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Friday, 2 July 2010

Merrion Street Mandarins Have Failed Us...

The Merrion Street mandarins have failed us – it’s time for a shake-out...

THE mid-point of the year sees the publication of the half-year exchequer returns and CSO data on the economy. This will form the backdrop to the formation of December’s budget.

Next week the Department of Finance will circulate its strategic memo to shape 2011 expenditure plans. The Government has been softening up the public for tax hikes. A flat household charge of €175 for water and an average residential property tax of €1,000 per household are being promulgated. All the while, the Bord Snip Nua report continues to gather dust.

Finance Minister Brian Lenihan has announced an external independent group is to review the performance of the Department of Finance over the past decade.

Speculation has centred on its advice to ministers, forecasting ability and competence dealing with the banking crisis. The lack of specialist personnel has been acknowledged. Its annual budget forecasts of GDP and tax revenues have been wide of the mark, through the boom and the bust, making Met Éireann look like clairvoyants.

The Central Bank and Office of the Financial Regulator bear primary responsibility for failing effectively to supervise the lending practices, balance sheets and solvency of the banks. Mandarins in Merrion Street have alibis for this systemic failure.

The fundamental flaws of Finance over the past 10 years have not related to banking policy. Its core function is to safeguard the public finances. The overall balance between tax revenue and public expenditure has fallen apart. While Patrick Neary was asleep at the wheel of financial regulation, Merrion Street was comatose at curbing spending. It has presided over a decade of profligacy.

Total government expenditure has increased from €35bn in 2000 to more than €60bn last year. Even without the banking bailouts, they have allowed our budget deficit spiral to €20bn a year.

The minister’s probe into his own department will be meaningless unless there is a complete restructuring of the expenditure division. The department’s controlling competency has to be questioned.

Let’s start with the basics of accounting – verifying that monies voted under a particular sub-head are spent in accordance with the provision. €2.35m was set aside under the SKILL programme for the training of low-paid health workers. No one in the Department of Finance seems to have exercised any oversight as to where the money went. More than 30 overseas trips indicate this was a global junketeering fund. One taxi bill alone cost €12,000. Invoices can’t be traced for some expenditure. The supervisory audit role of Finance is appalling. Remember FÁS?

Every year the Comptroller and Auditor General reports to the Dáil Public Accounts Committee on a post-hoc basis. He details a litany of projects that ran over budget. The wastage of taxpayers’ cash is chronicled many years after the event. Who is supposed to be acting in a contemporary fashion to prevent such fiscal misuse? That’s supposed to be the day job of the Department of Finance.

Its failure to curb and control expenditure led to the establishment of An Bord Snip Nua. Under the chairmanship of Colm McCarthy, a menu of cuts was published on July 16 last year. They proposed measures to save a total of €5.3bn, with 271 individual recommendations. Only 32 have been fully implemented and 89 have been partly introduced.

Their work fine-combed each department’s activities. They concluded that the delivery of public services could be improved, made more coherent and delivered more cost effectively at local level.

McCarthy’s group concluded that public service numbers should be cut by 17,358 (almost 7%). A year later, the department’s own figures suggest only 410 fewer public servants will be on the payroll.

Big reductions were advocated in Education and Health, with more than 6,000 personnel each, plus 1,100 in Agriculture. The arrangements for substituting absent teachers on sick leave should be reformed, with a minimal saving of €100m a year.

Enhanced productivity at third-level institutions could allow the reduction of staff numbers by 2,000. The restrictive work practices in the health sector and the burgeoning bureaucracy of 3,000 extra administrators since the regional health boards were abolished were unjustifiable.

The potential of outsourcing government activities could save tens of millions. This would include such administrative areas as payroll, data entry, payment and claims processing and invoicing. This would have the dual benefit of significant efficiencies and direct savings.

Information and communications technology work is radically changing in every commercial workplace. Each of our major hospitals has its own personnel department. Why is this function not synchronised under the HSE? Under the Data Protection Act, a hospital consultant cannot access diagnostic test results on a patient commissioned by another consultant whereas, abroad, patients carry a Smart card with all their medical records collated in a unified, accessible fashion. The Department of Finance should drive these reforms, akin to an examiner or administrator fixing ailing companies. The list is endless. Bord Snip highlighted two areas where the state was simply all over the place – science and innovation and the delivery of enterprise supports. Plans to streamline these areas were set out. Departmental turf wars ensued. Empire-building bureaucrats have successfully resisted change because of the weakness and ineffectiveness of the Department of Finance.

MORE than 80 quango rationalisations would save €170m, plus €20m in capital costs. These bodies alone employ 16,000. The proposed abolition of the Departments of Community, Rural and Gaeltacht Affairs and Arts, Sports and Tourism were completely ignored. The plethora of regulators and ombudsman offices has been allowed to remain intact.

The level of imagination employed by Finance has been limited to slide rule economics. The pension levy, public service pay cuts and social welfare rate reductions have now been exhausted. There is no more low hanging fruit of crude and simplistic measures. Every business manager has had to put in the hard yards of productivity reforms. This can be ignored no longer in the public sector.

The Celtic Tiger era spawned a twin subversion of the Department of Finance. Social partnership and the Department of the Taoiseach reduced the role of Finance to rubber-stamping wasteful programmes. Politics and populism prevailed over prudence.

Our political masters are cogitating new taxes on our homes, charges on our consumption and various stealth revenues. All will result in a heavier burden on hard-pressed families, struggling to make ends meet each week. Sovereign debt servicing costs are inevitably rising (last week by more than 5.6%).

Recession necessitates more welfare expense due to unemployment. Anecdotes abound of waste and gross inefficiency in the delivery of public services, some of dubious value. If Finance insiders aren’t up to the job, it’s time to employ proven external expertise to reform and rationalise.



Report by By Ivan Yates - Irish Examiner.

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