Legislation and tighter controls are needed if we are to keep public spending in line, two top economists warned at the Dublin Economics Workshop in Kenmare on Saturday. A radical overhaul of the budget system has been proposed by Dr Gerry Boyle of the National University of Ireland in Maynooth and Mr Jim O'Leary, chief economist at Davy Stockbrokers. According to these economists the current system cannot work to rein in public spending. They said that a radical overhaul of the entire system including legislative change was needed if any government were to be able to stick to realistic spending targets.
The Government, according to the two men who have both been advisers to former Taoisigh, must be "fully accountable to the citizens for the way that public resources are spent". At the moment the narrow interest of individual spending ministers tends to prevail over the collectivist concerns of the Minister of Finance and the Taoiseach.
The five main planks of the proposals are: setting out a medium-term sustainability framework; the implementation of an expenditure "envelope"; value-for-money evaluation of public expenditure control incentives and disincentives; and a legislative foundation.
An obvious way, they said, to determine spending increases and tax give-backs would be on the basis of projected trend economic, or gross national product, growth.
In addition the medium-term framework would set out the Government's intentions for the medium term and not just the medium-term consequences of current decisions.
This implies targets for spending, tax and debt changes. They point out that of these spending is the most difficult to control. The Minister for Finance can look after the tax and debt targets but other ministers will resist the spending targets.
One way to overcome this would be to bring in the "envelope system" which has worked in Britain. The envelope sets out limits which various departments must adhere to except for exceptional reasons.
This system would have to be complemented with a British-style Star Chamber type sub-committee, with a powerful minister without portfolio at its helm. Dr Willie Whitelaw in Britain was said to be very successful in this role.
The authors pointed to the value-for-money assessments which are an integral part of the structural funds reviews. Such a system used for the vast majority of spending would exert much better control. This should be supplemented with independent reviews and audits by the Comptroller and Auditor General's office.
Pay and pensions in the public service, which account for over 50 per cent of current expenditure, should also be included. According to Dr Boyle, there is no good reason why the state sector should not yield productivity improvements to the same extent as the rest of the economy. They suggest that decentralised pay and non-pay departmental budgets would help deliver productivity improvements.
Departments would then be allowed to retain about 70 per cent of any savings they made on programmes to spend on other initiatives.
In addition, legislation governing budget preparations would be able to force the politicians to confront the real choices in making spending decisions. The measures they propose are very similar to New Zealand's Fiscal Responsibility Act 1994.
Among other things, the Act would increase the transparency of decisions, ensure independent assessments and lead to parliamentary and public scrutiny of economic and fiscal data and plans.
