Ireland

Give me a crash course in . . . the Department of Finance

An independent report published this week about the performance of the Department of Finance over the past decade has found the…

Colm Keena
Public Affairs Correspondent
Sat Mar 5 2011 - 00:00

An independent report published this week about the performance of the Department of Finance over the past decade has found the department warned the government of the dangers of overheating the economy.

Who wrote the report?A panel was set up by Finance Minister Brian Lenihan in September 2010. Rob Wright (below), a former Canadian deputy finance minister, chaired the panel. Hans Borstlap, former director general at the Dutch ministry of social affairs and employment, also served on the group, as did John Malone, former secretary general at the Department of Agriculture and Food. Irish economist Pat McArdle provided assistance.

So the department did its job?Sort of. The authors studied memoranda the department produced annually and found they contained repeated warnings. The memos were signed by the minister for finance and brought to cabinet. Each year the government produced budgets that hugely exceeded official advice. In other words, the government fuelled rather than calmed the bubble.

What did it do that for?Popularity. The largest gaps between what the department recommended and the government did were before the 2002 and 2007 general elections.

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Who exactly are we talking about?Charlie McCreevy was minister for finance up to 2004; Brian Cowen was minister from 2004 to 2007. Bertie Ahern was taoiseach.

So you can't blame the department?The report found it should have cranked up the tone of its warnings as time passed. Likewise, while it found warnings about the housing bubble were as strong or stronger than most Irish and international commentary, it criticised the department for not drafting a strategic response.

Should they have barked louder?Yes. But the report doesn't comment on the climate created by the Ahern governments or the attitude Ahern and others displayed towards those who warned policies might be unwise. In 2007 Ahern famously said he didn't know why economists warning about the economy didn't kill themselves. He disliked "cribbers".

Shouldn't the Department of Finance be full of cribbers?The report found just 10 per cent of the department's core staff had economics qualifications to MA level or higher. This compared with 60 per cent in Canada and 40 per cent in the Netherlands. It recommended doubling the number of such economists employed. It also recommended greater intellectual engagement with outside economists.

So the department was too bashful and not adequately resourced in the brains area?Yes, but politics may be to blame for that, too. The report notes that the FF-PD programmes for government contained significant spending and tax-cutting agendas that trumped the budgetary process. It also said the partnership process, once the economy became overheated, facilitated an unrealistic rise in public-sector wages.

Didn't Ahern say he wished someone had warned him?And didn't Brian Cowen say repeatedly that he followed the best advice available to him as finance minister? Yes and yes.

What happens now?The department has to employ more specialists while reducing staff levels. The report found the Croke Park agreement presents an "extraordinary opportunity" to modernise the public service.