McGrath adopts Troika rules to put manners on money hungry ministers
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The current season of RTÉ’s on Sunday nights has made uncomfortable viewing for some current ministers, especially Fianna Fáil members of government.
Images of the 2010 bailout and the subsequent years of austerity have been a sharp reminder of dark days for the country and the party.
“It has once again reminded everyone what we did to the country,” one minister said to me this week.
One man who is acutely aware of the significance of the show is Public Expenditure Minister Michael McGrath who, according to several ministers “laid down a major marker” at Cabinet last Tuesday about controlling spending.
Facing a need to eliminate Covid-19 related spending by at least €8bn next year, but possibly more than €12bn, Mr McGrath has a huge job before him.
After bringing a memo to them on the state of the public finances Mr McGrath, according to sources, attempted to put some manners on his colleagues.
Referencing , he warned his colleagues that the programme is a reminder for the Government to be careful, and that things can get away from the administration very quickly.
In a clear bid to manage down expectations, the Minister warned them to be very conscious of the need for moderation and, when it comes to core spending, telling them changes will be at the modest end.
We are going to be getting back to a situation where spending will be tightly controlled.
He told them the emphasis of new memos to Cabinet “shouldn't always be on additionality” in terms of coming and looking for more money.
He also made the point that there are a whole host of reviews and task forces now set up, which are going to advise the government to do lots of nice things, which will cost a lot of money.
He made clear that “there should be no assumption that there will be money there to implement all of these recommendations that are going to be coming,” one minister said.
Speaking to the , Mr McGrath explains what he said: “The focus shouldn't always be on additionality when it comes to spending.
"Right across government, we need to see an emphasis on reforms and ensuring that we are getting good value for the people's money we are spending,” he said.
From this week, Mr McGrath has imposed Troika-style reporting requirements on the big-spending departments like Health, Social Protection and Education, forcing them to account for their cost control on current spending and for health and education in terms of their capital spending.
These demands on departments were last seen when the IMF/EU/ECB were in charge of our affairs a decade ago and have already been met with some resistance within the government.
All of the main spending departments will now be required to report directly to Cabinet. That is now happening every quarter, and that will start tomorrow.
Mr McGrath told the Irish Examiner: “We are dealing with departmental budgets that of necessity have expanded hugely in the past year and that brings very significant challenges in terms of how they are managed effectively.
"I have put in place an enhanced reporting system which will act as an early warning mechanism, not only for instances where spending is running ahead of target but also, critically, to monitor any slow-down in delivering the public capital programme.”
On the capital side, it's as much about dealing with hoarding of capital budgets by ministers.
The Government had money unspent last year of about €900m. We're likely to have an underspend again this year.
But if Mr McGrath and his officials know about that early enough, it gives the opportunity to reallocate and do other things, such as restart grants for businesses now that will be opening in the coming months.
Another major concern is that the Government had budgeted to spend €12bn this year to deal with the continued fall-out of Covid-19, according to the Strategic Programme Update (SPU), published earlier this month.
However, it looks like all of that will be spent or accounted for by the end of June, meaning a need to borrow more and worsen Ireland’s already critically high national debt.
Mr McGrath told Cabinet that the €12bn figure was based on supports ending before July and he has made clear “that is not going to happen. There will be no cliff edge”. So, actually the €12bn will be higher, considerably higher.
That will depend on the manner in which the Government extends the wage subsidy scheme, and the Covid Restrictions Support Scheme (CRSS) and what it does on the Pandemic Unemployment Payment (PUP).
In the SPU, the Covid-19 spending was due to be cut from €12bn to €4bn next year, a cut of €8bn. That figure is now likely to be considerably higher.
Whatever the total spend ends up being this year, Mr McGrath told his colleagues that the assumption is that Covid spending will fall down to one third of our current pandemic levels.
However, he said it will be driven by the situation with Covid, the health restrictions, and the impact that has on social protection.
In probably the strongest warning to ministers, Mr McGrath said he and his officials have drawn a very clear line between Covid spending and core spending, to make it easier for the Covid-related spending to be unwound over time.
But Mr McGrath knows that particularly in other areas such as transport, education, tourism and sport, there will be major efforts by ministers Eamon Ryan, Norma Foley, and Catherine Martin to hold on to Covid spending in non-Covid time.
“But that won't be entertained, and having that clear delineation between the two will prove to be very important,” Mr McGrath has made clear to his ministerial colleagues.
At Mr McGrath’s behest, the Government in the coming weeks will hold a special Cabinet meeting to finalise the plan to unwind the extraordinary level of supports now in place.
Top of the agenda is a scaling back of the PUP from €350 a week to the flat jobseekers rate of €203.
There is concern in Government and Mr McGrath is aware that there will be a challenge for a lot of employers to get people who are on the PUP back to work, because they are better off.
There are about 40,000-odd students on the PUP who were working part time before they lost their job, and Mr McGrath knows there will be an issue there.
The plan is to see the PUP tapered down over a series of steps of €50 reductions over a number of months from June.
According to several sources, Mr McGrath and his department are keen to get moving on this scaling-down on payments now as they “don't want this to run into the budget in October and the budget then to be talking about cuts".
Despite the need to cut the Social Protection budget back significantly, there is no political appetite to rule out increases to the old-age pension and other core welfare payments.
Such moves are expensive and their impact is dubious but as one minister put it to me: “I don't think we could get away with a third budget with no increase in core welfare rates.
"Last October we had no increase,” the minister said. "That gave us scope to do lots of very impactful targeted measures but it doesn't put a few bob in the pocket of people.
"A third budget without an increase to the pension would be very challenging,” the minister said.
Ireland’s debt levels are as admitted by the Department of Finance to be “among the highest in the developed world”.
Mr McGrath and Finance Minister Paschal Donohoe, seen as the key axis in government, are said to agree that Ireland cannot be left exposed when the European Central Bank ceases its policy of underwriting government borrowing.
We all remember the impact of when the ECB pulled the plug on us in 2010. No one wants a repeat of that moment.