Tax policies that led to bank crisis not part of inquiry’s remit

GOVERNMENT decisions and tax policies that fuelled the boom and contributed to the financial crisis will not be examined as part of the banking inquiry.

Despite being found to have played a central role in the crisis by two separate reports published yesterday, fiscal policies pursued by successive Fianna Fáil coalitions are not included in the Government’s draft terms of reference for the Commission of Inquiry. The two reports were commissioned by the Government to establish the terms of reference for the Commission of Investigation – a behind closed doors inquiry which Finance Minister Brian Lenihan said will take six months to complete.

One report – by international experts, Klaus Regling and Max Watson – said the Government’s fiscal policy combined with a lack of financial supervision “left the economy vulnerable to a deep crisis, with costly and extended social fallout”.

The report also criticised budgets for focusing on spending money when they “could have helped to moderate the boom” and could have “created fiscal space to cushion the recession”.

Another report by the Governor of the Central Bank, Patrick Honohan, also found Government tax policies and budgetary measures aimed at boosting the construction sector were “significant factors contributing to the unsustainable structure of spending in the Irish economy”.

Despite these findings, the draft terms of reference make no mention of the role of the Government and concentrate instead on finding out:

* Failures within individual banks relating to risk management and corporate governance.

* Lending practices and business models adopted specifically by Anglo Irish Bank and Irish Nationwide Building Society.

* The role of external auditors examining these banks.

* The regulatory failures of the Central Bank and the Financial Services Authority of Ireland.

Mr Lenihan said the report by Regling and Watson makes a distinction between issues “that lend themselves to a legally oriented investigation” and issues “that may be more appropriate to a policy review”.

He said criticism of the fiscal policies have already been accepted by Government and therefore do not warrant review. But the issues raised in the reports will be examined by the cross-party Oireachtas Committee on Finance and the Public Service which will produce a separate report by September 15.

Mr Lenihan said yesterday he will provide the committee with previously-confidential files from his department from the run-up to its decision to introduce the bank guarantee scheme in September 2008.

The Oireachtas committee will provide the final terms of reference for the Commission of Investigation, starting its work tomorrow by meeting Mr Regling and Mr Watson.

It will meet Mr Honohan next Tuesday.