Department of Finance in desperate need of operation transformation

ON the eve of an EU summit, where a draft new treaty emerges, expect a return of the “no alternative” brigade.

Main cheerleaders? Department of Finance and its boss, Kevin Cardiff. European Parliament budgetary control committee’s rejection of his nomination to the EU Court of Auditors masks the underlying challenge of revamping this Department. Operation transformation is essential arising out of economic meltdown.

The cabinet cannot funk the process of his replacement as secretary-general. Irrespective of whether he gets the plum post in Luxembourg or not, a new external appointee must take the helm in Merrion Street. Electoral mandate for regime change must be honoured.

Make no mistake, Finance as was, is to be dismembered. A year ago, it was the pillar Department of State. It not only implemented economic policy through budgetary, taxation and banking controls, but also ran the entire human resources function within the public service and presided over all current and capital expenditure programmes. Creation of the new Department of Public Expenditure and Service Reform stripped away half its role. Appointment of Robert Watt as new secretary-general represents a fresh start. It’s an explicit rebound from past failures of ballooning budgets and outdated inefficiency.

Importance of the relationship between Minister and secretary-general cannot be overstated. Sir Humphrey from Yes Minister accurately depicts dependence of officeholders on mandarins in top echelons of the civil service. Implementation of political reforms can be completely frustrated by uncooperative bureaucrats. The eyes and ears of a minister within a department are based on close harmony between the two people. Friction or a lack of mutual respect can paralyse performance. Synergy between both can create a formidable dynamic, based on trust and co-dependence. Ministers have no security of tenure. Secretary-generals enjoy fixed seven-year contracts — they can’t be fired.

At the core of our economic calamity is the culpability and inadequacy of Finance. The primary fiscal deficit occurred because of reliance on transient property related transactional taxation on one hand, along with unsustainable exponential expenditure increases on the other. It will take six gruelling painful budgets to redress fiscal indiscipline. Exceptional hardship will be inflicted on many families to pay for past recklessness. Finance failed woefully to accurately predict or achieve year-on-year forecasts and targets, with wild fluctuations between projections and out turns. They were asleep at the wheel. External Canadian consultants spelled this out in most trenchant terms — not fit for purpose. Warnings, in real-time (not after the event), from diverse commentators such as Prof Morgan Kelly and George Lee were treated with utter contempt. Did the plebs not realise that the department had a monopoly of wisdom? How dare mavericks question their imperious knowledge? This self-serving hubris had few limits. They ran the show and were the hub of powerbrokers. The cosy career path between the top job in Finance and Central Bank governor cemented integration of authority. Monetary and banking policy came within the remit of overall economic policy. Credit and property bubbles weren’t cyclical according to them. Full consequences of the extent of their autonomy still remain to be revealed.

Defeat of the Oireachtas inquiry referendum was presumed to torpedo a public scrutiny of circumstances relating to the bank guarantee in September 2008. The Public Accounts Committee is still considering legal advice in order to probe Finance, Financial Regulator and Central Bank. Brian Lenihan and Brian Cowen maintained they acted on the ‘best advice’ provided. We must know what these were. Evidence is emerging of one fatal flaw- a “green jersey” culture. The recent interview by former Anglo Irish CEO David Drumm in the Sunday Business Post portrays an alarming picture of alleged accomplices. Central contention is that drastic abortive measures to prop up Anglo were done with complicit public officials.

These refer to the share support scheme to unwind Sean Quinn’s 25% Anglo shareholding. This ‘Maple Ten’ share dealing engineered Anglo money to acquire Anglo shares on a non-recourse basis. Extreme measures were deployed to convey to markets Anglo’s false veneer of solvency, such as temporary liquidity from IL&P being termed as customer deposits. These murky matters are under intense investigation by the ODCE and possible court prosecution by the DPP. It seems inevitable that Sean Fitzpatrick and Willie McAteer will allege some official approval as cover for their dubious actions. All routes of claims and counterclaims of alibis put Finance in the firing line, as ultimate power base.

Ubiquitous criticism of the FG/Labour government is the extent to which it is a seamless continuation of the previous administration. Rhetoric of burning bondholders and renegotiating unsustainable debt has been jettisoned. Information notes, briefing material and ministerial scripts are vetted by Kevin Cardiff. Finance fundamentalists believe in the correctness of their past decisions. The Cardiff culture insists upon secrecy. Outsider Patrick Honohan spilled the beans about actuality of the bailout negotiations, a year ago. Finance instructed the Cabinet to conceal the truth. As always, they knew best-unparalleled arrogance. This same mentality was apparent when Kevin Cardiff came before the PAC for his “doddle gate” evidence to explain away repeated bungling over NTMA communications that sought to highlight double counting of €3.6 billion of House Finance Agency debt aggregated within general government debt. This hearing resembled an episode of Downton Abbey. Effrontery of servants (TDs and senators) questioning superior wisdom of their masters in Finance. There was no concealing intellectual snobbery.

Finance’s failings don’t just relate to the past tense. The euro apparently unravels with each passing week. Failure of EU leaders to reach agreement on the role of the ECB is being compounded by unsustainable sovereign bond yields. As contagion spreads to core states, the EFSF can’t cope. Where is Ireland’s Plan B if the single currency falls apart? Finance must be ahead of the curve in charting our optimal course. We must urgently construct new bankruptcy legislation. Finance seems more interested in protecting state-owned banks and the failed Nama entity it created. Finance still can’t procure software to integrate tax and social welfare systems. We can’t means test or tax universal benefits.

Notion of rewarding failure by nominating Cardiff defies logic. Even worse is cynicism behind his Cabinet cheerleaders, who deem him to be the most eminent, experienced and capable person for this post, yet not sufficiently indispensable to stay in his present position. Persevering in the face of rejection is Cowanesque. All permanent secretaries could have been compelled to voluntarily submit their resignations in advance of administration change. Kenny and Gilmore bottled this option.

A new external boss is required in Finance. The recruitment competition is already underway. This process must not be derailed — irrespective of whether the EU parliament approves Cardiff. Accountability is not yet attained. Any future enquiry demands a novel openness within Finance, not protecting key players. Cardiff’s exit must be a one-way ticket. Throughout the bank guarantee, Nama establishment, troika arrival and nationalisation of financial institutions, we were warned of drastic fatal consequences if we didn’t acquiesce. The man at the helm has landed us on the rocks.

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