ReformCard: a tool to help voters decide

The editors and contributors behind have teamed with a large volunteer team of project managers, web designers and others to produce ReformCard a measurement tool to rank each party based on the quality of their policies on political reform.  We hope this will prove a critical instrument in informing the election 2011 debate. It provides the 25 proposals for political reform in Ireland which we believe provide the best possible combination to transform the political system and ensure it is fit for purpose in the 21st century. Continue reading

The Budget Process

Theresa Reidy and John Considine 7th December, 2010

The most discussed budget in decades in due today. The budget is the main feature in the Finance calendar in any country but this year, the Irish budget is likely to be the centre of international attention. Budget 2011 will be exceptional for a variety of reasons. It will be the first budget presented to the Dáil, subject to direct monitoring, under the terms of the EU and IMF bailout. In fact, the bailout is dependent upon the budget being passed. The ongoing crisis in the Euro area means that international markets, governments and institutions will all be observing the outcomes of the budget.
Continue reading

Here’s hoping FG proposals will include open government

A new Fine Gael policy document appears to be in the pipeline according to The Irish Times. It is said to include a slimmed-down civil service, a new cabinet minister for public sector reform and the abolition of the HSE “in its current form”. Under Fine Gael proposals, all Departments and agencies would openly compete for resources on an annual basis and publish the details of their bids. The use of cost benefit analysis would be dramatically widened to evaluate how money had been spent. Continue reading

Bank Guarantee Scheme documents released

Posted by Eoin O’Malley (15 July, 2010)

Even if there is no inquiry into the events leading to the decision on the Bank Guarantee Scheme, the Dáil Public Accounts Committee release of many of the relevant documents today, should allow us to draw some conclusions about the adequacy of the process, information etc. The documents are available here, there should be 56 up by the end of the day. Continue reading

Is Lenihan right to exclude political decisions from the Banking Inquiry?

Eoin O’Malley (6th July, 2010)

Little attention is given in today’s papers to Brian Lenihan’s appearance before the Oireachtas Joint Committee on Finance and the Public Service yesterday. There he answered questions on the proposed Commission of Investigation into the banking crisis and in doing so made some statements on how he sees his ministerial responsibility. Continue reading

Finance, ‘best advice’ and ministers

Eoin O’Malley (28 June 2010)

The decision to review the advice and structures of the Department of Finance is to be welcomed (see Eddie Molloy and Dan O’Brien on this here and here). It is pretty obvious that the department lacks the capacity to give good advice to ministers, and that it was careful never to give information out that might damage its own reputation or that of its minister. Continue reading

Department of Finance

John Considine and Theresa Reidy
University College Cork

The Department of Finance has set out its mission statement in very broad terms. Its role is ‘To support the achievement of the Government’s economic and social objectives by promoting a sound, sustainable economic and budgetary environment, continuing improvements in the efficiency of public services, and an effective framework for financial services.’

There are competing views on the role of Finance departments. The Irish Department of Finance takes the broad view for itself. The narrow view allocates a tax and expenditure role. This narrow view presumes that monetary policy and financial supervision is controlled by the Central Bank and is usually accompanied by a non-interventionist disposition on policy. The broad view is that they control tax and expenditure policy, as well as managing the economy and administering financial policy.

In evaluating the Department, whether you take a broad or narrow conception of the role of Finance, the Department has an unfavourable track record. This in itself is not particularly noteworthy, Government departments are often subject to criticism. However, the Department of Finance has long promoted itself as “first among equals”. There is a significant body of evidence which undermines this view.

The narrow view of Finance posits the Department as the “guardian of the public purse”. Hecklo and Wildavsky (1981: 40) quote a British Treasury official describing their role as “the first lesson for any new official in the Treasury is that it is the Treasury’s business to save money, not to spend it”. In this core responsibility, the Irish Department of Finance has a variable record. The first fifty years were marked by an enthusiasm for austerity, though this did not always translate into actual policy outcomes in terms of fiscal imbalance. This preference for fiscal conservatism may have led Whitaker (2009) to refer to a culture of “miserabilism” in the Department. Some looseness in current spending was planned from the 1970s and the period since 2000 marks the start of sharp increases in public spending. Recent evaluations (European Commission, Mc Carthy Report) have indicated that concern with value for money slipped sharply during this period.

In the broad view of Finance, departments are allocated wider roles in economic planning and finance policy. Economic planning is most associated with TK Whitaker’s time in the Department. This was the highpoint for the Department and economic planning in Ireland, while the low point is associated with the creation of the separate Department of Economic Planning and Development in 1977. More recently, low numbers of professional economists in the Department have pointed to the low priority given to long term economic planning and new departures in economic theory and policy.

Limited economic expertise has also been cited as an explanation for the poor forecasting record of the Department of Finance. High margins of error have long been a feature of forecasts of revenue and deficits. Poor forecasting is a feature of general Irish economic commentary and the Stability and Growth Pact update from October 2008 outlines a number of forecasts from several agencies, including the Central Bank, ESRI and private sector commentators, all of which were inaccurate, a point was made by the Secretary General of the Department to the PAC on May 6 2010. However, European evaluations have highlighted the poor forecasting record of the Department for some time. Importantly, in a comparative evaluation, the Department came second last of the 12 Eurozone countries. While there is an element of uncertainty in all forecasting, the Irish Department of Finance is amongst the worst at this inexact science.

These points are important in terms of the reputation of the Department of Finance. The myth of Finance suggests a rigorous Department, keenly focused on controlling public expenditure. The international and domestic evaluations paint a very contradictory picture to the conventional wisdom of Finance. The Department of Finance seems lax in its approach to budgetary predictions, particularly multi-annual budgetary projections and targets, and control of spending outcomes, despite their overwhelming fixation with control of the expenditure process.

The final aspect of the role of a Department of Finance is financial policy. Traditionally, this area has been delegated to the Central Bank (and the Irish Financial Service Regulatory Authority). This delegation has not always worked and has resulted in unclear lines of responsibility. A good example was the evasion of DIRT. The Department of Finance claimed the issue should have been dealt with via exchange controls (i.e. the Central Bank was responsible) while the Central Bank claimed that it was a taxation matter (i.e. the Department of Finance and the Revenue Commissioners were responsible).

Of all other policy areas, this is the one where the Irish Department has been subject to the greatest criticisms. Financial policy has been marred by scandals for many decades. The small size of the financial sector in early decades mitigated the need for a developed financial policy. As the financial sector expanded, policy and regulation have tended to lag. Scandals in relation to DIRT, the collapse of ICI and the more recent banking crisis are glaring flaws in the management of financial policy.

Inadequate performance is a growing theme in public coverage of the Department of Finance since the 2008 financial crisis. There are big questions to be addressed in the Department of Finance. The first must be whether the Department should have, or has the capacity, to achieve the broad objectives which it sets for itself. Despite, their institutional pride and view of themselves as superior, the evidence does not support this.