How a budget is made: Warnings, pitches, bilaterals and the ‘end of the world memo’

On a sunny afternoon in July, almost 11 weeks out from the budget, Minister for Public Expenditure Jack Chambers issued his Cabinet colleagues with a warning. They would have to make hard political choices in drawing up their spending plans. It was the first public indication that he wanted his fellow Minsters to think differently. It would not be a case of simply seeking a larger chunk of cash from the Exchequer to fund their department’s.Chambers and the Tánaiste and Minister for Finance Simon Harris – the budget’s ministerial architects – were in the Whittaker Room at the Department of Finance to deliver the Government’s summer economic statement – a public pronouncement in the political calendar that sets out in broad terms the plans ahead for taxation and expenditure for the year ahead. The Ministers addressed a room full of journalists, camera crews and senior Government officials. But the main audience for the message from Chambers seemed to be those in Cabinet.READ MOREChambers said the Government planned to spend €105 billion in current expenditure (day-to-day spending on public services) and €20 billion on capital (long-term infrastructure) next year.[ Irish Times poll reveals what voters want in Budget 2027Opens in new window ]This amounts to an overall increase of about 6 per cent in spending next year. It is a slowdown in the spending growth of previous years, though still ahead of inflation.“Everybody has to be clear. There will have to be clear choices and trade-offs for Ministers. There are many competing demands and Government must prioritise,” he said, in pointed remarks.Traditionally, Ministers have sought funding to maintain existing level of services and then a top-up for new developments. Chambers’s message seemed to be that he did not want to hear about ELS. Ministers were to go through their budget lines and current arrangements and see if some were no longer needed or could be changed to allow resources be diverted elsewhere. In 2011, the Department of Public Expenditure and Reform (DPER) was established under Brendan Howlin and set out to introduce significant changes to the State sector. There was a new public service pension scheme, revised sick leave arrangements and updated holiday entitlements. There was also a view in Government that over recent years enthusiasm for reform had dissipated. The department was given expanded roles. Its official title is the Department of Public Expenditure, Infrastructure, Public Services, Reform and Digitalisation. Chambers seemed to be signalling to Ministers that he was putting the letter “R” back into DPER. Since Howlin’s time in the department, the job of devising the budget has been divided between the Minister for Finance who, essentially, looks after tax issues – covering the income side of things – and the Minister for Public Expenditure who oversees spending – covering the expenditure.Some who have been centrally involved say that unless the Government is considering tax changes involving specific areas, Government departments are generally not involved in the discussions around what will happen on the taxation side. In contrast, all departments are covered by the decisions made on the spending side. And DPER has a view on the everyone’s spending.[ Cost of living is top priority for voters ahead of Budget 2027, Irish Times poll findsOpens in new window ]Within DPER, there are staff who monitor how the various parts of Government manage their money. Three departments – Health, Education and Children – are covered by escalation measures with oversight groups established to rein in and control spending.The budgetary spending estimates process kicks off in August with a letter sent by the DPER secretary general to his counterparts. This is more informally known by those involved as the “end of the world memo” in which DPER cautions everyone that the financial picture is uncertain/worrying/terrible and they should temper their spending ambitions. This exhortation is widely, if not universally, ignored. This year was no different. Chambers told Ministers to moderate their spending plans. He would permit increases in current spending of 5.9 per cent, compared with 8.7 per cent average growth between 2019 and 2025. Some departments sought double-digit rises, although the cumulative amount proposed by Ministers is understood to be lower than previous years.The process involves departments making their pitch to DPER which generally seeks to pare back the bid.In September Ministers become involved and meet Chambers face to face in what are known as bilaterals. These can run right up to the eve of budget day, which this year falls on Tuesday, October 6th.Experienced senior officials in departments maintain that the trick is trying to work out in advance the thinking in DPER about its spending in their respective area. Among senior officials there is a story told of a now retired secretary general who, having been rebuffed by DPER in his initial bid, came back with another many millions of euro lower than the first – only to be told by budgetary officials in Merrion Street that he really needed a higher amount.Such an incident is rare, if it ever really happened at all.Chambers told Ministers in budgetary conversations that all their demands could not be met. He again insisted they would need to prioritise their own department’s spending.DPER told departments their budget for next year must meet the cost of maintaining public services for a growing population as well as provision for public service pay and recruitment including any new wage deal.Chambers told Ministers the estimates process had to focus on delivering public services and securing measurable benefits from the funding provided over recent years.As departments drew up their spending plans, they also had to deal with a controversial €440 million levy applied across Government to offset a €600 million overspend in the education sector. Each was given a specific target to reach by introducing savings and efficiencies. [ Soldiers’ rations cut, naval radar plan paused as Defence Forces ordered to save millionsOpens in new window ]In August DPER secretary general David Moloney told senior civil servants that in addition to the levy savings, funding allocated this year for the EU presidency would not be repeated. Although the levy was official Government policy, a number of Ministers were unhappy at the amounts they were expected to find in savings, making this year’s budget talks unlike any other. Minister for Further and Higher Education James Lawless had to secure €53 million in savings.Lawless expressed concern to DPER about the impact on plans to increase the number of apprenticeships as well as to support workforce upskilling at a time of rapid development of artificial intelligence. Minister for Further and Higher Education James Lawless. Photograph: Dara Mac Dónaill/The Irish Times The Department of Enterprise, Tourism and Employment under Minister Peter Burke had been directed to find savings of €8 million under the levy. In response, it told DPER that it could only come up with measures worth about €2 million. It said it was not possible to generate the full €8 million sought through savings, reforms and efficiencies. Burke’s officials told DPER it would have to introduce cuts of €5.91 million “in programme and operational expenditure” which would affect several agencies including Fáilte Ireland, IDA Ireland, Enterprise Ireland, Local Enterprise Offices, Corporate Enforcement Authority and the Workplace Relations Commission.Another complicating factor in this year’s budget preparations was the significant financial overrun in the health sector. Growth in expenditure was accelerating, despite spending and recruitment controls introduced earlier this year. Health spending had reached €17.7 billion by the end of August – a year-on-year rise of close to 9 per cent, nearly double the 4.8 per cent rise set out in its official budget.Minister for Health Jennifer Carroll MacNeill. Photograph: Bryan O’Brien/The Irish Times As early as June 9th Chambers had told Minister for Health Jennifer Carroll MacNeill he had “serious concerns about the overspend” and improvement was essential.Under Government reforms, six HSE regions run services in their areas. Chambers argued it was important that recently appointed regional executive officers were “accountable for managing their region’s spending within the allocated budget”.Early in the second week of September senior HSE executives, including the regional officers, met Carroll MacNeill and Chambers in DPER’s offices in Merrion Street.[ HSE spending controls have ‘not had sufficient impact’, says MinisterOpens in new window ]Some who attended the meeting described it as “brutal”. Others maintained they found the tone and the criticisms aired by the Ministers as deeply offensive and “performative” with the politicians allegedly questioning HSE officials about who had authorised specific actions. Some attendees expressed unhappiness that the Minister appeared to be playing one region off another.The Ministers argued spending breaches were not acceptable, thanked regions which had shown better financial control and maintained there was a pathway available to others to have interventions lifted. Some said the Ministers left saying they would have to consider what to do next. The following day Chambers told The Irish Times Inside Politics podcast that spending autonomy was being removed from four of the HSE regions. The first some senior health service figures learned of the decision was in the lead story in The Irish Times on September 10th that also quoted Chambers as maintaining there was “completely ineffective management of the control system” and “really poor performance by certain regions”.'Disruptive' Jack Chambers talks tough on HSE overspending and budget negotiationsChambers and Carroll MacNeill have argued they want to maximise the impact of the large-scale investment in health to ensure patient safety and improve access to care.While (with some grumbling) departments submitted their savings plans for the levy that would cover the budget overspend, by September the view in DPER and the Department of Finance was that they needed to go further.While there is some speculation among Government officials that there is competition between Harris and Chambers around who is positioning to claim credit for political wins, both are singing from the same hymn sheet when it comes public sector reform. The Fine Gael leader had been speaking about public service reforms since an interview with RTÉ’s This Week programme at the beginning of the year. In a significant speech on budgetary strategy this week, he again argued it was essential.Like Chambers, he said it could not just be a case of Ministers looking for additional sums for their budgets for next year. “I want to free up public sector workers to do the things they enjoy doing. Working efficiently, using technology and improving value for money frees up resources for other things,” Harris said.[ The Irish Times view on Budget 2027: no coherent sense of directionOpens in new window ]Chambers had told Ministers the previous week in a letter they should go even further in driving reforms and efficiencies than they had set out in response to the levy.He urged them to look at the value being achieved with all elements of current expenditure. He proposed that this could be extended to procurement of goods and services, and reforms to regulatory bodies in their areas.He told Ministers to evaluate value for money being achieved under existing staffing levels in their departments and agencies, and to consider whether there was scope for improvement by means of simplification, reprioritisation or redeployment.With the budget 10 days away, key elements remain to be agreed. As of recent days, a package to address rising energy costs was still outstanding. Key players such as Taoiseach Micheál Martin and Minister for Energy Darragh O’Brien were in New York for the United Nations general assembly and other meetings this week.Taoiseach Micheál Martin at the United Nations General Assembly in Nwe York this week. Photograph: Toby Melville/Reuters/AFP/Getty On Monday Harris became the first Minister for Finance in decades to highlight the need for greater spending on defence as a key budgetary strategy. Minister for Defence Helen McEntee, was also in New York, is seeking additional money for more military personnel and to deal with some industrial relations claims.A centrepiece of the budget is expected to be childcare. Minister for Children Norma Foley is understood to have presented proposals to Chambers including a roadmap to achieving the Government’s goal of reducing parental fees to a maximum of €200 per child per month over the lifetime of the Coalition. Options include more core funding, increased State subsidies and greater use of maximum fee caps.Harris has said he is looking at tax relief measures for childminders.Other Ministers have their own proposals.Carroll MacNeill is looking to move some forms of cancer care for patients to locations closer to their homes, while Minister for Arts Patrick O’Donovan is promoting an initiative to give 16-year-olds a €100 culture voucher. [ ‘I’d say it will only cover part of a Harry Styles ticket’: Teenagers on proposed Budget 2027 culture cardsOpens in new window ]Despite this asks, the tax and spend ministers are still to their guns and the push for reforms is still a key focus with Chambers telling Ministers these will be published on the day of the budget.As budget talks continue inside Government, what do people want outside of it?A budget is formed not just from the push and pull among Ministers within Government but influenced by lobbying by powerful public interest groups outside Government.While deliberations continue on the shape of Budget 2027, unions, employers and other groups have been strongly lobbying Ministers on what they believed should be included.The Irish Congress of Trade Unions is seeking “a worker’s budget” which would include double indexation of the income tax system to compensate for the absence of a tax package for those paying PAYE last year as well as a €1 increase in the national minimum wage from January.[ Trade union balloting is ‘only delaying’ public sector pay deal, Jack Chambers saysOpens in new window ]Ibec, which represents employers and businesses, urged the Government to invest the projected annual national training fund surpluses (€200 million to €400 million from 2026 to 2030) into,skills and training for workplace upskilling and AI integration with artificial intelligence. The Irish Farmers Association has called on Ministers to expand farm schemes, supports to mitigate the inflationary costs of production and the retention and enhancement of tax reliefs to encourage the transfer of land to farmers.[ Cliff Taylor: There is a landmine posing a big danger to next month’s budgetOpens in new window ]The Environmental Pillar, which is made up of 32 environmental non-governmental organisations, called for long-term public investment in nature restoration. It also wants funding for a fair and democratic transition from fossil fuels, expansion of retrofit schemes, investment in renewables to be prioritised and greater support for public and active transport.The Construction Industry Federation urged the Government in the Budget to prioritise measures that improve the speed and efficiency of infrastructure planning and delivery.