Tuesday 20 March 2018

Revealed: Secret memo warns ministers they will have to find cash for spending plans

Ministers face hard choices on spending as Government struggles to meet €120m pay bill

Public Expenditure and Reform Minister Paschal Donohoe. Photo: Arthur Carron
Public Expenditure and Reform Minister Paschal Donohoe. Photo: Arthur Carron
Philip Ryan

Philip Ryan

A secret Cabinet memo reveals for the first time serious concerns at the heart of Government over the funding available to meet ministers' growing demands ahead of next year's budget, Independent.ie can reveal.

The high-level document, which has been seen by this newspaper, warns ministers to prepare for a dramatically scaled-back budget owing to the cost of a new public sector pay deal and the Government's housing and homelessness strategy.

Ministers are also told that they will have to make hard choices on spending in their departments and warned that any new proposals will have to be funded through cost- cutting and saving measures across their own portfolios.

Such is the concern over the State's finances that Public Expenditure and Reform Minister Paschal Donohoe has instructed ministers to set out their spending priorities for next year's budget by March 16.

In an unusual move, the minister has ordered a "focused" spending review of all departments just six weeks into the year as concern grows across Government over the economic impact that Brexit will have on the country.

Department of Public Expenditure and Reform officials will begin discussing "topic selections" for the review process with ministers in the coming days.

In the memo drafted by Donohoe's office, Cabinet ministers are told any additional spending on new projects will have to be resourced from existing departmental budgets or via cost-saving measures.

"Given the limited availability of fiscal space, new proposals will be largely funded from re-prioritisation of existing resources away from lower priority, less efficient and less effective policy areas," the memo states.

The stark warning over the country's finances is likely to lead to Cabinet tensions when ministers set out their spending demands for next year.

Last year, budget negotiations went to the wire as Fine Gael and Independent Alliance ministers clashed over spending and tax cuts.

Donohoe's warning comes weeks after he capitulated to public sector union demands and agreed to bring forward pay increases by several months, costing the taxpayer an additional €120m this year.

He said the money for the pay rises would be found through savings across all departments. However, the minister admitted he did not currently have the funding to pay for the agreement reached with unions.

Mr Donohoe was also forced to find an extra €50m for pay and allowance increases for gardai following a Labour Court ruling last year.

Meanwhile, teachers and bus drivers are set for all-out strike action over new demands on pay and conditions.

Mounting pressure from public sector unions will dominate the Government's agenda this year and ministers are anxiously awaiting the Public Service Pay Commission's report which will be handed to Donohoe in the coming months.

However, the Government would have been buoyed last week by strong Exchequer returns which showed the tax take was up €272m on last year as Revenue collected almost €6.8bn in the first month of 2017.

In the Cabinet memo, which will be discussed by ministers on Tuesday, Donohoe said "increasing and competing public service demands" would mean managing expenditure was likely to prove "challenging".

The document said the estimated €2.2bn fiscal space forecast for the next two years, which was set out in the Summer Economic Statement, was "not necessarily available for spending on new policies" owing to funding earmarked for "particular pre-announced commitments".

Donohoe also said that "carry over costs" of Budget 2017 measures into 2018 would have to be funded out of the net funding available if ministers could not find savings to cover these costs.

"Revisions to the medium term growth forecasts and the costs of capital commitments, such as the Action Plan for Housing and Homelessness, will likely impact on the funds available for net policy measures. Any costs arising from a pay agreement will also have to be met," the memo stated.

Ministers are told to identify key areas requiring budget funding within the next six weeks and are warned that spending priorities should be "rooted in the recently identified and developing key policy proposals".

The Cabinet was told that the minister's expenditure review would run as a "separate but parallel process to the budget".

"The purpose of such a review is to broaden the Government's toolkit within the budgetary process by creating fiscal space for funding new policies from within existing ceiling through a systematic review of the existing cost base," the memo added.

The last two 'give-away' budgets have seen the Government cut taxes and increase social welfare payments across the board.

Costly new policies such as the first-time buyer scheme and massive investment in social housing have limited budget spending in other key areas.

The Cabinet memo does not suggest that pledged tax cuts and investment commitments set out in the Programme for Government are in jeopardy.

However, there are clearly concerns over the Government's spending power after difficult negotiations before last year's budget.

Sunday Independent

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