Finance split a good idea - in theory at least

COMMENT:If Noonan and Howlin can arrive at a shared strategic vision much can be improved

RESTRUCTURING THE Department of Finance so that two full Cabinet Ministers are involved in doing its business is a major innovation and one that could improve the effectiveness of central government and the wider public sector. Many countries have more than one cabinet member dealing with the wide-ranging finance function, but quite how the new proposals match or differ from arrangements elsewhere remains to be seen.

The details of the new arrangements remain sketchy – they were not set out in Sunday’s programme for government and no documentation is yet available on the new institutional structures from either Fine Gael or the Labour Party.

But a nominal splitting of the department, while housing the two parts in the same building, is a good idea, in theory at least. Ensuring both Coalition parties have full ownership of Finance processes will help ensure neither party comes to believe that it is taking a disproportionate share of the blame for the many (inevitably) unpopular decisions that are to come. In practice, however, much will depend on the personal relationship between Michael Noonan and Brendan Howlin.

The newly created Economic Council (aka the “war cabinet”) on which the two men will sit, along with their bosses – the Taoiseach and Tánaiste – should provide a valuable dispute-resolution forum if they disagree on issues. If the relationship works well, they could avoid even getting to a point of real dispute by kicking any contentious issue upstairs to the Economic Council.

With written detail on the new structures still lacking, the only basis to consider the changes at this point are pre-election proposals. By this measure, there is reason for considerable optimism that both parties mean business. The two have long sounded serious about changing the way the “strategic centre” of government functions. Before the election one influential Labour Party figure described it as “flabby”, saying that without change, implementing any reform, never mind the sort of social democratic reform that Labour wants, would be impossible.

Many of the proposals in the party's New Government, Better Governmentdocument are shared by Fine Gael. These include the introduction of a comprehensive spending review; a focus on outputs rather than cash inputs; and an end to the "spend it, or lose" allocation method, which provides negative incentives for bureaucrats to seek savings and efficiencies.

If the pre-election proposals of Fine Gael include many of the same process changes, they differ only in that they go into much more detail on structures and they contain more blunt criticism of the department. In its well-thought-out and waffle-free Reinventing Government, Fine Gael described the department as having "become unfit for purpose" and said that it had "no foresight capacity".

Some of the structural changes advocated in that document appear to be the basis for this week's changes. The new role taken on by Brendan Howlin is called "public expenditure and reform". This is a marginal change from the Reinventing Governmentterm of "public spending and modernisation".

The Public Service Modernisation Division of the Department of the Taoiseach will be merged with two divisions in the existing Department of Finance to form Howlin’s department, just as envisaged in the FG plan.

The most obvious difference, though, will be the parity between Noonan and Howlin. Under the Reinventing Governmentproposal, the Howlin role was to be modelled on the chief secretary to the treasury in Britain.

According to Kitty Usher – a former treasury minister in the last Labour administration, (who last week published a report on the UK finance ministry from her current position as director of think tank Demos) – the chief secretary role is very much junior to the chancellor. He or she plays the bad cop vis-a-vis spending departments, ensuring that overruns are kept to a minimum. There is no strategic role for the chief secretary in public sector reform.

Howlin will clearly not be junior to Noonan and he will be central in deciding where the 25,000 public sector job cuts will be found and to making the Croke Park deal work. That said, yesterday’s announcement that the combative Brian Hayes of Fine Gael will be the junior minister for public sector reform suggests that the power balance in the wider Finance function will tilt towards the senior Coalition partner.

If Noonan and Howlin can arrive at a shared strategic vision for what they want to create and can work together to achieve it, much could change for the better. If they can’t, and if turf issues arise, expect sparks to fly. The obvious energy that exists in the new coalition could end up being channelled into a destructive rather than a creative dynamic.