Minister of Public Expenditure Paschal Donohoe has no problem telling colleagues they need to control spending, even if it leads to constant tension, he tells Daniel McConnell
JUST hours after the shock Brexit result was announced, I find myself in the “engine room” of Government, waiting to interview Public Expenditure Minister Paschal Donohoe.
His office on the first floor of the dual Departments of Finance and Public Expenditure and Reform is compact while imposing at the same time.
A sci-fi fan and well-read economist, his office is adorned by a collection of mini statues of leading Star Wars characters, while his bookshelves are full with a large collection of top economic, political, and historical tomes.
Ushered in to the old office of the secretary general of the Department of Finance before the departments were split, Donohoe — now the money man in Government — greets me.
But there is only one issue dominating the agenda — Brexit. Within minutes he is speaking frankly and honestly about the impact Brexit could have on Ireland.
With the turmoil of the British decision to leave whirling around the globe, Donohoe concedes that Brexit will hit Irish economic growth, but insists October’s budget will be unaffected.
“My expectation is that our fiscal space this year and next year will remain unchanged.
“Brexit could well have an effect on our resources beyond then but that is very difficult to quantify at this stage,” he says.
“This is a major re-ordering of the political environment that we are now in and the economic consequences of that are downside. But they are ones to materialise in the medium term rather than the short term.”
Are we facing a recession? I ask him. He doesn’t rule it out completely.
“I can’t make a forecast on that. Before Brexit, our mid-term economic forecast put growth in the economy at 3% per annum after 2017. We have said the hit could be as much as 1% of GDP,” he says.
“So, do I believe we are facing a recession based on the information laid down at the moment? I don’t, but it is conceivable that we are facing a period of economic growth that is lower than we are forecasting at the moment,” he says.
Given that deep uncertainty, what can they do as a government to mitigate the impact of the British decision?
“It gives us a need to plan how to deal with that. Competitiveness will have to come back on the agenda now. We have to now figure out how we ensure we have a competitive economy.
“Balancing our books nationally in terms of eliminating the deficit, that becomes an urgent priority as well,” Donohoe says.
So can we afford pay increases to public sector workers up to 2018 as committed to under the Lansdowne Road agreement? He says we can.
“Lansdowne Road over the period of three years is the equivalent of €840m of pay restoration. It is directed mainly at lower and middle-income earners. We have all of that funded and we are confident we have that funded across the next three years,” he says.
He warns though that there will be no additional pay increases outside that process, despite loud calls from public sector unions.
“One of the terrible experiences of the past decade was that the unfunded pay increase of tomorrow is the savagae wage cut of the day after. Responsible wage growth is the way to go,” he adds.
Donohoe, who is a TD for Dublin Central, says he intends to replace the Lansdowne Road deal with a similar arrangement with unions into the next decade. “We will sit down with all stakeholders in the closing phase of Lansdowne Road and it is safe to say we will want to seek agreement again, but it will be after Lansdowne Road,” he adds.
But what about reform, I ask him, and what does he have to say about such pay increases having to be met with proper accountability? We immediately turn to the health system.
Donohoe, a former member of the Public Accounts Committee which examined mis-spending in the pubic sector, says those who fail to manage their budgets properly will lose the right to control their own finances.
“On taking office, I changed the health estimate for 2016, but one of the reasons behind making that extra funding available was to say we need far greater accountabilty measures in the Department of Health in their relationship with the HSE than we have had before,” he says.
“If we see a hospital group overspending, we will want to send a group in from outside the hospital to look at what steps are needed to maintain services, to deal with the budget overruns and then there will be consequences for that hospital group in terms of how they manage their budget for next year and the people who do it.”
Sanctions against hospitals will only hurt patient care, we often hear. What is different here?
“In the second half of this year from the acute hospitals, if they overspend, one of the things it could mean, is that they will not have responsibility for how that budget is managed next year,” Donohoe adds.
But he says very clearly there is no more money for health this year. What they have, is all they will have.
“There is no more money. We can’t do supplementary estimates anymore. The crucial period is how we look in September. We don’t have the mechanism to amend the overall exchequer spend and allocating that to a particular department. That is now gone,” he says.
As the nice guy of Irish politics, he says he is getting used to being in a “constant tension” with his party colleagues over spending requests.
“The reality of this job is that I am always in a state of tension with other colleagues. I always want that to be constructive tension, but every week I have to manage spending requests from colleagues,” he says.
“Now those spending requests come for good reasons but the challenge is the accumulation of the spending requests can turn into huge sums of money. As the existential crisis to the country has changed, the level of the relationship between me and other ministers is going to change. But we still have scarce resources,” he warns as we conclude.
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