Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): We have two members of the Irish Fiscal Advisory Council joining us. Seamus Coffey is chairperson of the council, and Niall Conroy is its chief economist. We are really grateful for your time today, gents. I know that you are up against it. We had an additional briefing: I know that you are both very busy, so I appreciate your patience in waiting for a few minutes for us to start.

Seamus, will you give us an opening statement? I do not know whether you want to contribute to it, Niall, but we would love to hear from you. Members will then indicate if they want to ask a question.

Mr Seamus Coffey (Irish Fiscal Advisory Council): Thanks very much. Thanks for the invitation to speak here today. We welcome the engagement, and we hope that the perspective of the Irish Fiscal Advisory Council will be helpful in your deliberations.

The Irish Fiscal Advisory Council was established in 2011, initially on an administrative basis. The council was then formally established on a statutory basis in December 2012 under the Fiscal Responsibility Act of that year.

Independent fiscal institutions can provide an independent assessment of public finances. By raising awareness of the issues, a more informed debate can be had. Many advanced economies are grappling with the cost of ageing populations, climate change and other spending pressures. Independent fiscal institutions are well placed to highlight some of those longer-term issues and the trade-offs that policymakers face. Those issues are not often the focus of the annual year-to-year budget process.

Reflecting on the legislation that set up the Irish Fiscal Advisory Council, I will briefly highlight what worked well and what, on reflection, could have been improved.

I will start with the positives. First, the council has a clearly defined mandate that is set out in legislation. That gives a clear sense of purpose and a focus for the council's activities. Secondly, the council's budget was set out in legislation. That set the initial ceiling for the council's spending. It also clearly set out how the council's budget was to evolve over time. The council's budget is set as a stand-alone item involving part of the overall estimates for the Department of Finance. Finally, legislation sets out that council members are to be selected based on their competence and experience in domestic or international macroeconomic or fiscal matters. Consideration is also given to gender balance in the composition of the council.

I will outline three shortcomings in the legislation that underpins the Irish Fiscal Advisory Council. First, the council's budget, as mentioned above, is legislated to move in line with inflation. However, a significant share of the council's cost is salaries, which are linked to public pay levels. Public-sector pay has increased at a faster rate than headline inflation in Ireland. As a result, the council's funding has not increased in line with costs. There is now a proposal to amend that so that the council's budget evolves in line with costs. That is proposed to be measured by a combination of public-sector pay rates and general inflation.

Secondly, the council's statutory right to information is quite limited. In many instances, the council relies on goodwill for information from Departments. While that often works satisfactorily, it is not best practice. The proposal for Northern Ireland compares very favourably.

Thirdly, the council is somewhat constrained in how it utilises its budget. It still has to secure approval from the relevant line Minister for the hiring of additional staff and/or the regrading of positions.

That briefly sets out some positives and some shortcomings in the case of the Irish Fiscal Advisory Council. I thank the Committee for its time and look forward to answering any questions that you may have.

The Chairperson (Mr O'Toole): That was admirably broad but brief, which is the optimal opening statement, Seamus; thank you. You mentioned two things about the council's budget in the South that stood out for me. First, it is not part of the Department's Main Estimates, so it is a free-standing item. Will you explain that a bit more? Secondly, did you say that the legislation provides that the budget increases with inflation? I do not know whether a particular measure of inflation, such as the CPI, is used, but that has been a problem because it does not keep up with salary costs. Will you say a bit more about both of those: the free-standing nature of the budget allocation and what measure of inflation is used to operate your budget?

Mr Coffey: Yes, thank you very much. I will take those questions, and Niall might like to come in.

On the free-standing nature of the budget for the Irish Fiscal Advisory Council, that budget is set out in legislation. Once the legislation was passed, that spending was locked in, so it does not have to go through the annual Estimates process. It is what we call non-voted spending on an annual basis. As the legislation requires that spending to happen, it is not subject to the roundabouts that can happen with the annual budgetary process. The budget is set aside, it is in legislation and it has to be paid to the Fiscal Advisory Council every year. It is not included in the annual Estimates process, where various line items may move up or down — I am thinking about the overall envelope of spending that is available for a particular Department — which moves the Fiscal Advisory Council away from the annual process and puts it on a concrete, statutory basis. It is not in the Estimates process; it is what we call "non-voted spending". The vote was on the legislation, and, since that passed, the spending happens every year.

The legislation also set out how that budget was to evolve. An initial ceiling was set for 2012, and the budget was to evolve in line with inflation. The measure of inflation that was chosen initially was the harmonised index of consumer prices (HICP), which is a sort of EU standard measure. It is pretty close to the CPI — there are fairly modest differences between them — but the HICP is an EU approach to measuring inflation. However, once that was introduced, in Ireland, as in other countries, we went through 10 years of close to zero consumer price inflation, so the budget ceiling, in overall terms, barely moved from its original level.

Although there was initially a large gap between the annual spending of the council and its annual budget ceiling, that gap got narrower and narrower over time because the largest cost to the council is staff wages. Salaries were increasing in line with public-sector pay deals that were ahead of inflation, so, even if the staff numbers were not increasing, we had the gradual erosion of that gap between the actual spending and the ceiling. It got quite close, and the ceiling had to be adjusted to make sure that spending was in line with it. Although staff numbers were not increasing, that adjustment ensured that a problem would not arise from the level of pay beginning to rise.

There is a proposal to change that. The legislation for the Irish Fiscal Advisory Council is due to change and take a combined approach. Price inflation will still play a role in the budget, but the ceiling will also be linked to public-sector pay, so it will be better aligned with the costs that the council incurs than it has been up to now.

We have not necessarily met huge problems with the ceiling; we got close to it, but it was increased. That, in itself, was a pretty significant change because it required a vote in Parliament, but we now hope that, with the legislation being amended, a ceiling will be set; and the annual change will be based on inflation and public-sector pay.

I have a final point to highlight about the ceiling. We in the Fiscal Advisory Council do not necessarily have full flexibility in our use of it. The legislation requires the Fiscal Advisory Council to seek approval from the relevant line Minister if additional staff are to be hired. If we are within budget and want to hire additional staff, approval for those positions has to be obtained from the relevant line Minister. Similarly, if we want to move a staff member to a higher salary scale, approval has to be sought. So, we do have a ceiling. At least the budget is set aside — it does not go through the annual Estimates process — but there are still some restrictions on how that budget ceiling is used.

The Chairperson (Mr O'Toole): OK, that is really helpful. In relation to access to information, which is another aspect of our Bill that you have mentioned, we have heard that we could beef up that provision even more. Is our draft law more robust on that than the law south of the border?

Mr Coffey: Yes. I will let my colleague Niall come in on that. He is more involved in the day-to-day engagement between us and various Departments when it comes to accessing information.

Mr Niall Conroy (Irish Fiscal Advisory Council): The most engagement we have with the Department of Finance directly is when we are endorsing its macroeconomic forecasts. Twice a year, we are charged with assessing and endorsing the macroeconomic projections that are produced by the Department. Accessing information on that side of our activity is perfectly fine as it is set out under a memorandum of understanding between ourselves and the Department of Finance.

In other aspects of our mandate, though, we rely on goodwill. For things such as access to information from bodies on assumptions that might have been made as part of the budgetary process, we do not have a formal right to that. In those cases, we appeal to goodwill, rather than a formal or statutory right, to get that information. From the drafts that I have seen of the Northern Ireland Fiscal Council Bill, it looks much stronger in that regard than what we are working from.

The Chairperson (Mr O'Toole): That is really helpful. You are a fiscal advisory council and a very successful one at that. You are a fiscal advisory council for a sovereign Government who issue their own debt and levy all their own taxation. We have a devolved Government, which is one of the reasons given for us not having an economic forecasting power in the Bill. That is one of the issues that we are looking at. Do your forecasting functions, or at least your marking of the Department's forecasts — is that a better way of describing it? — complement the other fiscal work that you do? Would it be hard to do your core fiscal work without having some form of economic forecasting responsibilities, too?

Mr Conroy: Part of your assessment of the budgetary forecast or what the fiscal stance should be would definitely be informed by your view of where the macroeconomy is going, and your understanding of how it has evolved up to that point. From our point of view, that is helped by the discipline of us endorsing a set of forecasts twice every year. As part of that process, we produce our own set of forecasts internally before we look at what the Department of Finance has produced so that we have an independent view before we start. Having something to benchmark its forecast against is quite useful.

We find it useful for the other parts of our work that we are doing that work on the macroeconomy and the forecasting piece. Even if that was not part of your mandate, you could engage and do some of that work off your own bat in order to be better informed for your view of fiscal policy in general. For us, it is definitely a good discipline. It is something that we have to do twice per year, so it is something of which we are mindful. You could certainly have a good, well-informed view of the macroeconomy without having an endorsement function, but the work that we do is complementary for us.

The Chairperson (Mr O'Toole): Do you produce your own economic forecasts?

Mr Coffey: We do.

Mr Conroy: We do that before we get sight of the forecast that the Department of Finance has produced, so we have our own set of forecasts.

The Chairperson (Mr O'Toole): We are a devolved region rather than a separate sovereign state, so we are basically looking at what happens to the block grant that comes from London. Is there an argument for the Northern Ireland Fiscal Council to have the ability to produce its own economic forecasts to feed into its fiscal analysis?

Mr Conroy: For most fiscal councils, it is best practice to produce your own set of macroeconomic forecasts. That is contingent on you having enough resource to do that as well as what you have been assigned to do.

We are quite well networked with fiscal councils around Europe. Some of them have the endorsement function that we have but do not produce their own sets of forecasts. Instead, they rely on other independent forecasts that are produced by a central bank or private-sector forecasters. It is not absolutely essential to produce your own sets of forecasts, but typically that is the best practice, if you have the resources to do it.

Mr Coffey: We do not necessarily see ourselves as a forecasting organisation. As Niall said, we do produce forecasts, but we only publish them after the fact. When it comes to the budget, the Government's forecasts are used, as endorsed by the Fiscal Advisory Council. Subsequently, a number of months later, our own forecasts will be published, but we do not necessarily make a significant deal of them. Undertaking a forecast, in a sense, underpins the fiscal work that you do, because you have to be able to appreciate and understand the economic environment in which the fiscal policies have an effect.

As Niall said, not all independent fiscal institutions do their own forecasts, but they certainly use them, whether produced by themselves or others, to have an understanding of the economic environment in which fiscal policy changes are being enacted. It is useful, but we do not see it as central to our role. The endorsement is clearly central. To help us do the endorsement, we create our own benchmark forecasts before we get the Department of Finance's forecasts. We produce them independently, without seeing what the Department is going to do. If there are significant differences, we try to understand how those differences have arisen — maybe we have done something better, or perhaps the Department has done something better — and reconcile them through the endorsement process. We have done that twice a year over the past 12 or 13 years. There have been some minor differences from time to time, but each time that we have done it, the fiscal forecasts have been endorsed.

Ms Forsythe: Thank you both for joining us today. Being behind others is not where you want to be, but it gives us a good opportunity to learn from others, so I am keen to hear your feedback. Is there anything in the legislation that governs you that, you feel, constrains your work or that you are not happy with? Are there any potential pitfalls that you want to draw to our attention so that we can look out for those?

Mr Coffey: Given what we said previously, the constraint that we face is that, although a budget is set, you would always like the budget to be a bit larger in order to do other activities. One restraint is that we are restricted in how we can use the budget that is set. If we had a gap up to our ceiling, we might think of hiring an additional staff member using that gap, but we would have to get approval from the line Minister for that position to be introduced. We do not have full autonomy when it comes to the use of the budget. It is set out in legislation that, if the Fiscal Advisory Council wants to hire a staff member or move a staff member to a higher pay grade, approval must be got from the relevant Minister. That is a bit of a restriction.

Ms Forsythe: Thank you. We had a bit of a discussion about that in previous evidence sessions, because our Fiscal Council will have a governance structure that is linked as a non-departmental public body (NDPB) set-up to the Department of Finance, and, ultimately, it will be our Department of Finance that approves the budget. There is a very clear conflict of interest in the legislation. That is really useful to take away, because we want to make sure that we maximise the potential of the Fiscal Council when we create it. Thank you very much.

Mr Carroll: Thanks, Seamus and Niall, for your time. You mentioned the forecasting and the macroeconomic stuff that you do. Do you give a view on Government Budgets?

Mr Conroy: Yes, the Budgets that are passed by the Government are a really core part of our work. We assess the budgetary forecasts. Do we think that they look credible and reasonable? Are they likely to match what the out-turns will be? We also give an assessment of what we call the fiscal stance. Is the budgetary policy that is being pursued helping to smooth the economic cycle — taking money out of the economy when it is very strong and putting money in when the economy is quite weak? That is a pretty central part of our mandate. People see that as the most front-facing part of our mandate, as opposed to the endorsement of the economic forecast, which is not quite as public to most people.

Mr Coffey: We do a lot of publications during the year, but our three key publications that get significant attention, as Niall said, are linked to the Budget process. We have two main reports. One is published in June in response to the Government's setting out the broad parameters of the Budget — at least, they are supposed to set out the broad parameters of the Budget in the spring. Then, three or four weeks prior to the Budget, we have a pre-Budget statement, in which we go into more detail on the best approach for the Government to take. We then have a publication towards the end of November — this year's will come out next week — in which we assess what the Government did in the Budget. Those are the three pieces of work that the council does that get the most media and political attention. They are also linked to our appearances before the Oireachtas, which are made on the basis of what is included in those reports. In essence, assessing the Budget is the key plank of our mandate.

Mr Carroll: OK. Are you minded, or have you been minded in the past, to criticise the Budget for a certain policy or, perhaps, for the Government's backtracking on a pre-election policy? Or do you tend not to criticise the Budget? How do you normally operate?

Mr Coffey: In the main, we look at the overall impact of the Budget: the overall level of spending or the overall changes to tax revenue. Our approach does not go into individual measures. The Government might make promises on the basis of particular tax changes or offer particular services, supports or changes to social welfare. By and large, we stay away from those types of debates, which are much more political. They are important and key issues, but they are not necessarily part of the Fiscal Advisory Council's functions. We look more at the impact of the public finances on the economy as a whole. Are the Government running a countercyclical policy? Are the Government spending money into an economy that is performing poorly? Are the Government preparing for the risks that might be coming down the track, both near-term risks to economic growth and long-term risks such as demographics, climate change and the impact on productivity? Again, we do not go into particular measures. In broad terms, we look at the overall Budget. At times, yes, we have been critical of what the Government have done, if we felt that spending growth was maybe beyond the capacity of the economy to sustain it or if risks were building up because the Government were pumping excess demand into an economy that was performing well. At the moment in Ireland, we have an unemployment rate of around 4·5%, so the economy does not need fiscal stimulus. Those are the sorts of assessments that we make, rather than looking at individual changes in income tax or particular payment rates.

Mr Carroll: Thank you. On that fiscal stimulus — let us call it that, although other terms could be used —there is obviously a huge surplus in the South, and there has been a demand for that to be used rather than treating it as a rainy day fund, as the Government have done in different terms. A lot of people, not just me and my party, would say that that should be spent to tackle the housing crisis and any other crises. Do you give a view on that and advise the Government to do x or y, or do you not take a view on it?

Mr Coffey: The Fiscal Advisory Council considers not necessarily what to use the money for but whether it is used at all. The choices are political. In the most recent Budget, from the start of October, the Government are planning to run down those surpluses. For 2025, the Government expect a surplus to come in of around €10 billion. That is a huge sum and pretty significant. The Budget for 2026, as set out, reduces that surplus to €5 billion. The Government are intending to spend a lot of the surpluses that have built up on the back of, perhaps, uncertain revenues, particularly from corporation tax in Ireland, which has soared in recent years and is going to exceed €30 billion in 2026. Those uncertain corporation tax revenues of €30 billion are translating into a surplus of €5 billion. The Fiscal Council's approach is not necessarily to look at where that money is being spent and the items that it is being spent on, whether it is housing, health or social protection, but rather at the vulnerability that potentially builds up. If that uncertain source of tax revenue were to decline, which is a possibility, what would happen to all the spending that has been built up? Do we just spend the money when we have it, if corporation tax has come in, or are housing, health and social protection so important that we should put them on a sustainable footing and do them all the time, not just when we have those types of revenue available? We would be critical, in a sense, of some of the risks that are being allowed to build up on the back of those huge tax revenues. It is positive to be collecting them, but do we want such vital spending on health, housing and social protection to be based on them? That is the choice to be made. It appears, at least for 2026, that the Government are choosing to spend most of that revenue.

Mr Carroll: Thank you. I will ask my final question quickly. You talked about vulnerabilities. Obviously, the Southern economy is quite connected and vulnerable to tariffs and corporations. There is the language of Trump, "America First" and all that, and threats that pharmaceutical companies and others will be withdrawn from the South. We have had a critique in my party for years about the economy being reliant on that framework. It is very vulnerable. Have you a view on advising the Southern Government and economy to move away from that over-reliance on US corporations, even from the point of view of self-interest?

Mr Coffey: You are absolutely right. It is a key issue, and we devote considerable resources to examining the impact of the investment, the concentration, international policy changes and US policy changes. That impacts on our macro forecasts — what we think is going to happen to investment, exports and employment is clearly linked — and also to the fiscal forecasts because of this huge surge in corporation tax that has come through. Yes, you are right: we would say that it is a concern and a risk. It is a huge concentration. Of that €30-odd billion of corporation tax that the Government collect every year, around 60% of that comes from just 10 companies. The concentration is extraordinary, and that is a risk that we frequently highlight for the Government, and we advise them to try to broaden the tax base. We do not make particular recommendations about how to do that — whether you do it on the income tax side or the consumption tax side. They are really political choices. However, if you have such a narrow tax base, it is vulnerable and it can wobble. Down here, we have seen that, back in 2008, when the tax base became very concentrated in construction and property-related taxes. They disappeared pretty quickly. We do not know what is going to happen with these corporation tax receipts or the investment, but there are clear risks and you are right to highlight them. We devote significant resources to that. We mentioned our main publications that are linked to the budgetary cycle. We also put out a number of papers a year on economic and fiscal matters, and the role of foreign investment, the contribution of US companies and the concentration of corporation tax are a regular feature in the publications that we put out.

Mr Carroll: Thank you.

Mr Kingston: Thank you, Seamus and Niall, for your time. I am interested in the level of powers that you have. I notice that you have the term "Advisory" in your title, and you have a scrutiny role. Over the time that the council has operated, to what extent has it found itself in disagreement with government financial forecasts, and what is your role if you have a view on financial forecasts that is different to that of the Government? It is always in the interests of the Government to talk up the economy and financial forecasts, whereas you would try to give a realistic assessment. Is your role almost to engage in the debate in the public square? How far is it your role to challenge them, publicly, if you are in dispute with the Government's opinion?

Mr Coffey: That is a very good question. We see ourselves as having three audiences. One is the Government, and clearly the Ministers involved in the setting of the Budget. The second is the broader political sphere: members of Government and Opposition parties and engaging with them. The third is the general audience, the general public. We seek to engage with all those. We engage directly with the Ministers' officials through the endorsement process, with the politicians through appearances at Committees such as this, and with the general public through media publications and appearances, television and radio. We see them all as important.

What can we do formally if we disagree? We can try to move the debate in our direction through all those channels, but the legislation sets out some more formal mechanisms that we can trigger. We have never triggered this, but the mechanism has a principle called "comply or explain". If we were to disagree with a government position on the financial or fiscal side and say, "This is completely inappropriate, the numbers are wrong or the direction that fiscal policy is taking is completely wrong", we can trigger "comply or explain", which gives the Government a period of three months, after which they comply — that is, they take on board the advice that the council is giving and amend or adjust their forecast or budgetary plans — or the Minister has to go before Parliament and make a presentation about why the approach taken by the Government is correct and fine and why it is in opposition to the view of the Fiscal Advisory Council. That "comply or explain" mechanism has never been formally triggered, but it happens informally. When we issue a report or an assessment of the Government's budgetary position, Ministers will get questioned by the media if there are differences between our assessment and their assessment. That "comply or explain" happens implicitly, but, in the legislation, there is a formal "comply or explain", if we feel that things are going very off track and it has to be triggered. However, since 2012, that has not been the case. That provision is there. We see our audience as working with the Government on our assessment, working with the politicians and telling them what we see, and then going on the media. It is an informal approach to achieving that same outcome.

Mr Kingston: That is interesting. What was the second word there? Was it "explain"?

Mr Coffey: Yes, "explain".

Mr Kingston: Thank you for that.

Obviously, the Republic of Ireland is part of the eurozone, and you referred to the need to comply with the euro fiscal treaty. How much does that factor into your work? Has it happened that the eurozone, whatever way that is managed centrally, has challenged the Irish Government's Budget or financial forecasts? Have you found yourselves in the middle of disputes in that respect?

Mr Coffey: To some extent, yes. One thing about the broader EU and eurozone rules is that they are set for all countries, and all countries must take them into consideration. They apply generally across a group of countries, and we have frequently made two comments about the euro fiscal rules, one being that they are not appropriate for Ireland. There are benchmarks or thresholds set within that EU framework, but it is on the basis of GDP. We have already spoken about the high concentration of foreign companies in the Irish economy and the high amount of corporation tax that they are paying, but it also leads to a high level of profits for those companies in Ireland. That is not income that is available for us to spend. That is the money and income generated by foreign companies, and that goes back to their shareholders, mainly in the US. We get the 12·5% tax on the top, but Irish GDP is a huge number. It does not necessarily reflect our ability to spend or to service debt. At an EU level, there are thresholds: your annual deficit cannot be bigger than 3% of GDP, and your overall level of government debt should not exceed 60% of GDP. In an Irish context, those benchmarks are inappropriate. They should be better framed in terms of Irish national income, which is about 60% of GDP.

One issue with the EU framework is that Ireland rarely, at least in the past decade, gets close to those thresholds. There was the sovereign debt crisis in 2008, when we significantly exceeded them, but we are in a different world now, where Irish GDP has ballooned in recent years. We find ourselves somewhat in opposition to some of the more benign assessments made at European level, which follow the rules to the letter. They are based on GDP, do not take into account the surge in corporation tax in Ireland and generally see Ireland as being in a hugely positive position: running surpluses and having a debt ratio that is well below that 60% threshold. However, on the other hand, domestically, we are saying that those EU rules are not appropriate for Ireland and that we should be following our own interpretation and our own framework based on our national income, which is much lower, and taking into account the risks that we face, such as corporation tax. At EU level, they just view that as being a source of tax revenue and do not take into account the concentration. So you can get some conflict there, where you have a relatively benign legal assessment at EU level and maybe a much more analytical and critical approach domestically. It can be hard to get your message across, particularly when the Government say, "Look, we are complying with the fiscal rules. Why is our Fiscal Advisory Council criticising us when we are living up to our legal obligations?" We go a bit beyond the legal obligations and look at the economic consequences.

Mr Kingston: It is very interesting to hear about your role in that and how those eurozone restrictions inhibit your total financial sovereignty. Thank you.

The Chairperson (Mr O'Toole): No other members have indicated that they wish to ask questions. I am going to ask a couple of final ones to clarify some points. This goes back to something that we discussed earlier, and it has been a perennial question for us to get to the bottom of. We talked about the budget-setting process. Although your budget is not part of the overall Estimates for the Department, it is, as it were, set by the Department. Legally, it is set by the Department. Your budget is not set by the Oireachtas or a Committee of the Oireachtas; it is set by the Department of Finance.

Mr Coffey: No, it is set by the Oireachtas. It is in legislation. Although we are outside the line items, we are under the remit of the Department of Finance, but the Fiscal Responsibility Act sets out the budget for the Fiscal Advisory Council. Once that is passed and voted on by the Oireachtas, it cannot be changed. Obviously, the Department of Finance gets to set the legislation that goes before the Oireachtas, but it cannot be changed on a year-to-year basis. At present, the only adjustment is made for inflation. That sees it rise in line with inflation. You are looking at the budget being separate and independent to the political process, as set out in the legislation. I would not say that it is set by the Department of Finance. It is initially, when it comes to the legislation, but on an annual basis, it cannot be changed unless the Department goes back to the Oireachtas — back to Parliament — to get a vote in Parliament to change it. That is something that is unlikely to happen, so it ring-fences and sets out the budget and gives that independence.

The Chairperson (Mr O'Toole): In a formal, legal sense it is the Department, but it is separate and they are constrained in law. For example, if you had a Minister who did not want a Fiscal Advisory Council to exist, was hostile to its workings or was in conflict with it, they could not automatically say, "Right, give them tuppence ha'penny next year. We'll see how they like it". That cannot happen.

Mr Coffey: They could not do that. They would have to go to Parliament and make amendments to the legislation, through Parliament, for that to change. They would have to explain to Parliament why they were doing it and why Parliament had to vote for it. It cannot be done with the stroke of a pen.

The Chairperson (Mr O'Toole): Theoretically, that can happen —.

Mr Coffey: That is very important. Obviously, there is a bit of a conflict because our funding Department — the Department of Finance — is also the Department that we assess. If our funding was linked to the Department of Finance, the credibility and independence of the Fiscal Advisory Council could be undermined, if the Department of Finance could say, "Unless you toe the line, we are not going to release your budget". That cannot happen. Our budget is set out in legislation, and regardless of what we say, and regardless of our assessment, we are guaranteed that. We would like the annual adjustment to change, but that is more of a minor point. The actual budget is set in legislation, and that is crucial.

The Chairperson (Mr O'Toole): That is helpful, because it is a question that a number of us have.

I do not expect you guys to have our Fiscal Council Bill in front of you, but one of the questions that has been raised is about staffing. Paragraph 13 of schedule 1 states:

Staffing is effectively at the approval of the Department. Number one, is that the case in your council? Number two, do you deem it to be advisable for other councils?

Mr Coffey: I will let our head of secretariat — our chief of staff — deal with that. I can see him smiling.

Mr Conroy: Yes, that sounds familiar. It sounds reasonably similar to the set-up that we have on a legislative basis. We have to get approval for any new member of staff whom we are hiring, or if we wish to regrade a member of staff to, say, a higher grade. We need prior approval from the Ministry to do that. In our view — I think that you will be of a similar view — the Fiscal Advisory Council should have full autonomy over how it uses its budget. If it has a budget of €1 million, it should be able to decide which way to best allocate that, be it on staff, software or services that might be procured elsewhere. Our view is that it would be better for the council to have full autonomy over how it uses its budget. Naturally, the question will arise as to whether there has to be some safeguards. One thing that you do in exchange for your independence is to have accountability. We are accountable to the Oireachtas, and we also have periodic peer reviews. We have an independent peer review of ourselves every five years or so. That is something that you guys have mentioned in your draft legislation. That seems reasonable. The other thing on that is that you might say that you do not want to give the Fiscal Council too much autonomy on how it spends its budget, but, trust me, no body is more careful about how it spends its own money and more sensitive about misspending money than a fiscal council that is advising a Government on how to do so. We are very mindful of that.

Mr Coffey: There were clearly views that there were risks with the establishment of the Irish Fiscal Advisory Council. The budget was set, and the budget ceiling was indexed in line with inflation, as Niall took you through. There were restrictions on how the budget could be used. Irish legislation sets out that our Comptroller and Auditor General (C&AG) audits the Fiscal Council every year. We are a tiny part of the overall national Budget — a blip on that scale — but, every year, we are subject to an audit by the Comptroller and Auditor General, who submits a report to the Oireachtas on the Fiscal Advisory Council's accounts. The report is not on our assessments or work on the Government's Budget. It is about our own budget and how we spend the €800,000-odd that we have. There really was a view out there that it was a high risk, but, as Niall said, if any entity or agency is going to be careful with its budget, it would be a fiscal council. If you want to profess that you can make assessments of the Government's overall Budget, you have to have your own house in order. You do not want to be getting questions about your budget when you are trying to offer advice on the overall Budget. That natural reputational risk serves as a key safeguard. The level of safeguards that are in place in Ireland is very significant. The budget is set; it is adjusted only according to inflation; any additional appointments or promotions are subject to approval by the Minister; and there is an annual audit by the C&AG. That, essentially, is a belt-and-braces approach, which perhaps goes a bit too far.

The Chairperson (Mr O'Toole): Remind me, what in that belt-and-braces approach goes too far?

Mr Coffey: Having all those safeguards in place. We have a fixed budget, and we cannot spend more than that budget. That is what we are allowed to draw down from the central fund. Even within that, we do not have the autonomy to use that fixed budget as we see fit. We might have an excess or a gap below that ceiling that means that we could fit in another staff member, but we cannot do that unless we get approval from the Minister, and our annual accounts are subject to a full audit every year from the Comptroller and Auditor General. Even though the budget is quite small, the safeguards that are in place seem to go beyond what you might deem to be necessary. One of them should be sufficient. A budget ceiling should be sufficient, because the council cannot go beyond that. If you did not have a budget ceiling, you might say that, "Oh, you have to get positions approved", and the ceiling might change depending on how many people it has. You might then say that, if a council does not have a budget ceiling, there should be restrictions on the number of staff that it can hire, because, otherwise, it could just keep hiring. However, having both seems unnecessary. On top of that, having an annual audit seems to be a third leg that is not necessary.

The Chairperson (Mr O'Toole): OK. Seamus, I do not want to intrude on private grief, but clearly there is a bit of bitter experience that is being shared here for our benefit. If not bitter, then certainly —.

Mr Coffey: I would not necessarily say "bitter". In the main, our framework works pretty well. It is just when it comes to resources. We have no issues with a budget ceiling. That is the appropriate way to go, but there should be some flexibility for the council within it. Those at the coalface know the work and resources that are required to use that ceiling and certainly not to go beyond it. The ceiling should be hard, but there should be some flexibility below it.

The Chairperson (Mr O'Toole): That is really important for us when we talk about part 2.

Mr Kingston: I have a brief question. How much of your time is spent on the expenditure side of budgets, and how much on income? I am mindful that we do not have the same tax-raising powers. We have rates income, but, otherwise, it is largely through the block grant. Whilst we depend on the national economy, we do not have the same levers to adjust the income from taxation locally. How much do you find that the Irish Fiscal Advisory Council focuses on those things? Do you think that there is enough work to be done on the expenditure side here, even with that reduced tax-raising power, or do you find that you spend a lot of your time on those financial forecasts on the income side?

Mr Conroy: We probably spend pretty similar amounts of time on revenue and spending. Seamus mentioned some parts to do with revenue, such as corporation tax and the vulnerabilities there. We spend quite a bit of time investigating that and the specific companies involved and where we think that it is heading. The revenue side is definitely important. The spending side is probably more resource-intensive to investigate. There is probably more going on. It is probably harder to understand it at a headline level, without delving into specific Departments and seeing what the month-to-month spending looks like and what the pressures from an ageing population or from inflation are doing to spending levels.

It can be resource-intensive to fully understand what is going on behind the spending that we see. Overall, we probably spend a reasonably equal amount of time on analysing spending and revenue, because they are equally important for us in assessing the overall fiscal stance and the budgetary forecast that the Department of Finance produces. It is pretty equal.

Mr Kingston: OK.

The Chairperson (Mr O'Toole): OK. That was really helpful. Thank you, Niall. If no other member wishes to come in, I will ask the final question. There might be merit in looking at the potential for a memorandum of understanding (MOU) or another type of collaboration with the North's Fiscal Council. Has there been collaboration? Have you considered collaborating with the Fiscal Council in its current guise, or has the Department asked you about that?

Mr Coffey: For us to have a relationship with the —?

The Chairperson (Mr O'Toole): The Northern Ireland Fiscal Council. The disbursal of Shared Island moneys is one example of a potential area of collaboration. There will definitely be a relationship with the Office for Budget Responsibility (OBR) and, one hopes, the Treasury — London level — and, presumably, the other UK devolved Administrations, which would be useful. In the cross-border context, can you see a world in which your collaborating would be useful? The work is largely jurisdictional, but I am thinking about disbursal of Shared Island moneys and things like that.

Mr Coffey: If the sums were significant and something that would have an impact on either economy, you could see merit in that. There are some interactions, which are mostly informal. The fiscal institutions across the British Isles tend to meet once a year and at international meetings. As Niall mentioned, there is an OECD gathering, on the sidelines of which there are sometimes meetings between the independent fiscal institutions of Scotland, Wales, Northern Ireland, Ireland and with the OBR. There is some interaction but not on a formal level. If that type of funding were to increase, you could see value in putting it on a more formal basis. Until that were to happen, however, most of the work would remain jurisdictional. Until something were to change economic performance or overall budgetary outcomes, it would be better to continue on an informal basis. There are interactions at regular and international meetings, but it is not necessary, at the moment, to have something like an MOU between the fiscal institutions, North and South.

The Chairperson (Mr O'Toole): OK. That is helpful. Nobody else has indicated that they wish to come in, so I thank Niall and Seamus. We may be in contact with you again to seek clarification on things that came up today and any other points. Thank you very much, gentlemen, for making your precious time available. It has been really helpful in our consideration of the Bill. I also thank you for your patience. We were a few minutes late because we were attending to other urgent business, but we really appreciate your time. Cheers.

Mr Coffey: Thank you very much. We appreciate the invitation. We are happy to help, so, if you need anything further, do not hesitate to get back to us. We are always willing to cooperate.

The Chairperson (Mr O'Toole): Excellent. Thank you very much.