This year's budget will be a Big Bang affair - with all spending and taxation decisions announced in one fell swoop. Brian Cowenexplains why
One of the biggest events in the Dáil calendar is the annual budget day. It is in all senses an occasion. It catches the public attention and everyone wants to know "how will it affect me".
What gets less attention are the tremendous changes that have been taking place in how budget day actually comes about. All these changes have been designed to open up the process, provide more information, hold government ministers better to account, extend our planning horizon beyond one year and thereby make more sensible decisions on spending and taxation.
These changes are transforming what in the past was often portrayed as more of a ritual to something that will now be more rational. The changes I have made in my first three years have moved us all in this direction. These are:
•The presentation of a three-year economic and fiscal outlook before budget day and my targets on budget day itself;
•My appearing before the Dáil Committee on Finance in the spring after the budget to explain and defend those figures and targets;
•The requirement for all departments to set out clearly in their published documents, and thereby be examined by the Oireachtas, what they intend to achieve for the next year with all this money and whether or not they have met their targets; and
•The facility for departments to carry over monies for capital investment to the following year and not be forced to spend it, sometimes unwisely, by the year's end.
These changes are part of the value-for-money ethos I am seeking to reinforce in Government departments by a series of initiatives.
This year I have announced a further major change in how we do the budget. All new spending and taxation decisions will be made as one and announced on budget day. Previously, the Government decided on the bulk of spending in mid-November and then decided on budget day how it would raise the money needed to fund its spending plans.
Few individuals can, or would, do it that way. Ordinary taxpayers don't decide how much to spend and then try to get the income. They first earn the income and then decide how to spend it. This is what we will do this year. By relating spending and revenue more closely, we should get better decision-making as well as more sustainable policies that relate spending to the level of resources we can reasonably raise in tax.
Setting out the level of resources that we are likely to have at our disposal is part of today's process. Along with my pre-budget estimates, today I will set out my macroeconomic and fiscal outlook for the coming years as I see it at this juncture. The benefits of our recent very strong economic success are not benefits that we should discard lightly.
We have worked hard to put the finances of government on a sound footing and now that we see our growth prospects easing somewhat we must not go backwards. Spending in broad terms will have to be more closely aligned with the overall growth of our resources. Significant additional investment in services has been made in recent years and this must to taken into account when considering future spending plans.
In order to distinguish what is new from what is needed to run the country as it is, we have to determine a starting line in terms of the cost of the existing level of services. That is what I am doing in publishing my pre-budget estimates later today.
The estimates will show that, on the current side, gross spending has to rise just to stand still in terms of funding day-to-day services. How can that be? Well, there are the obvious reasons of ongoing increases in pay and non-pay costs. These increases will add to costs even if no new service is provided. We also have the "full-year effect". If a new service starts, say, on July 1st, the cost this year is for six months only, but for next year it will have to cover the full 12 months.
There are also demographic changes. If there are more children to be taught next year, more teachers and support staff have to be paid for. If there are more people entitled to social welfare benefits, for example more children for whom child benefit is payable and increased numbers of pensioners, they have to be provided for.
One of the weaknesses of the old system was that it focused on new spending, additional resources and extra staff while ignoring the totality of spending and what we were getting from that. When I became Minister for Finance, building on the changes brought in by my predecessor, I wanted to change that mentality. It would be far better, in my view, in many cases, if managers focused more intently on getting maximum value from existing resources instead of being preoccupied with new things that might be done. It seems better to me to get any system working well in the first place before trying to extend it.
Naturally, there are always new demands, and the Government will set out on budget day how it plans to meet and finance these. It will also set out its social inclusion, taxation and capital programmes in a rational way. This will be a new and more focused approach which is aimed at delivering better policies and more productive outcomes.
Brian Cowen is Minister for Finance and Tánaiste