“Ireland failed this test of prudent fiscal management.”

As RTÉ reports, an independent review of the Department of Finance’s performance over the last ten years has found that the Irish government repeatedly ignored the Department’s “clear warnings on the risks of pro-cyclical fiscal action”.  And that, “with very few exceptions”, the Irish government consistently implemented spending and tax relief policies “substantially above that advocated by the Department and Minister”.

From the Independent Review Panel report’s summary [pdf file]

6. The Panel reviewed in detail the annual June Memoranda to Cabinet on Budget Strategy. Generally speaking, we found that advice prepared by the Department for Cabinet did provide clear warnings on the risks of pro-cyclical fiscal action. These views were signed-off by the Finance Ministers of the day who would submit the Memoranda to Cabinet. The Department’s advice was more direct and comprehensive than concerns expressed by others in Ireland, or by international agencies. With very few exceptions, however the quantum of spending and tax relief outlined in December Budgets was very substantially above that advocated by the Department and Minister in June.

7. We see three key reasons for this failure of fiscal policy. First, there were extraordinary expectations of Government in Ireland to create spending and tax initiatives to share the fruits of recent economic gains. These pressures were reflected in the political debate of the day where all political parties were eager to meet public expectations for more and better services. As well, the Irish economy was regarded by most as a model. The EU fiscal rules, the Stability and Growth Pact, were respected, debt fell and spending appeared to be well below EU levels. The underlying dangers were either missed or ignored.

8. Second, the Government’s Budget process was completely overwhelmed by two dominant processes – Programmes for Government and the Social Partnership process. We recommend major changes to the budgetary process that would enhance ministerial accountability to Parliament, expand the release of detailed departmental analysis for consultation well before Budget time and provide oversight by some form of Fiscal Council.

9. Third, the Department of Finance should have done more to avoid this outcome. It did provide warnings on pro-cyclical fiscal policy and expressed concern about the risks of an overheated construction sector. However, it should have adapted its advice in tone and urgency after a number of years of fiscal complacency. It should have been more sensitive to and provided specific advice on broader macroeconomic risks. And it should have shown more initiative in making these points and in its advice on the construction sector, and tax policy generally. [added emphasis throughout]

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  • “It should have been more sensitive to and provided specific advice on broader macroeconomic risks.”

    Hardly surprising when ‘the Department:
    • does not have critical mass in areas where technical economic skills are required;
    • has too many generalists in positions requiring technical economic and other skills;
    • is more numbers driven, than strategic;
    • does not have sufficient engagement with the broader economic community in Ireland;
    • often operates in silos, with limited information sharing;
    • is poorly structured in a number of areas, including at the senior management level;
    and
    • is poor on Human Resources Management.’

    [aside]Lessons for Stormont?

  • If the general election had been held in March, instead of last week, as per the earlier timetable, I wonder if RTE would have been reporting these findings in the News today?

    Still, this is a curiosity now. FF has been stuffed. The new Government has a clean slate and has the lessons written down on paper. All they have to do now is just join up the dots.

  • In the Guards you used to be threatened with a posting to the Aran Islands for speaking truth to power. What’s the DoF equivalent?

  • “The Minister explained that the Report [pdf file] has been published at this time so as to allow the incoming Government to consider the Report’s recommendations and then make its decision on which policies to implement:”

    Just as well it wasn’t published BEFORE the Election!

  • Munsterview

    Nevin : I do not doubt the contents of the report or that if anything it pulled it’s punches and used measured language where a few ‘for F…… sake’ may have been more appropriate.

    There is a much simpler summary : greed was exalted over need by the PD’s, it then became overt instead of covert in Fianna Failed and spread from the golden circle cronies down to middle class professionals getting into the ‘get rich quick’ buying, selling and ‘flipping’ property. FF facilitated this activity at all levels, this became FF politics and the ‘Permanent Government’ provided the policies and context to make it all possible.

    There should be a Financial equivalent of a Health and Safety Inspector with authority to walk in and look at any aspect of public finance be it revenue planning, raising, administering or spending either on foot of a complaint or off their own back. These reports should then be furnished to the Dail on a quarterly basis.

    If there is a starting point to the most recent debacle and facilitating the misleading the many for the greed of the few, it can be found in the cannibalizing of the Telecoms infrastructure that was taken from a world class utility to to the cash-starved limited debacle that it currently is. Those in the know made a killing, with the Politicians ‘talking up’ the shares, while the general public was left holding the baby.

    The Independent Newspaper media were the cheerleaders fort that enterprise also.

  • Pete Baker

    I did highlight one section of the report’s summary which is of particular significance in this discussion.

    First, there were extraordinary expectations of Government in Ireland to create spending and tax initiatives to share the fruits of recent economic gains. These pressures were reflected in the political debate of the day where all political parties were eager to meet public expectations for more and better services. [added emphasis]

    It’s an important point to note, “It was the choice of the successive governments, and their voters…”