Committee together with such related documents as the Select Committee thinks fit;”

This report of the Joint Committee on the Department of Finance Statement of Strategy 1998 - 2000, is hereby agreed and laid before both Houses of the Oireachtas.

_____________________________

Michael Ahern, T.D.,

Chairman

16 December 1998

An Comhchoiste um Airgeadas agus an tSeirbhís Phoiblí

Joint Committee on Finance and the Public Service

Dé Céadaoin, 21 Deireadh Fómhair 1998.

Wednesday, 21 October 1998.

The Committee met at 6:20 p.m.

Members Present

DEPUTY M. AHERN IN THE CHAIR.

Chairman: Are the minutes of the previous meeting agreed? Agreed. Following our last meeting, the secretariat wrote on behalf of the committee to the Ombudsman in his role as a member of the Public Offices Commission, inviting representatives of the commission to brief the committee in connection with our consideration of the proposal for a Standards in Public Office Bill. We have received an initial response and we hope to get details later.

The committee agreed to advertise in the press for submissions from the public on the Standards in Public Office proposals. With the committee’s agreement, I will apply to the Working Group of Chairmen for the necessary funds, estimated at about £5,000 for the daily newspapers or about £10,000 including the Sunday newspapers and the Irish language newspaper, Foinse. Is that agreed? Agreed.

I welcome Mr. Mullarkey and his officials to the committee. I suggest that Mr. Mullarkey make a short opening statement which will be followed by a questions and answers session.

Mr. Mullarkey: I thought we would each speak for three to four minutes which should take about 15 minutes. We can then move on to questions and answers.

Chairman: Is that agreed? Agreed.

Mr. Mullarkey: I will introduce my colleagues - Mr. John Hurley, Head of the Public Service Management and Development Division; Mr. Michael Tutty, Head of the Budget and Economic Division; Mr. Bob Curran, Head of the Public Expenditure Division; Mr. Noel O’Gorman, Head of Finance Division and Mr. Eric Embleton, Head of Corporate Services Division.

They will each speak on their area. I will start by explaining the purpose of the strategy statement. The intention of the statement is to provide, for the first time for the Department, a coherent, constructive articulation of the functions and objectives of the Department over a three year timeframe. What is the use of a strategy statement of this nature? There are two main uses - one is internal and the other external.

Internally, given the breadth of the span and the range of interests of the Department, it is difficult to achieve an overall sense of coherence and what the Department is trying to achieve. Therefore, the first purpose of the strategy statement, both in its preparation and use, was to have a coherent sense of what the Department is about. Second, it is intended to set out a set of positive objectives and motivations, or a pro-active agenda for the Department. It will be a constant and systematic reminder of the fundamental objectives of the Department. One is constantly under pressure and on the back foot, as it were, in the Department of Finance. It is therefore important that one has a sense of direction, otherwise one will be overwhelmed by the daily pressure.

Third, it is important that the strategy has a three year timeframe. If one does not have this discipline, one is locked into daily and annual preoccupations. Fourth, which is the probably the most important from an internal point of view, the strategy statement provides a basis for positive objective management in divisions and sections throughout the Department. Since we issued the strategy statement, for the first time the Department has been consciously operating through section work programmes like in any well-managed corporate structure. We have annual roll-overs of our work programmes and regular reviews. Internally, this is tremendously useful as a basis for management.

Externally, the Department is presented as having a coherent, pro-active agenda which enhances the Department’s credibility in seeking acceptance of its objectives and overall programme. This is especially important for the Department of Finance given our central role in trying to reconcile conflicting aspirations and constraints, not making a great number of friends in the process.

The overall mission of the Department is set out in page 3 of our document. The mission is to promote an economy which will maximise growth, sustainable employment and social progress. This mission, as explained in paragraph 4, involves three main provisions - first, promoting Government policies which deliver international competitiveness and internal efficiency; second, managing the overall process of resource generation and allocation as decided by Government to secure optimum social and economic benefits and third, achieving ongoing improvements in efficiency and effectiveness across the public sector. We would like to think that every head of staff in the Department can understand and rationalise their activities in terms of those provisions.

The group which prepared this strategy statement focused on four main areas of strategic priority - first, economic and fiscal priority, covering price stability, debt reduction, tax reform and management and effectiveness of public expenditure, on which Mr. Tutty and Mr. Curran will speak; second, incomes policy development in the economy generally and in the public service, on which Mr. Hurley will speak; third, Ireland’s participation in the EU, Mr. O’Gorman will speak on that area which deals with EMU, EU budgetary issues and financial regulation; and fourth, public service management change and reform, on which Mr. Hurley will speak.

Deputy McDowell: Not having been gifted with a Jesuit education, I have not been able to easily identify the differences between the 1997 strategy statement and the 1998 version. It would be helpful to the committee if the speakers could identify the changes which have taken place between both strategy statements. There is an overlap but it would be helpful if we could see the developments in the meantime.

Mr. Mullarkey: The earlier statements were prepared before the requirements of the Public Service Management Act were in place. The Act requires a more specific articulation of outputs, targets and the indicators of success. The specification of objectives is the main difference in the statements. General guidelines have been laid down for all strategy statements in the meantime, for example, the inclusion of an environmental analysis.

Mr. Tutty: It is environment, not in the sense of protecting the environment, but the background. As the title Budget and Economic Division suggests we are responsible for developing the overall economic and budget policy. We are also responsible for all the detailed tax elements while the expenditure elements are looked after by Mr. Curran and Mr. Hurley.

We are trying to develop a coherent and consistent set of policies so that the economic and budgetary aspects are pushing in the same direction in trying to promote a strong and thriving economy which will generate employment and economic and social progress. The strategy statement helps us to do all of this. Our main economic objective is to continue price stability. Low inflation is good for generating economic growth. Despite the current blip caused by exchange rate movements, we believe we can continue with low inflation.

International competitiveness is important because if we cannot compete internationally and produce goods and services which can sell on the world market, we will not be able to make progress. We have to try and maintain international competitiveness, particularly through incomes policy.

Internal efficiency will be achieved through structural reform and infrastructural development. We are aiming to ensure that the economy is operating properly and that there are no blockages due to lack of telecommunications or other facilities, or through labour market blockages.

Incomes policy is particularly important. It is the main price component under our control and the main component which helps us remain competitive internationally. We have pursued this issue through social partnership. This is backed up through the tax policies which I will speak about later. They are an important element in achieving moderate wage agreements.

We are looking at the overall budgetary position. How can we reduce the level of borrowing and debt in order to leave room for other expenditure? Having determined where the overall budget should be, we then have to consider whether we should have a high level of expenditure and, therefore, of taxation, or aim for a low level of tax revenue and expenditure. We must strike a balance. In the last decade, people have indicated that they want tax reductions. This means that we have to try to moderate the rate of expenditure increase.

Our taxation strategy is to use the tax system not just to reduce taxes, even though that is good in itself, but to improve the incentive to work by trying to minimise the tax on the lower paid and encourage people into the labour market. We want to support moderate pay increases by ensuring that workers who agree to such agreements get real increases in take home pay. We are also trying to target incentives so as to avoid those which are not needed. For example, we made adjustments in the BES in recent budgets. There have also been reductions in the availability of capital allowances. We try to avoid having too many incentives which reduce the ability to get the basic tax system into better shape.

We have made a lot of progress in the past few years on multi-annual budgeting. We have tried to move away from a focus on the annual budget and look at issues on a three year basis. This ensures that we can see the effects of a budgetary measure over the full period rather than just over the first year. We also wish to be able to see what we should be doing over the next three years, rather than over a one year period. We have published no policy change projections up to now. However, in the next budget we are committed to moving to multi-annual budgeting to set targets as opposed to no policy change projections.

The outcome of what we are trying to do can be seen in the economic and employment growth, the gradual movement to a budget surplus and the significant reductions in taxation. These reductions may not be apparent on a year to year basis. However, when one looks at it over a ten year period, one can see the tremendous strides which have been made.

Mr. Curran: Once the Government has decided on the limits of spending in the budgetary context, my Division’s role is to articulate what these limits mean for each Vote group. We also endeavour to get agreement with Departments and at Government level on this articulation. We also work to have the Estimates and the Public Capital Programme prepared and approved by the Government. Once the Estimates have been settled, we keep track of spending during the year. If it is going off course we propose corrective action.

The Department’s aims on expenditure policy are on pages 16 and 17 of the strategy statement. One of the aims is to give priority to spending which will assist the economy to achieve the maximum sustainable output of goods and services and, hence, of employment, and resources for social priorities. Implicit in this is that the Department must aim at a balance in the composition of spending between that which has directly economic goals, such as grants to industry; that which serves social goals, such as assistance to the disabled; and that which serves economic and social ends, such as education. It is not easy to call that balance and, ultimately, striking the balance involves a major element of political judgment. My Division can advise the Minister and the Government on how the balance might be struck.

One of our aims is to ensure quality output and value for money from public expenditure and we are in constant dialogue with Departments on this issue. We also have an opportunity to make an input on this issue when proposals go to Government involving further spending, or come to the Department of Finance for sanction. We do not approach proposals for further spending simply in a negative way. We try to assess the case for spending as objectively as possible and in light of Government policy and of economic and social needs.

A related aim is to ensure the completion of the programme of expenditure reviews being carried out by Departments with the active involvement of the Department of Finance. The Government approached the first round of expenditure reviews proposed by Departments as part of a three year cycle. The first of these reviews are now being completed. Progress has not been as fast as we would have liked but the reviews carried out to date have, in general, been good. Now that the process has started we aim to ensure that it keeps up momentum.

Another of our aims is to redefine the Department’s role in managing public expenditure to help ensure that responsibility and accountability for expenditure management is exercised effectively by Departments. Sanction is required for spending and there are two extremes in the way one could exercise that function. At one extreme, even small scale spending could require sanction. At the other extreme, the Department could delegate sanction for very large spending programmes, leaving Departments almost entirely free to spend Voted moneys as they saw fit. The question is where to strike the balance.

Over the past few years we have reviewed our sanctioning system in order to eliminate unnecessary sanctioning procedures. We are aiming to put in place a system under which Departments will have financial envelopes for a three year period, with agreement on what they will aim to achieve within those financial envelopes. If this system can be put in place and worked effectively, the need for the traditional type of Department of Finance scrutiny would be considerably reduced. In this year’s Budget Statement, the Minister said that he would be considering implementing the financial envelope system in the 1999 budget and we are working towards that aim. It will not be easy to achieve but financial envelopes are a key part of the SMI.

Another of our aims is to contribute to cross-Border initiatives which support sustainable economic and social development. For some time, an Assistant Secretary in my Division has been a member of the advisory committee to the International Fund for Ireland. The Division is working with other Departments on the questions posed by having new, joint implementation bodies North and South, and by having co-operation and implementation through existing bodies as agreed in the British-Irish Agreement.

We aim to review on an ongoing basis the objectives and performance of the commercial and non-commercial State sector, and to set targets for company performance in the commercial sector. We work in conjunction with the responsible Departments and take account of the views of company boards and managements. We have long pressed for effective corporate planning in the commercial State sector and we have had some success.

Mr. Hurley: I have is responsibility for public service management and development divisions. The effectiveness with which public services operate in modern times can have a significant impact on the overall performance of the economy. A number of factors go to make up how effectively the public service operates. The first is the overall cost of the public service, including public service pay and pensions. Second, there is the efficiency of the operation, which we are constantly trying to improve by means of a public service change or reform programme.

Public service pay is covered in our strategic priority one, economic and fiscal policy, under the heading of public expenditure. It is also covered under the incomes policy area. In so far as the public service is concerned, pay is determined in the context of the social partnership. The pay agreements are part of that process and are an integral part of Partnership 2000 and the Programme for Competitiveness and Work.

The agreements normally take the form of standard increases and local bargaining provisions. We have not had much difficulty with the standard increases in themselves as they have been moderate. However, we have difficulties and problems with the local bargaining increases.

Public sector pay is estimated to cost £5,800 million in 1998. That is normally about half of net current Government expenditure. At present, it is approximately 51 per cent although it has been as high as 53 per cent in recent times. Public service pay cost control is, therefore, an essential element of the overall management of the economy and a key aspect of our strategy statement.

Excessive pay demands in the public service undermine competitiveness and divert resources from other essential areas of public services, restrict the scope for tax reform and so on. They also have an effect outside the public service in setting headlines for the private sector and creating pressures in that sector, making it more difficult to secure its support, for example, for a successor to Partnership 2000.

We know at this stage that the local bargaining provisions under the PCW have given rise to some difficulties. The PCW expired on 30 June 1997. It is only now that we are finalising claims under the PCW. Out of 200,000 public servants, claims in respect of 10,000 or 11,000 have yet to be finalised, which is approximately 5 per cent of the total.

Under Partnership 2000, the position is much more clear. Standard increases are specified as usual but local bargaining provisions are also explicit and are limited to 2 per cent. That was not the position under the PCW; it was not as clear. New pay management arrangements are also in place under Partnership 2000 to try to ensure those limits are adhered to over the period of the strategic plan.

We are all aware of the difficulties and problems under the PCW, with significant awards moving from the nurses to psychiatric nurses, prison officers and the Garda, and the implications of that for public service pay and the economy generally. However, in the light of these difficulties, the Taoiseach has signalled the need for a new approach to public service pay which gets us away from the traditional leapfrogging approach. He has indicated he will be prepared to discuss this with the ICTU at the appropriate time. I can return to this issue later in questioning.

The public service change programme is covered under strategic priority four and is being advanced in the context of the SMI. The co-ordinating group which oversees this initiative and the implementation group are chaired by the Department of the Taoiseach. However, because of its statutory responsibilities, the Department of Finance has a key role to play here. The change programme is an extensive and ambitious one.

In the area of public service change, our strategy seeks to improve services to the public, provide for the more efficient management of resources, enhance accountability, improve human resources management and access to information. Progress has been made under each of these headings in recent times. I will mention a few of the developments. A quality customer service initiative has been launched, the Freedom of Information Act is in place and is being implemented; this has been a major project for the Department of Finance since we were given responsibility for the Act once it was passed. It has probably given rise to the biggest training programme in the history of the Civil Service.

There has also been the Public Service Management Act and its implementation. The Secretary General has referred to the value of the strategy statements in the context of that Act. There is no doubt but that the Department and organisations are better managed as a consequence. Within that, a management structure is being put in place with assignment of responsibilities down through Departments. This is to be done by the end of this year. All of this is to happen within partnership and structures involving managements and unions. These structures have been negotiated and put in place.

In the context of human resource management, which is very important given that we are talking about 200,000 people, we are in the process of consulting with the unions on the implementation of a new performance management process. Those consultations are to be finished within a three month period and we are to start implementing it from the beginning of next year. This is a major project which should have significant benefits in terms of clarifying what staff are expected to do and then working through performance with them.

Both Bob and Michael referred to some of the changes in the financial management area, multi-annual budgeting and financial envelopes. Significant reforms are also to be made in the area of accounting policies and accounting systems.

The programme is an extensive and ambitious one and will take a number of years to finalise. However, we have made a good start. We probably lost some months this year because of the implementation of the Freedom of Information Act, which, as I have said, has been a huge project for us. Notwithstanding this delay, we have made a good impact already, especially in the area of strategy determination, objective setting and freedom of information. The initiatives now in train will increasingly affect all members of staff and working practices over the coming years.

Mr. O’Gorman: The finance division has a relationship to the first two strategic priorities. However, it is the second priority, Ireland’s EU participation, that most directly and extensively impinges on our activities. The division has a very diverse range of functions, responsibilities and activities, ranging from the Paymaster General’s Office, providing a banking service to other Departments, through legislating for financial regulation, the Minister’s role as owner of the State banks, policies on debt management and, with a higher profile, the question of the EU budget and negotiation and implementation of EU cohesion policies as they affect Ireland, through to the question of exchange rate policy and EMU. I will not attempt to deal with all of these but will attempt to briefly review main developments in some of these areas or the more significant parts of them over the recent past. I will also address the main issues on our agenda both at this juncture and over the next six months to a year.

Deputy McDowell asked about changes. I cannot give a detailed answer explaining how our contribution has changed other than in the general and generic ways mentioned by the Secretary General. Much of the change in my division emanates from the fact that EU issues have moved on and we are responding to a different set of circumstances.

With regard to EMU, we have come through the process of qualification and the decisions taken over the last May weekend. On the domestic front, we produced legislation to bring our framework into line with the requirements of EMU. An initial selective effort was made on the question of practical preparations in public information, this focused initially on the question of the business sector, which is in the front line.

What is happening now is a change of gear and direction, both at domestic and EU level. At domestic level, the Euro Changeover Board of Ireland was established last May, which is increasingly turning its attention to the wider area of public information. The business awareness campaign which is under the aegis of Forfás is being intensified. Non-governmental organisations will also be brought in this context.

Now that the question of who will be in the euro area has been settled, we have been focusing on different aspects. This impinges on the work of the Monetary Committee of which I am a member and also on our role in preparing the ECOFIN and briefing the Minister for ECOFIN meetings. It touches on how the business of the EU, particularly the 11 states in the euro area, will be organised in the new circumstances after 1 January. For example, one aspect of this will be the processing of stability and convergence programmes which arise under the stability and growth pact. A second dimension which has recently been in the news is the increasing perceived need for the EU to adopt a common position, or at least understanding, on the international issues of the day, and how to represent those positions at the wider international level. This will be an active area for some time in the future.

The other main activity on the EU front is Agenda 2000. As Members are aware the Commission brought forward proposals in July 1997 for a financial perspective for the period 2000-06. Negotiations on this are being conducted in the General Affairs Council for the most part, but there is a great involvement and interest in ECOFIN in these negotiations. My division has a role in supporting the Department of Foreign Affairs in servicing the working groups in which it is involved in relation to overall budgetary issues, in particular Structural Funds, and in briefing and advising the Minister in the context of ECOFIN becoming more involved.

An issue which is not directly connected but which feeds into the context in which the future finances of the EU are being discussed is that of ‘net contributors’. Members will be aware of the Commission’s report on the “own resources“ system and the options which were mentioned. This will certainly get attention in ECOFIN, not least because Ministers for Finance have a very direct interest in it.

The issue of Structural and Cohesion Funds, an important question for Ireland, falls within Agenda 2000. In March 1998 the Commission brought forward proposals for a new regulation which is getting consideration on an ongoing basis in various working groups. It was this proposal which introduced the concept of a transitional regime for countries which have passed the threshold for Objective One status. The committee will be aware that the Government is considering, on the basis of analysis by the Department of Finance, the question of regionalisation.

The timetable for this process, which covers both Agenda 2000 and Structural Funds - it now seems likely that all these issues will be settled together at a fairly late stage - is that it will conclude at the end of March. Whether this will be achieved remains to be seen. It will be an intensive period for us until then.

Structural Funds are a means of financing a set of activities. At the same time we will be working on a national development plan covering the period of the next financial perspective. Consultations on this have already begun and submissions have been sought and received from regional authorities, the social partners and various Departments. We have engaged the Economic and Social Research Institute to make an external assessment of Ireland’s development needs and to assess the submissions which have been made.

In the Department, and in particular in conjunction with Bob Curran’s division, it will be necessary to develop an in-house view of what the priorities should be for the plan. There will then be further consultations with regional authorities and the social partners. Before we can finalise a plan it is necessary to have a fairly reliable or concrete estimate of the support level we will get from Europe, and so this may be extended well into next year.

An important part of Structural Funds is the day to day management of the community support framework. Aspects of this which have attracted notice are the mid-term review in which certain commitments were reallocated, the ongoing monitoring and evaluation of activities which are financed and the question of having in place financial control arrangements which meet EU requirements, particularly under the SEM 2000 initiative. We have recently concluded a financial protocol with DGxx in the Commission which has responsibility in this regard. It is important in the context of preserving Ireland’s reputation as an effective and reliable user of Structural Funds.

An issue with an EU dimension is financial market regulation and supervision. There have been major legislative developments over the past few years - it is not necessary to go into detail on these. The impetus for these has come initially from EU requirements, but in fact domestic legislation has been more comprehensive and ambitious than what we were obliged to do. The most recent legislation was the Investor Compensation Act, which was commenced in August. Members will also be aware that the Government has taken a decision to have a single regulatory authority for financial services and is establishing an implementation group to bring this forward to the point of legislation. This will clearly involve my division in a very substantial way.

Mr. Mullarkey: The last speaker will be Eric Embleton of the corporate services division who will describe the resources of the Department.

Mr. Eric Embleton: We have a staff of just over 500. We are located in four sites and the committee will appreciate that this poses its own problems for operational efficiency and communications. The total administrative budget of the Department is £21 million, just over two thirds of which is for staff payments.

Regarding the SMI process and support for strategic priorities, we have a system of work programmes which was introduced three years ago. The basic idea is that they express at division and section level the objectives which are to be pursued in order to inform the day to day work of staff and to achieve our strategic priorities. This is backed up by an internal review process which operates at three levels, namely, at management committee level, divisional management and section unit management, under which regular reviews take place of the quality of the work programmes and the progress we are making in achieving our objectives. The work programmes are essentially tools for the day to day management of work.

We have done other interesting things in recent years to try to improve the internal management of the Department, partly in response to SMI and partly as a dynamic development of management techniques. We have assigned to Assistant Secretaries particular responsibilities in relation to general policy issues, organisational issues and staff related matters, including promotion to certain levels, mobility, etc. We have established a group at principal officer level which has similar duties. Three years ago we also established a change management working group in the Department, representative of staff of all levels, to ensure all staff became involved in the SMI process. The group has worked closely with corporate services in developing communications, a HR policy for the Department and in general by developing the SMI process. The group will now be absorbed within the partnership structures referred to a moment ago which we are in the process of establishing under Partnership 2000. In the context of the Public Services Management Act we are actively working on an assignment framework to give effect to the responsibilities of the Secretary General under the Act to devolve certain duties, responsibilities and authority at various levels throughout the Department.

Deputy Deenihan: Deputy Noonan, who is unavoidably absent, asked me to pass on his apologies.

I ask Mr. Mullarkey to outline his views regarding what he fears could upset this strategy. First of all I would like to ask Mr. Mullarkey to outline his fears around this strategy. I suppose it is not a fair question.

At the moment the provision of structural funds is giving rise to major concern. I would like to ask for clarification concerning an article that appeared in Business and Finance stating that there is a recommendation that more counties like Kerry and Clare should be included in the provision of structural funds. If they were included would it affect the GDP of those thirteen counties. Perhaps you could add some light to that here this evening.

At present what is the Department’s attitude on private/public projects in light of the fact that more finance is on offer from various investment groups and banks and external sources who have specific interest in providing some of the infrastructural developments, which we cannot provide because of budgetary restraints? If this money could be invested it could be paid back over a period of time. The Department of Justice has set a precedence for that already with the provision of prisons and other buildings.

Finally on the question of human resources is the staff embargo still in operation and if so, how will it affect the implementation your strategic management initiative in the future? Owing to staffing arrangements do you think the strategic management initiatives may not be as effective?

Mr. Mullarkey: The threats to our scenario are both external and internal. More important people than I have said we cannot remain unaffected by all the turmoil at present in the international economy but even more so in the international financial market. It remains to be seen how that will work out.

The European area has been the most stable and the least affected to date but it cannot remain totally unaffected. The export markets in the Far East must be affected to some extent. Far Eastern economies are becoming more competitive because of the large scale depreciation of currencies.

The effect on wealth in the United States of the reduction of Stock Exchange prices may reduce demand there. On the other hand action by a number of central banks abroad and within the Community on reducing interest rates compensates for that but confidence in direct foreign investment may be affected. However a stable well managed economy such as Ireland could well gain market share within a reduced total market of mobile international investment. There will be a reluctance or a reticence for international investors to invest in less stable areas.

Our expectation for next year would be for some reduction in our projected rate of growth but nothing which should amount to a serious collapse. Domestically, over recent years, under successive Governments Social Partnership has been the key to much of our progress. The Social Partnership has not simply been a pay agreement but a commitment in the area of taxation, social inclusion and expenditure. It has been based also on currency stability, low interest rates, inflation, an inter- dependent set of issues. Such has been the strength of the economy that one would be concerned that expectations would outgrow what could be reconcilable under Social Partnership. We attach great importance to the continuation of Social Partnership as a framework for the overall stability and development of the economy. We appreciate that growth in employment puts pressure on employers to compete in terms of wage rates in many sectors for the available labour force but we feel that the Social Partnership provides a bedrock framework for what is happening in the economy. We would be concerned that undue expectations could develop there. We would also be concerned that the economy would overheat which will translate itself into pressures on inflation which in turn will provide a poor climate for the next round of negotiations for the Social Partnership. Those are our main concerns on that front.

On the question of public/private partnerships the Government have expressed themselves very positively in this area. We have no difficulty with that. I do not think the Government or the Department are ideologically driven in this area. There is always concern about the value for money. Public/private partnership is not an easy way out of overall budgetary constraints. There are certain constraints in terms of our emu commitment on stability and growth. Free standing public/private partnership projects are self financing and do not depend in any way on follow up financing from the State.

They probably would not affect the Government deficit and expenditure or its surplus. In so far as the cost of those projects would have to be borne by the public sector they will be regarded as a charge against the general Government balance. The fact that this is done through public/private partnership projects will not remove them from the budgetary arithmetic. That is not to say that PPP is not the best way of doing things if that is still the most cost effective way but it will not be an escape hatch from the budgetary arithmetic. It is the case, and this is recognised in the consultancy report on this area, that many PP projects are in the building and construction areas. There are areas of this industry where there are already capacity constraints. One would also have to have regard to this fact when considering the extent to which one would have recourse to PPP or Government expenditure.

My colleague, Mr. O’Gorman, will deal with the other two questions on Structural Fund and Mr. Hurley will deal with the question on the staffing embargo.

Acting Chairman (Mr. Finneran) took the Chair.

Mr. O’Gorman: The Deputy will appreciate that I cannot comment on a report of a leaked document but I can address the substantive issue that he raised. The position at the moment is that the Government is currently considering the option of an approach to EUROSTAT with a view to having Ireland reclassified from its present single region status into two new regions. As the Deputy will be aware the rationale behind this move is that there is a possibility that some parts of the county will have access to the fully fledged Objective One level of support rather than the phased down levels that would be available to a region in transition. It is a matter under consideration and, therefore, I cannot comment on it.

I can give some clarifications on the factual aspects of this issue. First, we are dealing with a question about statistical classification hence the reason why the application is made to EUROSTAT. Second, to qualify for Objective One - and I apologise for using jargon - one must have a NUTS II level region, which is a relatively high level region, a region that is below the 75 per cent Community average GDP per capita threshold. Third, NUTS II regions cannot be drawn up at random. They are part of a hierarchical classification. At the bottom of the level is NUTS V region which combine to make NUTS IV, NUTS III, etc. To give this some meaning in our circumstances a NUTS IV region is the administrative county, so that there would be a question of going up two levels to include a county. The attitude of the Commission and EUROSTAT to this move is predictable.

At the end of the day the position is that the more extensive a reclassification is involved the less likely that it will pass muster with EUROSTAT and the Commission. Again, this issue is being considered by Government and that is one of the factors it would have to take into account.

Mr. Hurley: The Deputy asked a question about the Civil Service embargo and the effect it would have on how Departments carried forward programmes, particularly the Department of Finance trying to pursue a strategy statement. The embargo referred to existed until 1995 but it was replaced in mid-1996 by a new approach where the then Minister for Finance set core manpower targets for each Department and office. Since then the Department of Finance has controlled the number of staff by referring to core staffing targets. These targets are agreed bilaterally between the Department of Finance and other Departments and are costed in the course of discussions on their administrative budgets. As a consequence of that new arrangement cases are made for new posts to take account of urgent economic and social needs. The Minister for Finance, with Government agreement, has sanctioned posts for those purposes. Therefore, it is a now a different arrangement.

Deputy McDowell: I thank the officials for coming here this evening. I am at a loss to understand what the purpose of this document is and, notwithstanding, what the Secretary General said, I am at a loss to understand how it can be of any guidance in terms of the management of the Department. It seems to me that there is a basic problem with strategy statements of this kind. Is it a political statement? It would be acceptable if it told us how you intend to implement the Government’s policy priorities over the next three years and how the Department relates to the Programme for the Millennium. However, it does not do that but it is the economic policy generally reduced to the lowest common denominator that would be acceptable to everyone conceivable bar Deputy Higgins (Dublin West) plus a few political additions.

The only significant difference I can see between last year’s statement made by the previous Government and this one is that there is a reference to a reduction in tax rates rather than a reduction in tax to benefit employment. There are other items I could mention but I will not do so. Beyond that there is no significant difference. I think there is a problem with the current document - and I am not blaming the Department for it - but I do not have any solution for that difficulty.

Perhaps I will ask a few questions starting with regionalisation. My understanding is that the national plan was meant to be produced before the decision at the March council. Now you seem to be suggesting that we need to know in advance what money will be available before we can produce a national plan. I would like you to inform me what is the correct sequence.

I assume that in terms of the instructions that have been given to the ESRI to draw up the national plan that it is based on the 26 counties and not based on the regionalisation proposals that are currently being considered by Government. If that is the case then there is a need to quickly inform the consultants that they should be doing a completely type of work than the one that they have currently undertaken. They are obviously working on it at the moment.

With regard to EU issues is it Government policy that own resources should be increased or do we accept the 1.27 per cent figure as being appropriate? It seems to be de facto the case but I would like to know if it is Government policy whether it should be increased or not.

Perhaps Mr. Curren can deal with expenditure reviews. He said it was moving slower than expected. In reality is it not going at all? The Government agreed to this measure almost 18 months ago. To the best of my knowledge eight expenditure reviews have been carried out. Some of them were part of the mid-term review and not based on the agreement reached by the Government 18 months ago and some dealt with very minor areas of expenditure. Either there is no political will or there is no will within the Department to pursue this process. If there is then I have missed it so far.

In relation to financial envelopes is there the political will to drive forward the multi-annual budgeting process. The Minister made it clear in his response to PQs six or eight months ago that financial elements would be introduced as soon as possible. This evening you gave me the impression that this is slipping a bit and that we are now talking about targets and perhaps it will be introduced as part of the 1999 budget. I understood that there was a clear commitment it would be done this year. Is that still the case?

I also noticed that there does not appear to be a commitment to changing the budgetary process as part of the strategy statement. Why? Perhaps it was mentioned and I have overlooked it. Looking at the overall purpose and stated aims of economic policy I realised that improved services does not appear to be a specified aim, criterion or target by which the Department would adjudge progress or that the services that we deliver to our people should be improved. These aims should be aligned with maintaining low inflation, etc. as an index of progress. Reference is made to social cohesion and social progress but we need something a bit more specific than that. The Department could commit itself to ensuring that there is an improved standard of service delivered to the people.

With regard taxation I will direct my questions at Mr. Tutty. The taxation element is very brief but it does refer to tax reform and widening the tax base. I am not aware that it is Government policy to widen the tax base. If it is I would like to know what areas are involved. Should Government deal with tax reform at all? Should we not be talking about reducing income tax rates? Is it Government policy to reduce the percentage of taxation as a percentage of GNP? I am not aware that it is but if it is I would be interested to know.

Chairman: I ask speakers to respond to both representatives. Senator Doyle will be the next speaker because she has to attend another meeting.

Senator Doyle: I, too, welcome Mr. Mullarkey and his colleagues. I thank them for coming because we have some of the best brains in the Department of Finance with us here this evening but as usual I am not sure we will do them justice in the time we have available. There is a breadth of issues we could discuss tonight but we can only skim the surface.

I would take major exception to one line in this document and I welcome it. I wish this document was written on recycled paper. On page 2 at the beginning of the second paragraph it states: “such analysis has always been a feature of public management“. It may have been in theory but it was not in practice. Unfortunately, I do not have time to develop my views on this matter.

My questions mainly relate to progress on the programmes of changes in the public service, the SMI process and the strategic priorities. As the performance management section will be up and running from the 1 January 1999 can you let us know some of its secrets? What progress has been made in that area and what will be implemented in terms of managing performance? There are lots of aspects mentioned such as rewarding good performance and managing under performance. What will happen that is different to what happened in the public service over the past decades? The general public would also be very interested in this area.

My colleague Deputy Deenihan has already asked how many people are in the public sector. I would like to know what progress has been made in relation to employing people on contract particularly specialists who may be required for a finite period of time. A lot of work between now and post-Euro changeover and post-Year 2000 compliance would probably require specialists and long-term employment in the public service might not be essential. What is happening to this debate? What progress has been made in this area?

What progress has been made in the areas of dealing with issues that have cross-departmental responsibilities? What are the outstanding areas that are unsatisfactory, for example, child care, etc? Is there still the impetus and the priority behind resolving those issues? Are there matters which you would like addresses, perhaps by Members, that could make them a reality? We have talked about some of these issues for a long time and they seem to be very slow in delivering on their objectives.

One of the speakers referred to the priorities for the next national plan. What consultation process is in place in relation to deciding on those priorities before such a plan is published and is up and running? I presume the Government of the day will have a major input. Will there be wider debate among the Opposition parties, local government, the regions, interested groups and social partners? What is the consultation process for determining the priorities of our next national plan?

It is early days for the Public Service Management Act. What have been the major changes in it? What evidence is available that this legislation has brought a huge change in the management of the public service? Is it turning out as you expected? How is the implementation group of secretaries general behaving at the moment? Are they doing anything at all? Have they gone to ground completely? Do they meet as regularly as they did before? What is the co-ordinating group doing? The answers to my questions are well kept secrets. I do not have to apply the Freedom of Information legislation to find out what is happening in this area. I would love to know what is happening, what progress they have made and what is the next step for them? What is on their agenda now? Is there real progress in this area?

Finally, I am a great admirer of the volume of work carried out in the Department of Finance. I have had occasion to work on a one to one basis with many of the Department’s representatives here today. The problem is that the general public has an appalling perception of the Department, not just the other Departments, because the Department of Finance has to often act like a big brother and turn down requests for more funds rather than be proactive in terms of spending. Has anyone ever thought of providing a public relations service for the Department? With the greatest respect for the intellect and integrity of the Department it has a sort of grey image of wise mandarins who say as little as possible, as seldom as possible. This image will have to change. I have noticed changes. For example, some of your officials here have appeared in public, attended various meetings, addressed issues and stood alongside their Minister. This is a new development but it has not filtered down to the general public yet about what you are actively doing about the public image of the Department given that you are the core driving Department of economic development in Ireland and more.

The whole quality of Irish life rests on you doing a good job. I suggest that you start selling slightly better the good job that you do. It is only when something goes madly wrong that the public focus and criticise, for example the recent scandals in the planning and banking sectors, etc. The fact that we have heard so little from the Department of Finance is due to the integrity and excellent work and mindset of it and its employees. But a change of image is needed along with the ongoing public sector change process. Are you or should you be doing something about that aspect of it too?

Mr. Mullarkey: I will deal with the first question raised by Deputy McDowell and the last issue raised by Senator Doyle. She asked what is the purpose of the strategy statement, does it serve any useful purpose and what are we doing about selling the Department. It may not be that apparent to the outside world but like any Department all sorts of businesses or organisations, find a corporate statement useful in terms of instilling a common sense of purpose in their staff. The wider and more disparate the functions of the organisations are the more the need is for some sort of coherent statement of what the Department or organisations are all about and how the different parts fit together.

I will deal now with the perceptions referred to by both the Deputy and Senator. I assure them that from the point of view of the Department the imput of the strategy statement is quite perceptible at various levels within it. There is a better understanding of how different parts of the Department interact and how relevant the activities of any isolated section are in the context of what the Department as a whole is trying to achieve.

I have little doubt that, in terms of the management structures we are putting in place in the Department, the strategy statement is useful at least in internal terms. Second, from the point of view of how we are perceived at Government - where we are trying to secure agreement for the policies we seek to promote, by selling them to our Minister who brings them to Government and by getting our views accepted - the more we can be seen as not being negative or as taking a narrow, book-keeping approach but as having a constructive, coherent, positive contribution to make, where budgetary discipline is seen not as an end in itself but as part of an overall coherent strategy, that helps us gain at least a modicum of acceptance of our views and proposals. That may not be easy to perceive but internally we are happy that progress is being achieved in that regard.

Selling the Department of Finance it is not easy, it is a bit like selling cod liver oil. The Department is probably not the most saleable product on the market. In the various fora available to us, such as the social partnership area and our dealings with other Departments and groups who make budgetary representations, I think there has been a progressive opening up of the Department. I do not take any credit for the current management but I like to think people can talk to us about their concerns and problems. In my five years in the job I have had little experience of people saying they cannot get access to the Department or that people will not talk to them or explain the Department’s position, etc. It is a difficult role because ultimately civil servants are the servants of their Minister and it is not their job to sell themselves, rather to advise their Minister and implement the wishes of the Minister and the Government. Civil servants must be conscious of this, without being grey, invisible people. There is a balance to be struck and if anything most of us are determined to err on the side of being understated rather than overstated in our public perception.

Senator A. Doyle: There is no risk of overstatement.

Mr. Hurley: There were a number of questions raised on the change programme, the first concerned the progress of the performance management system and whether it encompassed reward and underperformance. We see the performance management system linking into business planning and strategy statements - it will become the background and the brief to inform the roles of individuals throughout the organisation.

When previous attempts were made to introduce appraisal systems for staff the appraisals did not link into a business plan or a strategy, it was a discussion about performance which did not have that background. There is a bite in the new arrangement in that all these issues will link in and the specific role of individual civil servants should be a lot clearer. As a result of discussion, the measurement of performance and the identification of issues which need to be progressed should have much more focus and for that reason we are likely to have more success. This was unsuccessful in the past but modern organisations need a performance management system. We are at the stage of providing a framework and we are consulting the unions on its ingredients to bring them on board with a view to rolling the initiative out at the beginning of the year. It will deal with performance on the job, linked into strategy statements about real things, and the identification of developmental issues to support staff.

As to reward, we have concerns that unless one has a fairly robust system of performance management in place a reward system would be arbitrary and would not be welcomed by staff on the basis that it would not be seen to be objective. We regard it as a requirement that a proper performance management system should be in place before one can consider reward. I said in my opening statement that in Dublin Castle in July the Taoiseach, in the context of trying to deal with leap-frogging special pay increases, referred to the development of a new system which would concentrate more on paying public servants on the basis of performance, and that discussions on this would be opened with Congress sometime in the future. As I have said I believe it is essential to have a reasonable performance management system to facilitate that. We are at a particular stage in that process in the Civil Service but in the public service we have a long way to go.

Any performance management system will identify under-performance. There are different levels of that - the person may be in the wrong job or his skills might be better used in another job, perhaps the person is de-motivated or there is real underperformance which we must tackle. We have not been good at the latter in the Civil Service and the SMI envisages that greater tools would be available to management to deal with it. We do not see it as a significant problem and we do not want to tackle it first - we want to have a performance management system which brings people on board, shows them how they link into the business of a Department, assesses performance on that basis, and then deals with the underperformance issues, which by then will inevitably be much clearer.

Deputy McDowell: Has anyone been dismissed, to Mr. Hurley’s knowledge? I gather the Public Service Management Act allows secretaries-general to dismiss civil servants.

Mr. Hurley: Civil servants are dismissed but the numbers would be small.

Senator A. Doyle: About three.

Mr. Hurley: At present it requires a Government decision. Matters will change under the Public Service Management Act but we need to introduce further legislation to amend the Civil Service Regulation Act to give effect to what the Deputy is speaking about.

Deputy McDowell: It has not happened yet?

Mr. Hurley: Not specifically in that regard. At present we are left with the old system, which must and will be changed.

I was asked about progress. In my opening statement I said we were preoccupied with the Freedom of Information Act for the past number of months but the other question is how much change the system can digest at the same time as carrying forward a lot of issues in the economic and social area. We made a judgment, for better or worse, that we would first implement freedom of information and train people properly for it. The next initiative is performance management and again, a major training programme is required to do that properly. Financial management issues are next and there are a host of other issues in the queue including, as mentioned, recruitment of specialists and changes in recruitment systems. Proposals are being developed to allow for recruitment at different levels in the Civil Service, to allow specialists to be brought in on a contract basis for particular tasks, etc. This happens at present, but not on a large scale under the guise of consultancy, but I think the Senator was talking about a broader approach. There are a number of these in the pipeline but it requires a judgment as to how much the system can take at a particular time.

I was asked what exactly the Public Service Management Act means. One of the key items in Delivering Better Government was the idea that responsibility would be assigned down through an organisation, which has happened without statutory backing and in an informal way until now.

By the end of the year responsibilities for particular blocs of work will be assigned through organisations by Secretaries General. All this knits into the business plan and strategy statement around which there is a performance management system. There is a logic in all this. It is a very large project, but it means that we should see organisations being managed, as the Secretary General said, in a much more professional way. However, that will take time in all organisations.

The implementation and co-ordination groups are alive and well. They have been making the key decisions on just how much the system can digest. It is important that they make those key decisions. The committee will appreciate that in a very large project. The Civil Service must at the same time continue with its ordinary day to day business.

Senator A. Doyle: I would have thought this would get in the way of ordinary business.

Mr. Hurley: The issue of cross-departmental responsibilities was mentioned. This is a problem; there is no point pretending otherwise. However, as a result of the initiatives taken through the Public Service Management Act, it has been taken much more seriously. Greater efforts are being made to bring the functions within Departments together and to get across the idea that cross-departmental issues are not about turf warfare, but trying to get issues dealt with. It is early days. I will not suggest that it is all sweetness and light because that is not the case. However, progress has been made.

Mr. Tutty: Two issues were raised by Deputy McDowell. He said that there is no commitment to a change in the budget process in our strategy statement. Multi-annual budgeting, changes in administrative budgets and the financial management working group are mentioned on page 14. We do not deal with the area in which the Deputy was interested in terms of how the Dáil gets involved in the budgetary process. This would be outside the scope of our strategy statement. However, we consider multi-annual budgeting and other similar elements important.

The Deputy commented that widening the tax base which we have as a priority may not be a priority of Government. It is interesting that the Deputy harped on that matter because somebody who was then a member of the Opposition made exactly the same comment regarding our previous strategy statement. We think it may be a question of what is meant by widening the tax base. We have seen over the years that Governments widen the tax base through, for example, putting VAT on telecommunications, removing items such as relief on covenants which took up much money that could be used in other ways and diminishing incentives such as BES so the money can be put into general reductions in taxation.

We have seen a desire on the part of Governments to widen the tax base where possible. This is also offset by movement in the opposite direction at times by the introduction of new reliefs. We view the general objective of widening the tax base to ensure that all income as far as possible is taxed and to allow scope for reducing the tax rates and increasing allowances and bands as part of the political agenda, even if it may not be expressed in exactly the same way as in our strategy statement.

The Deputy mentioned tax reform and whether there is an objective of a specific reduction in the percentage of GDP that is taken up in tax. Tax reform is what everybody talks about, but the public appears to want tax reductions. It is possible with a growing economy and particularly with the strong growth in employment to reduce the percentage of income taken in tax from individuals while still maintaining the overall tax receipts as a percentage of GDP. There has been a small fall in tax as a percentage of GDP, although it is not very significant, despite the tax reliefs that have been given. This is because of the strong growth in employment and the fact that an increasing number of people are contributing to the tax net.

Deputy McDowell: Is it part of the strategy to reduce the tax/GNP or GDP ratio?

Mr. Tutty: We have not included any specific objective. However, all Governments have sought in recent times to try to reduce the tax burden on individuals and we have been following that strategy. However, because GDP and employment keep growing so much, even with tax reductions the overall receipts still come in.

Deputy McDowell: I appreciate what is happening. However, we are told that we are an overtaxed society. The only way to judge that is on the basis of our taxation/GDP ratio. Is it in the mid-30s at present?

Mr. Tutty: Yes.

Deputy McDowell: Is it part of the strategy to reduce it?

Mr. Tutty: It is lower than in our fellow EU member states, particularly as a percentage of GDP although that is not the proper measurement. However, even in terms of GNP we are still in the lower half of the European countries.

Deputy McDowell: Does the Department wish to reduce it?

Mr. Tutty: We have no specific objective to reduce it. We will be guided by Government on that matter. There is a desire to reduce the burden on each individual and that can be achieved while still maintaining the overall tax receipts.

Deputy McDowell: By reducing the rates of income tax?

Mr. Tutty: By reducing the rates for individuals. If one looks at what has happened in relation to income tax, the actual percentage of people’s income that is taken in tax has gone down significantly over the last ten years. However, because their incomes have gone up and there is much higher employment, we are still getting in significant tax revenue.

Mr. Mullarkey: It is important to bear in mind that the vast bulk of the tax reductions have not been designed primarily to reduce the tax burden. They have been designed to purchase wage moderation. The sequence has been to purchase wage moderation which in turn is purchasing employment growth. The employment growth is generating the resources for economic and social development.

Notwithstanding the reductions in taxation, it has been possible to finance very considerable real increases in the level of expenditure on social and economic services. The primary objective has been to underpin the social partnership in purchasing wage moderation with the objective of growing employment and, with that, a growing of the overall resources of the economy which can support economic and social programmes. I must admit that the objective is not to reduce taxes as a proportion of GNP in itself.

Mr. Curran: Deputy McDowell asked about expenditure reviews. He referred to the limited number of expenditure reviews that have been completed and he asked whether this denoted a lack of political will or a lack of will on the part of the Department of Finance. To the extent that a civil servant can judge, there is no lack of political willingness to have the expenditure review process carried out. The Government approved the programme and Ministers expect civil servants to carry it through. We will report to Government soon on the state of play with regard to the expenditure reviews.

It is the case that the performance of Departments on the expenditure reviews has been patchy. Some Departments have put a great deal of effort into it, while others have been slow off the mark. We have done everything possible to encourage them to get on with it.

The Secretary General has written to his colleagues and we have done all we can to impress on them the need to do this. The Deputy said that his impression is that most of the reviews carried out have been minor, and that is true of a good deal of them, but there has been one major review published that the Deputy may be aware of; it was a review of the carer’s allowance that the Minister for Social, Community and Family Affairs published. He said he will take account of that review in formulating his proposals for his Budget package.

We have done all we can to give this matter some momentum. It is an effort to get civil servants and Departments to change their mindsets. Their current mindset often is that because a programme is there it must continue more or less indefinitely, and that is bolstered by the existence, as Members will be aware, of constituencies that support particular programmes. It is difficult to change, but the Department of Finance is doing all it can do to change that mindset and to get expenditure reviews properly underway as a basis for informed choices as to where the real priorities are.

The Deputy said he had the impression that the political will towards multi-annual budgeting might be slipping. I may inadvertently have given that impression by saying that it is not an easy task. All I meant was that, as Members will appreciate, settling the annual Estimates every year is not an easy task. The Budget timetable is quite tight, and with the Budget in December, settling the Estimates and other parts of the Budget as well as financial envelopes for Departments for a three year period is a new task for Governments and Ministers. We are doing everything we can in the Department of Finance to carry it through, and I said it was not easy, but I was not signalling any lack of political or Departmental will in helping Ministers in every way to do this.

Mr. O’Gorman: Senator Avril Doyle asked about consultation on the plan, and I tried to outline the consultation we have engaged in so far. That was mainly in the form of seeking submissions from regional authorities and the social partners as well as an initial view from Departments; one would go back for more specific submissions later. That was the initial stage. We envisaged - though this was not fully mapped out - that having absorbed the ESRI assessment and reflected upon this within the Department and with other Departments, there would be further consultation, but the mechanics of that were for another day.

Deputy McDowell asked a technical question on Government policy regarding the own resources ceiling which the Commission proposed be kept at 1.27 per cent of Community GNP that will be reached in 1999. That has been accepted for now as a working hypothesis for the negotiations, though that has not prevented member states from expressing differing views on the matter. Some see this as being inadequate and have been forthright in expressing this. Others have argued not against the 1.27 per cent but for large margins to be left under that with a view to the burden on national budgets being less. The Irish position has been to go along with the working hypothesis but to make the point repeatedly that there must be a reassurance that whatever figure is settled on that it is adequate for the challenges facing the EU, particularly in relation to the acceding countries.

Deputy McDowell: Are we supporting the working hypothesis?

Mr. O’Gorman: Our position is like that of other States in that we are going along with this as a working hypothesis while having some doubts about it which we are voicing.

Deputy McDowell: Do we agree with it or do we not?

Mr. Mullarkey: There are tactical considerations here. There are other, bigger issues at stake for us.

Deputy McDowell: That is why I asked the question.

Mr. Mullarkey: We can rely on other people to make an issue of the 1.27 per cent, but we have a range of interests. We will not become confrontational on an issue that is very difficult for some countries to accept because they have major budgetary problems; they may be major net contributors on whose goodwill we rely heavily when we negotiate Structural Funds or other interests. We have taken a tactical line on this.

Deputy McDowell: It seems that if we do not support the principle of increasing own resources at least, we will have to engage in the debate on the balance between the Structural Funds and CAP, which is something we have not done in public at all. I understand Mr. Mullarkey’s point.

Mr. O’Gorman: The sequencing of the plan and the decision on funding were raised, and if I gave the impression that the plan cannot be finalised until there is absolute certainty on the level of funding that was inadvertent. Technically, the requirement is that one submits a plan within three months of the regulation being adopted - the Structural Funds regulation. That plan leads onto the Community support framework, which becomes the real plan that everyone is committed to. As a matter of prudence there is an argument for not trying to draw up the final form of a plan until one has a pretty good idea of the level of funding. It is difficult to gauge when that will become clear.

Another consideration is that the plan and community support framework do not just cover the Community support; they cover the national co-financing also and, going back to the previous plan, they will cover an amount of expenditure which is within the areas eligible in principle for Structural Fund support but which are not attracting any EU co-financing. Basically, we are spending more in those areas than is strictly necessary to match the Community support.

This is a question of judgment but the timing requirements are not quite as stringent as I suggested. One could have a plan before the figures are finalised but it might not be prudent to do so.

Regarding the ESRI’s mandate if the Government succeeded in a regionalisation approach with Eurostat, the nature of the present ESRI mandate is to assess development needs. I do not think the Department would see any need to change that fundamentally if the Government takes a regionalised approach; those development needs are out there, and the question is whether we can finance them out of our domestic and EU resources combined. The ESRI would give us a clearer view of where our priorities should be. The Department’s view would be--

Deputy McDowell: This is fundamentally flawed. If we look at the country as two separate regions and that in five or six years time one part of the country will be getting little or no funding, then surely the national plan must reflect that.

Does it not?

Mr. O’Gorman: Perhaps I could refer back to a remark I made in answer to the last question.

Deputy McDowell: We have always regarded the country as being one unit and, therefore, we have been able to produce a national plan. However, if we are looking at the country as two regions, surely we need a regional plan, or two regional plans, instead of a national one.

Mr. O’Gorman: Yes. Perhaps I misunderstood you.

Chairman: That will be a policy decision by the Government. You cannot expect Mr. O’Gorman to comment.

Deputy McDowell: We are talking about a national plan which is already in preparation, as Mr. O’Gorman mentioned during the course of his contribution. We are entitled to know upon what basis the national plan is being drawn up. It seems self-evident to me that if you are doing it on a regionalisation basis and if the Government goes that way, we will need to look at the national plan again because we do not need a national plan, we need two regional ones.

Mr. O’Gorman: Perhaps I should have clarified the ESRI’s remit. The ESRI is not drawing up the plan. It is identifying and making an assessment of what Ireland Inc.’s development needs are over this time frame. That will be an input into the process of drawing up a plan. The plan will be drawn up within the Department of Finance in consultation with other Departments, through a process involving the Government.

The ESRI is simply standing back and taking an objective view of what the country’s development needs are - for example, where bottle necks in our development could emerge and whether the needs for roads are greater than those for training? The ESRI will be addressing those type of questions. I would not see the ESRI’s assessment, at this stage, getting into specific projects or areas at that level.

Deputy McDowell: I appreciate that and I do not want to labour the point. However, if cohesion funds will not be available anywhere in three years time we should look, for example, at ESF funding for training grants. If it is the case that in five years time, towards the end of the plan, the transition areas will be reaching the end of their period of funding - if not out of it altogether - then surely we need, as part of the plan, to look at how you will fund training in the transition areas vis-à-vis the Objective 1 areas. That has to be part of any implementation plan, if nothing else. Surely, it must be part of the terms of reference.

Mr. Mullarkey: It is important to keep in perspective the scale of structural funds in the context of overall Government expenditure. If you take it that, even in 1998 when structural funds will be at their peak, with the best will in the world, no matter what we do, structural funds will be fundamentally reduced in the next round for the whole country, both the Objective 1 and non-Objective 1 areas. This year, gross public expenditure is about £16 billion, of which less than 7 per cent is co-financed by structural funds. The element which will be co-financed by structural funds will be very much reduced in the next round, in any event. On any reasonable scenario, even if the present level of structural funding was maintained through the next round, one cannot guarantee that the Government will not shift its priorities one way or another. One would have to say that on any reasonable budgetary scenario for the period of the next round, the role the structural funds will have in total Government finance will be so limited that it is difficult to visualise how it can distort any Government’s overall priorities for expenditure and the aggregate expenditure level.

It will have an influence to a limited extent where co-financed expenditure takes place, but there should be ample room within the Government’s overall resource and total expenditure parameters to address what the Government’s expenditure priorities would be, without distortion.

Deputy McDowell: I think I understand that. The ESF currently funds some DIT courses and those in other institutes of technology. Is it conceivable that such courses in Objective 1 areas will be fully financed by the ESF, but in five years time they will not be financed at all, or only in part, in transition areas? Would you see our own resources making up the difference? Has any thought been given to these issues?

Mr. Mullarkey: No one can say that any Government priority is written in stone and cannot be changed. Even if you had a continuation of the present level of structural funds ad infinitum, Governments would wish to change their expenditure priorities. However, on the basis of any reasonable growth and budget scenario, it should be possible to maintain the areas that Government would regard as expenditure priorities, both in the Objective 1 and transition areas. We do not believe that regionalisation will distort the Government’s overall priorities considering the level of expenditure, range of programmes and aggregate expenditure level.

Chairman: A recent OECD survey indicated that the level of awareness of EU matters, such as the euro, was quite low here. Have you any plans to increase that awareness before the end of the year?

Mr. O’Gorman: The focus on raising awareness of the euro up to now has been on the business community. They are the people who have to be ready on 1 January 1999, especially if they are in the export trade. It was only in June that the general public was brought into the circuit. It was a low key exercise involving a national leafleting and media campaign with a fairly simple message. A more comprehensive print media campaign will get under way in November. In January, we will know the answer to the question everyone is asking - how much will the euro be worth in terms of Irish pounds? At that time there will be another level of public information.

Senator Finneran: Should the Department of Finance undertake a public relations exercise? I am not too worried whether or not it does so. I recall that a member of the City and County Manager’s Association pursued that path for some time, but I feel you are doing a good job as it is. The Minister and his officials should be allowed to undertake the PR operation, but if the Department of Finance gets into a spin doctor situation we will be in real trouble.

You mentioned the sanctioning system you have. While it may not be correct, the general thinking is that the Department of Finance has a finger in every pie and that very little can be done in other Departments without Finance giving clearance. You mentioned financial envelopes and perhaps you could elaborate further on that matter. The overall situation may not be like that, but there is a perception that the Department of Finance has its finger in every pie.

There is debate on the EU situation and I would welcome a comment on this. One way or another, Ireland as a region will qualify for Objective 1 and transition status. It so happens that part of the country will qualify on figures for Objective 1 status. It is a simple matter of economics that the national interest is at stake. You will get so much money under the transition arrangement and if you can get something extra by having part of the country in the Objective 1 region, that is the basis of any reasonable application. That is the way I look at it.

The figure provided by Mr. Mullarkey concerning the involvement and level of activity generated by structural funds, which he says is 7 per cent of overall Government expenditure, should be in the public domain.

It is something this is not generally understood. I want Mr. Mullarkey to comment on the Objective One status issue.

Finally, there has been some debate recently about the minimum wage. It has been said that it could interfere with employment and the national plan. Certain employer bodies have spoken against the introduction of a minimum wage. As the people who are in charge of the financial strategy, does the Department see the implementation of a minimum wage as one of the dangers because Mr. Mullarkey did not mention early that it was one of the dangers?

Mr. Mullarkey: With regard to the sanctioning process, I know there is the perception abroad that nothing much moves without the sanction of the Department of Finance but, I spent much of my career involved with public expenditure and that was never a serious issue between line Departments and the Department of Finance. The main areas of expenditure - that is 70 or 80 per cent of it - are on major programmes in the areas of health, social welfare, education, and security - that is the Garda and the Army. Once programmes are in place in those areas and a policy is established, there is almost total delegation. On non-administrative expenditure the sanctioning is more evident on major capital projects, but on current expenditure there is a huge area of delegation. In fact, we looked at this. Under the strategic management initiative there was a financial management working group and I think that dispelled a number of myths about the complaints about the extent of delegation. It was not an issue between the Department of Finance and the line Departments in that group.

In relation to administrative budgets, in the nature of things there has been possibly a little less delegation there but again there have been substantial movements under the administrative budget system and that is being progressed under the SMI also. Substantially, that is not a live or sore issue between line Departments and the Department of Finance.

Senator Finneran commented on more than asked a question about the Structural Funds. In so far as that is an issue which is before the Government now for policy decision, it would not be appropriate for me to comment.

Senator Finneran: My point was that one way or another Ireland will receive a sum of money under Objective One in transition because that is a category which is generally accepted by the EU. If one part of the country qualifies, is that not a real opportunity to get some extra funds for Ireland? Is that a fair question to ask?

Mr. Mullarkey: The Senator is probably straying into the policy area.

On the minimum wage, again I would have to plead that there is Government policy and commitment in that regard and it would not be appropriate for the Department to comment on that.

Deputy Fleming: Has the Department considered changing its accounting system because the Department deals with a receipts and payments method as opposed to one of income versus expenditure incurred? It is a little strange from a business point of view to hear that the budget surplus was £30 lower or higher because the cheque arrived from the EU on 1 January as opposed to 31 December. That is probably how they did accounting in the 17th century. I am sure it works well and it accounts for everything but I wonder, in terms of the flow of information and quality of information, is it the best accounting system?

Is there much staff exchange between the Department and private industry with a view to broadening experience; and, if so, approximately how many people in a year would be in the Department from the private sector and visa versa with a view to gaining extra experience?

How does Mr. Mullarkey feel the role of the Department of Finance compares with the equivalent departments in other European countries? Have some of them narrower or much wider remits?

My final question relates to the Budget and the Estimates. Last year I, as a new Deputy, was here for the first time. I sat at this committee for the purposes of passing Committee Stage of the Finance Bill. I recall that the first stage of the Finance Bill, as far as I could see, was the budget. In early January the Minister made some extra announcements on what might be in the Finance Bill. Then there were the second set of announcements about what would or would not be in it. Then the Finance Bill was published. There were about three sets of amendments to the Finance Bill on Committee Stage. Each morning there was a new raft of amendments which were probably produced at about 4 a.m. the night before and there were more amendments on Report Stage. I felt that it was a miracle that there were no gaps and loopholes in the system. What causes that rush? I know Mr. Mullarkey will talk about timescales but surely three or four days out one should be able to say what will be in the Bill. The Minister was receiving notes at the last minute that he had better say this or that before Report Stage. I found it bizarre. No wonder so many loopholes are found in the tax laws when it is done in such a rush.

Looking at it from a business point of view, I cannot understand the logic of why the Estimates and budget are not taken as one document. No business would draw up a budget for the year ahead laying out its planned increase in turnover and then a month later talk about its expenditure. Income and expenditure in any organisation must be taken together. The two should not be separated. I am sure the Department must have a view on that.

I am sorry for landing all those questions on Mr. Mullarkey at this hour.

Chairman: That was a short question, Deputy.

Mr. Mullarkey: Mr. Hurley will talk to the committee about staff exchange. Mr. Tutty will talk about the budget and the Finance Bill. Between us, we will handle the other questions.

On the accounting systems, the Committee of Public Accounts would be more conscious than this committee that with regard to the Appropriation Accounts at the end year there have been significant moves in recent years towards an accruals adjustment to the account. Effectively, there is a sort of end year reporting which is nearly corrected on an accruals basis.

We have had much discussion, some of which was heated, on accrual accounting in the context of the strategic management initiative. Incidentally, accrual accounting in government finances is not that extensive in other countries but there are certain movements in that direction. We felt that in the move towards accrual accounting the primary need in terms of improved accounting in the public sector was to get a system of management accounts into each Department. All Departments will be required to have regular systems of management accounts. Those internal systems of management accounts in Departments will be prepared on the basis of assistance from a professional cost accountant. The strong recommendation from the particular working group involved is that the norm would be accrual accounting for those management accounts but, where departmental management concludes that for one reason or another it is more effective to stay with cash accounting for the management accounts, it will be their right to do so. The norm on these management accounts should be accrual accounting.

Mr. Hurley referred to the difficulty of digesting many things at once. With regard to the accounting system and the budgetary area, the overall work of the financial management working group will become public and be activated some time this Autumn. It will be announced and publicised and the Departments will get a general push. That is what I will say on accrual accounting.

The Department of Finance here, vis-à-vis other countries, would have a wide remit compared with other countries’ Departments of Finance. It is split up in a lot of countries. There is the Finance division with which Noel O’Gorman deals which some people see as treasury. There are various configurations. We have had a Department of the Public Service and a Department of Economic Management. Given the small, open economy which we have, where you need strong, coherent macroeconomic management, and the whole structure of social partnership which is a distillation of all strands of the Department, it would be very difficult to achieve that with a fragmented Department of Finance. We have a wide remit but we would have serious concerns in terms of the coherence of macroeconomic management if that was split up.

Mr. Tutty: In the Budget, we do not separate expenditure from tax decisions. We publish the Estimates a few weeks before the Budget but the decisions on the Estimates are not taken in isolation from the decisions on the overall approach to the Budget and the level of tax concession which we will give.

We start by looking at the Budget on the basis of what the overall position should be and what that means in terms of the expenditure level and the level of taxes. Right through the process, from when we start looking at it in April, we bring it all the way through in a consistent way, advising Government that if it wants to spend X it will have implications for the level of tax reductions which will be available. We make decisions on a consistent basis. We do not take decisions on expenditure in isolation from taxation. In recent years we have combined them as closely as possible when going to the Government.

The main reason for the rush with the Finance Bill is that the financial resolutions on Budget night have effect for a certain period and we have to finalise the Finance Bill to copperfasten them. We brought in some new mechanisms in recent years to get information out earlier on the things which we were going to do in the Bill which were not already in the Budget. We always seem to run out of time and end up with some things coming through on Committee or Report Stage. We do not like doing that, we try not to, we try to get our political masters to take decisions and we try not to have the Opposition introducing amendments which we have to bring on board. There are often many amendments but the bulk of what is in the Finance Bill is there from when it is published. Sometimes the amendments run to many pages because things get complicated, rural renewal schemes, for example, require a great deal of legislation but are only one proposal. We aim every year to minimise the amount dumped on Deputies on Committee and Report Stages and we will try to do even better in the future.

Chairman: I was looking at the appendix and I notice there is not much gender balance in the upper echelons of the Department of Finance. Carmel Keane must be a very lonely lady amongst a plethora of male dominated bodies.

Mr. Mullarkey: We have made a 100 per cent improvement in this area. We now have two women.

Mr. Hurley: You asked whether there is exchange programme between the Department and to industry. There was such a scheme but it collapsed. Essentially the question is that we now we get in expertise on particular topics but we are anxious to resurrect a scheme whereby civil servants exchange with industry. There is no shortage of civil servants who would like to do that or Departments which would like to see it happen. There is always a difficulty in attracting candidates from the private sector who would want to work in Departments for a variety of reasons. We are, however, very keen on it. The same issue arose recently at the Public Accounts Committee. We mentioned that we are trying to resurrect this but sadly I have to report that it is not effective at the moment.

Chairman: I thank Mr. Mullarkey and his colleagues for a useful exchange of views. The committee will draw up a short report on this important subject and lay it before both Houses. We will also monitor progress on the Department’s strategy statement over the coming months. If this committee can assist in the implementation of the Department of Finance’s strategic plans we will do so and make a recommendation to both Houses to that effect. We all agree that the answers were full and complete and that is why we were here for two and half hours but we welcome that openness and frankness. The level of information which you gave this evening will be helpful to all of us.

Deputy McDowell: I was partly responsible for keeping you all here tonight. We appreciate the senior staff of the Department coming here and would like to thank them.

Mr. Mullarkey: Thank you.

The Joint Committee adjourned at 8.30 p.m.

* In substitution for Senators J. Dardis and J. O’Toole, respectively.