Department gave ‘very little written advice’ at height of crash

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A former Canadian government official who authored a report on the Department of Finance in 2010 told the banking inquiry today there was very little evidence of written advice given by the department to the Government at the height the economic crisis.

Appearing on day 2 of the the first phase of the banking inquiry at Leinster House, Rob Wright, a former Canadian secretary general of finance, said "important progress" has been made since his report was submitted 4 years ago but that more remains to be done.

His report, Strengthening the Capacity of the Department of Finance, was commissioned in September 2010 by then Minister for Finance Brian Lenihan to examine the department's performance over the previous 10 years and to advise how it might adapt to future challenges.

Speaking before the committee this morning, Mr Wright said his investigation found a lack of written records of departmental advice at a time when the Government was engaged with international institutions such as the IMF, the OECD and EU.

Mr Wright’s report examined whether advice taken by the department on the risk of pro-cyclical fiscal policy was appropriate, whether the Department for Finance was aware of the risks of the property market overheating and if it sought appropriate advice in that regard. It also looked at whether the department provided government with sufficient advice on the vulnerability of the tax system to an economic turndown.

On the issue of written advice to the Government, Mr Wright said:

“I wanted to see the advice on the risks of pro-cyclical policy. There was just very little written advice. Very little written advice. You could get snippets here and there but on something as vital as that - particularly when you have regular engagement with international institutions like the IMF, the OECD and the EU where concerns had been expressed you would have anticipated a consistent flow of advice through that period. We really could not find much of that.”

The Freedom of Information Act was cited as “the most dominant reason” behind the information deficit.

“If you (are) sending a message to your minister that’s suggesting a different path than one he has already stated in public it’s very damaging to relationships.”

“If you have a piece of advice that is not consistent with what a minister has said in public it is controversial.

“There was at least one experience in the department where a piece of advice from the secretary general or the department to the minister was released in public and the minister of the day had a lot of concern about that.”

“That’s only one example. I expressed some concern about freedom of information to the extent that you don’t want anything to restrain secretary generals of the future from pushing the button when they have to push the button.

“So you have to be sure you have that outlet. Now, I think the department overreacted on that. I think there are provisions”.

Mr Wright said freedom of information legislation worked differently in Canada.

“In Canada, it’s not accessible. My advice to my minister is not accessible. That’s a blanket exemption. It’s vital in my view.”

“We had heard from other secretaries general that the freedom of information (act) had constrained their written records. We had also heard from your controller auditor general ...that indeed there is a systemic issue of written record in Government that he is concerned about.”

“An important part of how a professional and world class department of finance works is to say ‘here’s our advice, you know what it is, (and) we’re on the record.’

“The minister doesn’t want casual observations ....there’s a great discipline to ‘writing down’. Is also is very important to the overall enterprise of this knowledge institution. The finance department officials should know what you are trying to achieve and they should know where you stand on these issues and written records help everyone know that.

Mr Wright said “important progress” has been made at the department since he submitted his report but that “more remains to be done”.

One of the shortcomings identified in the 2010 report was the shortage of qualified economists at the department. Out of 542 staff, the Department of Finance had just 39 economists or seven per cent of staff trained to master’s level compared to 60 per cent of the Canadian department of finance who are economists trained to master’s level or higher, the report found.

This was “extraordinarily low by international standards,” the report found.

Mr Wright told the committee that there are now almost 100 employees with an economics background at the department .

"We recommended doubling the number of economists at a masters level within two years, they haven't quite done that. We also recommended urgently seconding in expertise from around Ireland and abroad and I think they have acted on that," he told the committee.

“There has been a lot of churn in that department - that’s always a good thing. In fact, they now have almost 100 employees with an economics background - almost half of whom who have a masters level.”

“So there has been important progress“

“I would say, very importantly, there has been a number of secondees in from NTMA, from the Bank of Ireland, from other partners around the world that have an interest in this and can add to the immediate bench strengths but the core going forward is a regular influx and an outreach.

“And, they now do have a full-time human resource expert with a 5-year plan that’s connecting..that is not enough, I do think the Secretary General will have to personally tie himself to management objectives for that group. But, they have made important progress on it.”

“More progress has to be made but I think important progress has been made.”

The former head of the Canadian department of finance has said he would have “pushed the button” and warned the Irish government of an impending financial crash prior to 2008.

Asked during the Oireachtas banking inquiry whether, if he had been secretary general at the Irish Department of Finance in the 00s, he would have given strong advice about the risk of an economic collapse, Rob Wright said he would have.

In response to a question from Kieran O’Donnell asking whether his report “scapegoated” social partnership when the real problem was inadequacy in the Department of Finance, Mr Wright said it did not but added that social partnership was used to leverage public sector pay in a way that was overdone.

The 2010 report found that tax promises contained in the 2002 Fianna Fáil/Progressive Democrat Programme for Government were “effective po litical messages for the electorate but not good tax policy”.

It said departmental advice and analysis on Government tax policy “should have been provided and communicated forcefully to the Minister for Finance and the Government.”

While the report found the Department of Finance provided repeated warnings to the Ahern Government about the risks involved in budgetary policy and an overheating property market, it said it “lacked coherence across its divisions”.

It also said a failure by the department to pay sufficient attention to the broader macroeconomic risks during the period may, in part, have been due to a shortage of highly trained economists and financial market experts.

Asked by Marc Mac Sharry what impact the shortage in skills in the department might have had on the ability of bankers to have “undue influence” over the department when it came to banking regulation, Mr Wright said this “lack of core capacity” had an impact on “everything.”

“I wouldn’t say that led to this ‘undue influence’,” he added.

“It just meant they weren’t as fully engaged in that area as they should have been perhaps.”

He said what surprised him was: “There wasn’t as active an engagement with the financial regulator as I would have expected on some key elements.

“It’s very hard to sign a piece of advice if you’re not comfortable it’s not correct so you need to be sure you’ve got the right people helping you to prepare that advice and I don’t think there was the capacity for them to engage actively - so they didn’t.”