II - Changes to the Budgetary Process

Budgetary process     

Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Ireland.

The budgetary process in Ireland is remarkably informal and centralised with Government and in particular the Department of Finance playing a key role in the elaboration of policy and the Oireachtas (Parliament) having a minimal role with the Dáil authorising the relevant appropriations and spending and performing ex post review through committee hearings. The Seanad does not have legislative power in relation to money bills but instead may give recommendations.[1] It should be noted that Ireland operates a fused executive-legislative system with the Government being elected by a majority of the Dáil (lower house) and Ministers being members of the Oireachtas (Parliament). A system whereby 11 of the 60 members of the Seanad are nominated by the Taoiseach (Prime Minister) of the day generally ensures that the Government also holds a majority in the Upper House. The Irish state was founded at a time when the party whip system had been firmly established and it has remained a dominant element of the political culture.[2] Thus, while in theory the Parliament is to control the Government in reality the Government, through the party whip system effectively controls the Parliament.[3] This control follows through to the budgetary process.

The following description of the Budgetary Process is that which operated prior to reforms introduced by Euro crisis law.[4] Changes are described in the answer to question II.2.

In June or July of each year the Government considers a Budgetary Strategy Memorandum (BSM) drawn up by the Department of Finance as a basis for planning the following year’s budget. This document is not made public.

Between July and September individual government Departments prepare requests for resources for the following year in light of the BSM.

By the end of September the Department of Finance submits and publishes the Eurostat figures for the previous four years and the forecasts for the following year.

Between September and November negotiations take place between the Department of Finance and other Departments regarding the forthcoming Budget and decisions on the annual ‘Estimates of Expenditure’ are made collectively at cabinet level.

In October or November the Government publishes a ‘Pre-Budget Outlook’ giving an indication of the state of public finances and containing medium term macro-economic growth prospects.

On the Saturday before the Budget the ‘White Paper on Receipts and Expenditure’ is published showing the pre-Budget position for the following year.

In December the Minister for Finance makes a Budget speech, known as the Financial Statement and contains a list of budget measures, statistics and tables with multi-year projections and a stability programme update. Any immediate changes in taxation (usually excise measures) are contained in the financial resolutions that are passed on the evening of Budget day. The Social Welfare Bill and the Pensions Bill are passed by the Dáil in the following weeks and the Finance Bill, the final component, is usually signed into law within 120 days of Budget day (generally April of the following year).[5]

In January the Department of Finance publishes monthly profiles for tax revenues and debt servicing with expenditure profiles published. The Revised Estimates of Expenditure are published in February and contain the expenditure profiles of each month and may include some minor additional expenditure. These Revised Estimates of Expenditure are considered by Dáil committees before being voted on by the Dáil.

General change
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

There has been a general tendency to reform the budgetary process over the past number of years under a variety of documents including the National Recovery Plan 2011-2014,[6] the Memorandum of Understanding completed as part of the programme of financial assistance, the six pack of regulations, the Fiscal Compact and the two pack. Reform of the budgetary process was proposed in a Discussion Document published by the Department of Finance in March of 2011[7] that proposed reforms of the budgetary process in order to achieve two broad goals:

§  Firstly to introduce a more year-long process in contrast to the then procedure that focused on a number of events leading up to the beginning of December. It was proposed that publication of the Stability Programme would be brought forward to the early part of the year to be discussed by the relevant Oireachtas committees and a fiscal advisory council before being finalised and forwarded to the EU in April in accordance with the European semester.

§  Secondly to place a greater emphasis on multi-annual planning, in particular by placing greater emphasis on the medium term budgetary objective as laid out in the Stability Programme as an ‘anchor’ in budgetary policy. This would be supplemented by a detailed multi-annual expenditure framework including general economic assessments and expenditure envelopes for individual departments.

The Stability Programme Update is now produced and published in April rather than being included in the Budget Speech. In 2012 it was forwarded to the Joint Committee on Finance and Public Expenditure on 30 April and was discussed with the Minister the same day. In response to questioning the Minister was not forthcoming on whether more time would be allocated to the Joint Committee or whether the Stability Programme Update would be debated by the Dáil in plenary in following years.[8]

Following the adoption of Regulation 473/2013/EU the Budget Speech will now take place on or before October 15 and the legislative process for the subsequent year will be completed by the end of December.[9]

Institutional change          
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

The major institutional change has been the creation of the Irish Fiscal Advisory Council (IFAC) that was given a statutory footing in the Fiscal Responsibility Act 2012.[10] The purpose of the IFAC is to assess whether the Government is complying with its financial targets, in particular the fiscal rules established under the Fiscal Responsibility Act 2012. It shall also provide an assessment of each Budget and stability programme.[11] It is envisaged that the IFAC will take over responsibility for providing official forecasts on which the Budget is based (currently provided by the Department of Finance).[12]

Change of time-line  

How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

See answer to questions II.1 and II.2 above.

What other information is relevant with regard to Ireland and changes to the budgetary process?

The Irish High Court has decided a case on the issuance of promissory notes by the Irish Minister for Finance (see below and Annex I.1 for an analysis).

Collins v Minister for Finance and Others [2013] IEHC 530

(26 November 2013)

1.      Name of the Court

Irish High Court (Divisional Court – Kelly, Finlay Geoghan and Hogan JJ)

2.      Parties

Joan Collins (independent Member of Parliament) vs Minister for Finance, Ireland and the Attorney General.

3.      Type of action/procedure

Constitutional challenge (Plenary Summons)

4.      Admissibility issues

The defence raised two issues of admissibility. Firstly, whether the fact the plaintiff was elected after the date impugned legislation was adopted affected her standing to bring the case. Secondly, whether the delay in bringing the case compromised the action. The defendants expressly dropped the matter in relation to standing. It was unclear whether the defence maintained the objection based on delay. In any event the point was moot in light of the conclusions of the Court. 

5.      Legally relevant factual situation

In late September 2008 the Irish government issued a blanket guarantee covering all the liabilities and obligations of the Irish banks in an effort to stabilise the banking sector in Ireland. On 2 October 2008 the Credit Institutions (Financial Support) Act 2008 was passed by the Oireachtas (Irish Parliament) in order to provide for financial support to credit institutions covered by the guarantee. Under section 6 of the 2008 Act the Minister was authorised to extend financial support to credit institutions if he was of the opinion that it was necessary to safeguard the financial stability of the institution, that there was a threat to the stability of the financial system and finally that there was a threat to the stability of the economy as a whole. The Minister was to make such support available with regard to the resources available to him for that purpose. That support was to be funded from the Central Fund.

Under s 6 of the 2008 Act a number of banks were recapitalised. Three particularly problematic institutions, Anglo-Irish Bank, Irish Nationwide Building Society (INBS) and the Educational Building Society (EBS) were issued with promissory notes to be paid at yearly intervals. These promissory notes totalled approximately €30 billion out of a total €64 billion provided to recapitalise the Irish banking sector. They were considered assets and were deposited with the Irish Central Bank in exchange for emergency liquidity funding.

Anglo-Irish Bank and INBS were later merged to form the Irish Bank Resolution Corporation (IBRC) and EBS was merged with another, largely nationalised Irish bank, Allied Irish Banks (AIB). After securing the agreement of the ECB and European partners, the IBRC was liquidated in 2013. Pursuant to a Special Master Repurchase Agreement the ownership of the notes would then vest in the Central Bank. However, under the Irish Bank Resolution Corporation Act 2013 (the 2013 Act) they were exchanged for a set of government bonds with low interest rates and a long maturity. The promissory notes issued to Anglo-Irish Bank and INBS were therefore transformed into government bonds with more favourable conditions attached, thereby reducing the real financial burden on the State. The promissory note of €250 million issued to EBS remained.

A member of the public, David Hall, challenged the issuance of the promissory notes before the High Court in 2012 claiming that issuing the notes by the Minister without any further authorisation circumvented the legislative and budgetary powers of the Parliament.[13] His claim was rejected for want of standing with both the High and Supreme Courts finding only a Member of Parliament (Teachta Dála (TD)) would have standing. Joan Collins, a member of the Dáil (lower house), then challenged the issuance of the promissory notes before the High Court. She claimed that in issuing the notes the Minister had gone beyond the powers delegated to him under the legislation (had acted ultra vires) and secondly that the 2008 Act itself was an unconstitutional delegation of legislative authority and a circumvention of the powers of the parliament in budgetary matters.

6.      Legal questions

§  Whether, in issuing the promissory notes without further Dáil authorisation, the Minister had acted outside his powers (ultra vires) under the 2008 Act and the 2013 Act.

§  Whether the 2008 Act breached provisions of Bunreacht na hÉireann (the Irish Constitution) relating to the legislative and budgetary prerogatives of the Parliament.

7.      Arguments of the parties

In relation to the first claim, the Plaintiff argued that the actions of the Minister in issuing the notes went beyond the powers (ultra vires) delegated to him under the 2008 Act and the 2013 Act under three headings. Firstly, she claimed that the notes were issued in contravention of time limits contained in s 6(3) of the 2008 Act providing that support could not be provided after a date specified in the act. Secondly, she argued that by providing that the Minister shall have regard to the ‘resources available to him or her for that purpose’ under s 6(1)(c) of the 2008 act the legislator intended that a further act of appropriation was required for the purpose of providing specific financial support. Thirdly, she argued that the promissory notes were not ‘obligations or liabilities’ owed by the Government to the Central Bank under s 17 of the 2013 Act. In particular she contended that the promissory notes only constituted obligations of the Government to Anglo Irish Bank and not the Central Bank. Accordingly the Minister was not authorised to issue bonds in exchange for the notes under the 2013 Act.

She also claimed that the section 6 of 2013 Act was unconstitutional. The plaintiff contended that the concept of appropriation contained in Article 11 read in combination with Article 15.2.1 of Bunreacht na hÉireann implied that ‘neither the Dáil may vote supply nor the Oireachtas pass a law appropriating public moneys unless the sums to be so disbursed are pre-determined in advance’.

The defendants arguments were not mentioned specifically by the Court.

8.      Answer by the Court to the legal questions and legal reasoning of the Court

The Court dealt first with the arguments based on the powers of the Minister under the legislation before dealing with the constitutionality of the 2008 Act.

a) Whether the Minister acted within his powers under the legislation.

Firstly, the Court found that the time limits contained in s 6(3) prohibited both the issuance of support measures and their continued payment after the dates specified. However, the notes were issued within the relevant period. The notes issued to Anglo-Irish Bank and  INBS were also paid within the relevant period by means of a government bond. However, payments would continue beyond the specified date in the case of the EBS promissory note. Accordingly, in order for the continued payments on the EBS note to be lawful that period will have to be extended. Following amendment of the legislation the Minister is now empowered to extend the period by ministerial order. 

Secondly, the Court found that, given the context in which the 2008 Act was passed and the reference to the Central Fund in that act, it was clear that by referring to ‘the resources available to him or her for that purpose’ in s 6(1)(c) the Oireachtas did not intended that a further vote was required to authorise specific funds for the purposes of the act.

Finally, the Court found that under the Special Master Repurchase Agreement ownership of the promissory notes had vested in the Central Bank. The Government therefore had incurred an obligation or liability under the promissory notes vis-à-vis the Central Bank and was empowered to issue bonds in exchange for the notes under the 2013 Act.

b) Whether section 6 of the 2008 Act was unconstitutional.

The Court considered the constitutional question in two stages. It firstly considered whether by failing to provide for a predetermined limit on the financial support to be advanced by the Minister, the 2008 Act constituted an unauthorised delegation of legislative power under Article 15.2.1 Bunreacht na hÉireann (the Irish Constitution). It then considered whether the term ‘appropriation’ contained in Article 11 Bunreacht na Éireann, read in light of the broader budgetary process contained in the constitution, implied a need for the amount of any appropriation to be determined by the authorising legislation.

The Court found that the power to provide financial support under s 6 did not constitute an unconstitutional delegation of legislative power from the Oireachtas to the Minister. After considering the relevant test developed in the case law, the Court concluded that the general principles and policies were contained in the 2008 Act. Section 6 outlined detailed conditions under which the Minister was authorised to provide financial support. Furthermore, any such decision by the Minister would be reviewable before the Courts in light of these conditions. It did not provide the Minister with an unfettered discretion but rather was tailored to meet a specific need and pursue a particular policy outlined in the legislation.

Secondly, the Court did not consider that the concept of appropriation contained in Articles 11 and 17 Bunreacht na hÉireann implied that the Oireachtas was required to provide a pre-determined limit when it authorised the Government to appropriate moneys. An assessment of the text of the provisions and a comparison of the linguistic versions (Irish and English) did not lead to the conclusion that the concept ‘appropriation’ contained in Articles 11 and 17 implied an upper limit. The Court pointed out that a variety of policies required an open-ended financial commitment including health, social welfare and educational policies. A requirement that upper limits be placed on moneys that could be spent by Government on such matters would either lead to a continuous raising of the limit or the creation of absurdly high ceilings. The result would be either manifest inconvenience or a legislative charade. Furthermore, the existence of an upper limit would have a negative impact on the State’s ability to borrow money on the international markets.  Finally, the Court noted that the equivalent provision in the US constitution was described by Alexander Hamilton and confirmed in US practice as meaning that ‘no money can be expended, but for an object, to an extent and out of a fund, which the laws have prescribed’. This interpretation was applied to Article 11 Bunreacht na hÉireann. It concluded that the 2008 Act properly described the object, extent and fund out of which the money shall be paid. While the Oireachtas did not know the precise sums that were at stake under the 2008 Act, the conditions on the issuance of financial support contained in the act did circumscribe the extent of the appropriation by reference to the objects of the legislation.

9.      Legal effects of the judgment

The promissory notes provided to Anglo-Irish Bank and INBS were found to have been legally issued and paid. The promissory notes provided to EBS were found to be legally issued. However, the relevant date in the legislation would have to be amended in order to ensure that the Government could continue to make payments on the outstanding promissory note.

Section 6 of the 2008 Act was held to be in conformity with the constitution. More generally, the court found that authority to appropriate and spend funds flowed from the Oireachtas by means of legislation. When authorising expenditure the Oireachtas should specify the ‘object, extent and the fund’ out of which the money can be spent. However this did not extend to including a precise amount or pre-determined limit on the amount the Government was authorised to spend under the legislation.

10.  Main outcome of the judgment and its broader political implications

The promissory notes were politically symbolic. The payments under the promissory notes were being made to what was effectively a dead bank, no longer in operation and one that had cost the taxpayer a considerable sum of money. They were perceived as a particularly absurd consequence of the banking guarantee and attracted considerable political opposition and also constituted a lightening rod for criticism of the ECB’s supposed role in forcing Ireland to fully support all its banks. To some extent the challenge was moot in light of the liquidation of IBRC and the exchange of the promissory notes for bonds issued on more favourable terms. However, the case did discuss important issues relating to the constitutional roles of the Oireachtas and the Government in the budgetary process. A useful discussion of the constitutional provisions relating to the budgetary process and its underlying democratic philosophy is contained in paragraphs 82 to 97. While emphasising the democratic nature of the budgetary process and the key role played by the Oireachtas in the appropriation and control of moneys raised, the judgment nonetheless reserved the possibility of granting considerable and effectively unlimited discretion to the Government regarding the amount of money to be spent in pursuing a particular goal. It therefore contained a balance between parliamentary and democratic control and Governmental discretion and effectiveness. This was based on both textual but also policy based arguments. While claiming to eschew an analysis of the merits or demerits of a particular economic policy, the Court was clearly cognisant of the financial and economic context under which the guarantee was extended and the notes issued and mentions it at a number of points in the judgment. In a tone that is repeated in other cases dealing with the effects of the financial crisis the Court describes a state of national economic emergency.

Ms Collins has appealed the judgment to the Supreme Court that is currently pending.

[1]               Bunracht na hÉireann art 21.

[2]               Modern Ireland was born in an age of party government and its parliamentary institution has never acquired the dignity and respect of older bodies which knew real power in the Nineteenth Century. [Parliament lacks] any but the most nominal role in the formulation of public policy and the management of the State’, Barry Desmond as quoted by Gwynn Morgan, ‘The Constitution and the Financial Crisis in Ireland’ (n 139) 69. 

[3]               Discussion has recently focused on possible reform to the Dáil in an effort to provide a larger role for the opposition (such as election of the Speaker by secret ballot and supermajorities for certain organizational matters), particularly in light of the Government’s stated desire to abolish the Seanad (upper house).

[4]               The following description is drawn from Reforming Ireland’s Budgetary Framework – A Discussion Document (Department of Finance, March 2011, 2011) 1-2.

[5]               See Theresa Reidy, ‘The Budget Process’ (The Irish Politics Forum, 7 December 2010)  <> accessed 11 June 2013.

[6]               Finance, National Recovery Plan 2011-2014, 59-60.

[7]               Reforming Ireland’s Budgetary Framework – A Discussion Document (n 26).

[8]               See comments of Stephen Donnelly and Michael Noonan Joint Committee on Finance, Public Expenditure and Reform: Stability Programme Update: Discussion with Minister for Finance, 30 April 2013, 14-15.

[9]               See comments of Aidan Carrigan Joint Committee on Finance, Public Expenditure and Reform, Six Month EU Scrutiny Report: Discussion with Department of Finance, 9 May 2013, 3-4. Thus the 2014 Budget was announced on 15 October 2013.

[10]             See Fiscal Responsability Act 2012, pt 3. 

[11]             ibid, s 8.

[12]             See comments of Aidan Carrigan Joint Committee on Finance, Public Expenditure and Reform, Six Month EU Scrutiny Report: Discussion with Department of Finance, 9 May 2013, 2.

[13]Hall v Minister for Finance and others [2013] IEHC 39 (before the High Court) and Hall v Minister for Finance and others [2013] IESC 10 (before the Supreme Court).