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.

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15 thoughts on “Department of Finance

  1. To add some recent comments to this posting
    see these two articles by Eddie Molloy printed in the Irish Times on 8 and 9th April 2010

    Abject failures of Finance will blight a generation
    OPINION: The Department of Finance has been central to all that has gone wrong – yet it remains blind to its failings, trapped in a bubble of dysfunction, writes EDDIE MOLLOY Part I of two articles
    http://www.irishtimes.com/newspaper/opinion/2010/0408/1224267886259.html

    Seven things the public service needs to do
    OPINION: The comprehensive failure of the Department of Finance to deliver on its central role in the economy and public service has a number of important implications for that department and the wider public service, which must be central to any reform programme, writes EDDIE MOLLOY

    http://www.irishtimes.com/newspaper/opinion/2010/0409/1224267974183.html

  2. This might be a dumb question, but is it possibl to sack senior members of departments? When they mess up, when they get their figures wrong, can they be held accountable?

    • It used to be very easy in theory, the minister or cabinet could just fire a civil servant who served at the pleasure of the government. In practice very few were sacked and then just for theft or fraud.
      Recent changes (Public Service Management (Recruitment and Appointments) Act 2004 and Civil Service Regulation (Amendment) Act 2005)) have made it harder to sack a public servant but have put in place procedures for doing so that might make legal challenges to dismissal more difficult. The reasons for dismissal now include under-performance. But as far as I know no one has been successfully sacked under the new regime.

  3. Interesting to read all of this in the light of today’s Irish Times article on the ‘fig leaf’ of a whistleblowers charters proposed by the government. If there are problems in the way that Finance works, there is no (safe) possibility for an employee to come clean about this.

  4. @Eoghan
    Yes, civil servants can be fired, but with such considerable difficulty that it is done very rarely.

    The corporate sole nature of Irish Government Departments means that civil servants are effectively extensions of the Minister. Thus when things go wrong you find that if you talk to politicians, they blame the civil servants (eg. ‘I took the best advice available to me’) and if you talk to civil servants, they blame politicians.

    This was part of the reason that some of us advocated (in 1986) a complete separation of powers between the Representative/Legislative/Oireachtas side from the Executive/Ministerial/Civil Servant side of government.
    “There have been many attempts to improve the effectiveness of the government by making changes in the organisation of the public service. Among the more important ones were:
    ― the creation of some state-sponsored bodies;
    ― the establishment of the Local Appointments Commission
    and Civil Service Commission;
    ― the setting up of the Public Services Organisation Review Group (Devlin Report) in 1966;
    ― the introduction of a new method of appointments for senior civil servants in 1984.”

    None of these proposals has dealt with the need to separate clearly the Active and Representative Branches. The primary problem centres on the dual function of Cabinet Ministers —
    both executive and representative, which results from the fusion of the legislature and executive.”
    For the full article see http://193.120.95.144/politics/design-for-democracy.pdf

    The more recent OECD report on Public Sector Reform and the Government response did not address this critical issue.

  5. As well as the lack of capacity and expertise in Finance, is the problem not a structural one?
    1. There was a lack of independence for the Central Bank and a lack of clarity of its role. The practice that retiring SGs in Finance went on to become Governors of the Central Bank meant that Finance had an effective control over the nominally independent Bank. The appointments of Honohan and Elderfield seem to have broken this link and increased the Bank’s independence.
    2. There is a conflict in the roles of Finance. It serves a minister and government with short term time horizons, but also acts as the guardian of the state’s finances in the long term, and is expected to produce data on which policy decisions are made. But the culture in Finance and the civil service is to protect the interest of the minister rather than that of the state. We have seen that, through incompetence or otherwise, the data have tended to be designed to suit the government’s policy objectives rather than offer a more objective appraisal of the economy – though as has been pointed out the ESRI performed pretty poorly in this regard as well.
    Would a number of independent Offices help clarify the role of Finance and reduce the potential for conflict of interests? What about a State agency that collected economic data and projected economic forecasts, and an Office of Budgetary Responsibility like that set up in the UK to ensure that if governments did choose to implement pro-cyclical fiscal policy it would be more difficult to defend.
    More generally should we have a Office for Policy Appraisal which independently assess the success of government policies?

  6. As an alumnus of UCC I’m pleased to see some straight talking about the DoF from the place where Finbarr taught – and thanks to Donal O’B for highlighting Eddie Molloy’s coruscating assessment. Eoin O’Malley’s question about the need for an Office for Policy Appraisal echoes calls by Philip Lane (on irisheconomy.ie and elsewhere) for an independent statutory body exercising oversight of fiscal policy.

    Unfortunately, this is all too little and too late. The game is up. Ireland – and the rest of the PIIGS – had the sovereignty and opportunity to implement responsible and sensible economic, financial and fiscal policies on joining the Euro. And all have blown it. Italy is making some effort to extract itself from the PIIGS, but the remaining PIGS are now protectorates of the EU. The European Commission and the ECB now have the final say on Ireland’s bank resolution policy and fiscal stance. For example, we await, at the end of this month, their assessment of the proposed restructuring of Anglo Irish – which will be, perhaps, the biggest single millstone around Ireland’s neck for the next decade.

    And I have a sense that a majority of Irish people are aware of this and are resigned because home-grown governance is so inept and corrupt. It is a phenomenon that I have encountered frequently over the years in Spain, Portugal, southern Italy and Greece.

    It may also help to explain the lack of public interest in politcial or constitutional reform – despite major efforts by the opposition parties and the best efforts of contributors to this blog.

  7. The failure at Finance has indeed been remarkable and given that twice in a generation we have been brought to the brink of national bankruptcy now must be the time to look objectively at these failures and attempt to proved a sound framework for the future. The links to Eddie Molloy’s work which Donal posted are certainly worth reading. It is surely obvious that the top-level appointments process should be used to actually recruit completely new blood from outside the civil service. Kevin Cardiff has admitted to skill shortages but who is
    being brought in and how many? Other proposals included changing rules to allow senior officials to comment on policy advice when they appear before Dáil committees and
    crucially publishing that advice as well as instigating a system where it becomes clear where the advice was rejected for party political reasons. In terms of firing underperforming civil servants the most that happens is that they are moved sideways and then unfortunately it can be the individuals who stand up to the minister in the public interest who receive this treatment. In its New Politics document Fine Gael proposed a whistleblower’s charter which would also help in this regard and is likely stronger than that proposed by Fianna Fail which David referred to. Indeed other proposals in that document if implemented would also go some way to assuaging some of the point about opening up the budgetary process. These include a Responsible Budgeting Initiative to make the budgeting process much more transparent and allow others from the EU Commission to the opposition and of course the academic community to contribute before the budget is published. Potentially more transformative although the document does not set out whether it would usurp the Department’s policy making role or merely feed into it, is a Parliamentary Budget Office supported by an Independent Advisory Council to have input into key budget parameters such as the borrowing requirement and the implications of tax and spending policy as well as performance evaluation of spending programmes. A useful addition would also be a move to fully open government where every spending decision taken by every Government Department and agency would be posted onto the web akin to recent moves in both the US and the UK.

    • 1.Considine and Reidy list the functions of a DOF. They omit one very important function carried out by Merion Street, ie the personnel/Human Resource function. In my recent articles I referred to the DOF’s failure in this areea. The public service generally attracts good and even great people but the abominable lack of sophisticated people management systems and skills down through the line management is evident every where in the litany of HR failings I mentioned.The only real assett the publuic service has is its people and this’asset’ has benn abused and badly managed.
      2.RE firing officials, they can be fired if the Minister has “lost trust ” in the official. Jane Suiter is right. Loss of trust is unlikely to arise from incompetence ( though that is possible) but rather from the official standing up to the Minister, or as I believe happened a couple of years ago, where the Official refused to take the hit for Ministerial lying and stuck to his (the oficial’s)version of events. Hence the need to separate the Active and Representative branches as one correspondent puts it.
      3 Re Corruption. when the scandal of Decentralisation was unfolding I wrote to the Cand AG to urge that he insist on thorough risk assessments, that is strategic, operational, financial and reputational risks, as Mullarkey expresses it. The reply I got was to the effect that it was not a matter for the C&AG as there was no implication in Decentralisatioin that there was impropriety, irregularity or lack of integrity in the use of public money. There was a time in ireland when sex was the only sin. Still today , hanky-panky in regard to money, ie brown envelopes, seems to be the only kind of corruption there can be.
      4.Decentralisation. I wish some investigative journalist would research the strategic, operational, financial and reputational consequences of D., which was the most cynical political stroke of all time and ultimately in its pervasive consequences will be seen to have been the most damaging.Since 2003, Decentralisation has involved the appropriation and systematic vandalisation of the poublic servic, my public service, not Fianna Fail’s, for party political gain. It has ended the careers of many good people and disrupted the lives of many others.
      %. Eoin O malley and others are making a very important point , namely that there is a need in all institutions for independent scrutiny and advice. For example in industry you can’t have the head of safety reporting to the head of manufacturing. or in a hospital, you must have independent scrutiny, hence the need for HIQA. This point is in the same vein as my central plea for a Separate, full ministry for Reform. “You cannot put new winw in old wineskins etc.

      6 Paul Hunt depresses me but I think he is right , we are bust.. Somewhere among my papers is an old article by Barry Staw entitled Escalating Commitment to a chosen Course of Action:Knee-deep in the Big Muddy. Staw also wrote about “the trapped administrator”. Essentialy he iluminates the psychology of someone who makes a decision, such as the bank guarantee, and then even when it becomes clear that it was a wrong decision, they pour more good money after bad, like a gambler trying to get it back on the last race. Decentralisation is such an example and so at the time was the persistence in their mishandling of the Philip sheedy case, leading to the resignation of a Judge. The solution in such predicaments is that someone else who will not lose face by reversing the decision takes command.
      6.The OECD report is a sanitised, got-at report. Just look at how little they had to say about Decentralisation. However they make an important point about the erosion of the strngth of the “strategic center” of the public service. At the center of any large corporation you need small cadres of specialists. this applies to every department. Within the past year I have heard that the Dept. of Educ. would in future consult CSO stats in planning the school building programme! Also that the Dept of the Envt. would introduce rules about building on flood plains!.
      7. Watch this space. What I would like to see and something I would argue we are entitled to see from the DOF this June is a statement of outputs and ,especially outcomes for 2009/10 but even more enlightening an account of the outcomes of their cumulative “best advice” over the past 10 years.

    • The purpose of the DoF as is stated in previous contributions, is unclear and does not meet current needs. The purpose of the DoF needs to be addressed even if we are subjected to EU oversightin the immediate future. Once the purpose is clear, which it currently is not, then one can begin to tackle structure. The danger with the current debate is that tinkering with structure appears to occupy a lot of thought which, I suggest, should be more appropriately focused on purpose.

      Secondly, there is an absolute need for transparency in the operating of the DoF and the public service generally. There is too much secrecy. I suspect secrecy serves best those who make mistakes.

      The DoF should be accountable publicly to an outside body. The Freedom of Information Act should be broadened. We need to encourage informed debate about financial issues before they are decided upon behind closed doors e.g decentralisation, individualisation, tax breaks.

      But will changes/improvements happen? Lets hope they do. My question to myself is, how can I act to help change/improve the DoF?

  8. @ Eddie Molloy

    Congratulations on your recent article as it provided a much needed flash of daylight on governance in Finance. Below is my response to a debate on the irish economy website that might be of interest to you.

    “And the clever ants who pontificate from the higher slopes of the ant-hill have no incentive to engage in any change of the power structure”.

    It seems like an opportune moment to resurrect the story of my great grandfather Eamon Mansfield who played a significant role in the early years of the Irish State and became one of the Land Commissioners. It is worth reading the full transcript of this 1934 Seanad debate as it is very illuminating.

    http://historical-debates.oireachtas.ie/S/0018/S.0018.193402070004.html

    What I get from this is that a thorough knowledge of Irish Law and a strong conscience are a powerful combination and you would hope that those currently towards the top of the ant hill might reflect on this.

  9. @Eoin O’Malley
    “As well as the lack of capacity and expertise in Finance, is the problem not a structural one?”

    If it is structural, does this lead to looking at the base document defines the structure ie. those aspects of the Constitution which define how we govern ourselves?s

    “a number of independent Offices…. an Office of Budgetary Responsibility….a Office for Policy Appraisal which independently assess the success of government policies?”
    Surely this is part of the role of the Dáil, if it were really separate from the Government?
    How effective are the other independent offices that have been set up eg. the long standing National Economic and Social Council(NESC) and the very similar the later National Economic and Social Forum which lasted for 16 years before being merged with NESC, Forfás, the National Competitiveness Council.
    Have these bodies improved either governance of policy formulation and implementation?

    Then there is Ombudsman and (Freedom of)Information Commissioner who has direct experience of dealing with the implications of Government policies and decisions …

    In a recent speech on Challenge and Change in the Irish Public Service in 2010, Emily O’Reilly observed that
    “It seems to me that there is a demand now to change how we govern ourselves and to act on the basis of values which will endure. I think we can all agree that people generally want to live in a society based on the values of fairness, equal opportunity, respect for human dignity, respect for the law; a society that is well governed. This current crisis presents an opportunity to put right many of the unsavoury practices which we have indulged in over the past decade or so and to create a society we can be proud to live in. It seems to me that what people are seeking now is not some Utopia but a set of practical arrangements for government, based on clear values, which will be sufficiently robust to accommodate the inevitable vagaries of human nature. ”
    http://www.ombudsman.gov.ie/en/SpeechesandArticles/Ombudsmansspeeches/Name,11884,en.htm

    In another speech, she focused on
    “the treatment by the Oireachtas of my investigation into the so-called Lost at Sea scheme. I will track a line that runs from maladministration in a Government Department right through to poor Governance at the very highest level of this State.

    I will submit that the economic and political crises that face this country will never be dealt with unless the culture and values of the political and administrative classes undergo profound change. An investigation by an Ombudsman may seem small scale in comparison to the huge financial challenges around us, yet it is a microcosm nonetheless of the faultlines within our system. ”
    http://www.ombudsman.gov.ie/en/SpeechesandArticles/Ombudsmansspeeches/Name,11772,en.htm

    We have a lot of work to do.

  10. Has Theresa Ready and her co-author ever been in the Department of Finance or spoken to anyone who works in the Department of Finance ? Answer, I would suspect is probably not.

    The analysis offered is typical of the commentariat in Ireland at the moment, academics and self promoting management consultants who criticise everything and offer overly simplistic solutions all designed to make themselves look intelligent and ensure they get air time on RTE. UCC’s Economics Department and many other departments there are well known to be substandard and have been for many years. What remedy do the authors propose for that ?

    • We work quite a bit on depts of finance and ministers for finance. Some of our work on Finance has already been published in Administration, refs below. A piece on the Department of Finance is due to be published later this year and our current paper “Fiscal Performance and Fiscal Institutions in Ireland, the case for reform” will be submitted for publication in the coming months. All of the papers document the research conducted and methods employed.

      Considine and Reidy (2008) ‘The Influence of Finance Ministers: Lesson from 20th Century Ireland and the United Kingdom’. Administration, 56 (1).
      Considine and Reidy (forthcoming 2011) ‘Department of Finance’ In: Governing Ireland. Dublin: IPA Press.

  11. So Dr Reidy, the answer is that you haven’t spoken to anyone in the Department of Finance in relation to your research. Well I suppose no one should be surprised about that.

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