Mr. Rob Wright:

Yes. If one has a monetary policy that is perhaps providing too much incentive for growth and there is evidence of overheating in the economy, fiscal policy, which is what one spends or how much one varies tax rates, should not aggravate that overheating. It should pull back; one should show restraint. I will get into the substance later but, over that period when Ireland had incentives for building that added to the enthusiasm rather than pulled back from that enthusiasm, it was a big problem.

That was a big problem. That was called pro-cyclical, in other words one is working up the curve of activity when one should be monitoring that activity. Second, to have spending going up by 12% a year when one already has an overheating economy is not good. That is pro-cyclical activity and in fiscal policy terms the international observers, the IMF, EU, OECD, did report on Ireland over that period. It was pretty scarce on issues of financial regulation. I think there were some real gaps in what the international agencies did. Similarly it was varied somewhat for pro-cyclical fiscal policy but the OECD did provide a pretty consistent pattern of concern about that.

I thank the Chairman for that question and prompt because it is a vital issue. When Ireland joined the European Union, essentially you lost your own independent monetary policy. So if your economy was overheating, an independent Central Bank would increase interest rates to have a more restrictive monetary policy to reign in growth. That could not happen in a monetary union. So you had overall interest rates and other financial markets over-stimulating activity in Ireland at the time. Again, access to the cheap short-term money to fund long-term mortgages was a key factor but what was needed at that time, given that fact, was a more restrictive spending pattern and that did not happen. So that is what we looked at. Did the Government receive advice to be very careful about what it spent or how it activated its tax reductions at that period?

The second thing we looked at was whether the Department provided appropriate advice on the risks of an overheating property sector, particularly construction activity. Third, whether the Department gave appropriate tax policy advice on the extent to which the Government's own resources were tied to one overheated sector of the economy. Those were the three things we looked at.

On the first matter we reviewed in particular the advice on pro-cyclical fiscal policy. We reviewed annual memoranda to Cabinet setting out the fiscal framework that was recommended by the Department for moving forward. One of the other observations that is pretty stark in the report is that there was very little other consistent stream of written advice that we could access. This was a major concern to the panel but we did use that pattern of regular memoranda to Cabinet to get a sense of whether the Department was actively advising against pro-cyclical fiscal policy, which was a significant contributor to the problems in 2007 and 2008.

We found that the Department had provided clear warnings, had recommended a level of spending and tax measures that was substantially more moderate than what the Government ended up doing. Some of this advice was certainly more direct than the people of the country knew about; it is private advice because advice to governments are so. With very few exceptions this advice was substantially exceeded. There was a more active spending and tax agenda coming out of Government than was recommended early in that budget process. We examined the reasons that was the case, the first reason being just the exuberance in this country at the time. There was great success in the 1990s and there was chatter around the world about the Celtic tiger, the Irish miracle and people believed that. They saw the growth that was happening and they wanted a share of that, they wanted to catch up. That fairness issue overwhelmed decisions and in fact, any casual observation of economic reality would show you had a very well managed debt pattern in that there was not excessive debt, you were meeting your targets, revenues were coming in higher than anticipated and so the layman would not see a screaming issue of concern there.

That was our first observation, that it was hard to restrain when things just always kept going well. Second, from a Canadian perspective, I found that the fiscal framework that the Government establishes for managing itself is a core of government management and in Ireland over that period this process was overwhelmed with two other extremely important processes, one being the programmes for Government. We have had some coalition governments in Canada on very limited occasions and that has put a lot pressure on accommodating and spending the coalition.

I understand that pressure and Canadian governments are susceptible to the same but that was a more ready part of everyday regular management here and in many cases it completely overwhelmed the fiscal framework that was established by Government. Second, the social partnership process was a very well-established process at that point. It initially started by helping the country make very important structural changes that were win-win for labour and Government and enhanced substantially the competitiveness of the Irish economy. That was really the circumstance in the 1990s. By the turn of the century that process was dominated by "Where is our piece of this prosperity?". That prompted substantial expansion of wages within the public sector that worked to keep up with an overheated private sector.

With reference to salaries in the public sector there is an example in the report where the average salary for the Irish teaching profession moved from being ranked seventh out of ten in an EU comparable group to third out of ten within six years. That is a remarkable pace of growth. The social programme was evolved at the turn of the century into a process for broadening the fairness of what was seen as broad-based prosperity. It helped to fuel the 12% a year growth in spending and made it much harder to stick with appropriate fiscal policy.

Third, we found some serious deficiencies in the quality of finance advice. Advice existed and if it had been embraced one could see where that could have helped facilitate the chance of a soft landing from the boom, if there had been a real engagement on that, but there was no real engagement. Our advice was pretty blunt on this, namely, that the Department should have strengthened its advice in several respects. It should have highlighted the concerns as it went forward. It is one issue to express a concern on one year of expansionary fiscal policy that was putting the country at risk but after five years there should have been extraordinarily strong concerns expressed.

Over that period the OECD and others had made a number of observations that the construction sector in particular was really overheated. At that point it became too late to say, "How can we unwind this without a hard landing rather than a soft landing?" I am sure there were also some broader political issues on reining in an economy with great expectations. We provided a number of recommendations on this policy function and it is one that I think is the most vital going forward. It would require a change in culture but we asked the Department to consider not holding back on its mandate. The Department of Finance is uniquely positioned to provide regular advice on the total macro-economic risk environment facing the Government. We did not see evidence, for example, of building in the very reality that the monetary policy was inappropriately loose at that time because Ireland was driven by the interest rates out of the broader economic European Union. We thought they should have had that advice in the Department and that they should have been more active in looking at the financial sector. They focused in a more limited way on the breadths and we recommended again a number of areas where they should annually report to the Government on the broader set of macro-economic risks.

We provided recommendations on a need to strengthen the Department's written record of advice. I will speak to that later in the question and answer session. We recommended on a number of other issues relating to strengthening its capacity to provide this sort of advice.

We then turned to issues of the management of the Department, including the structure and the staffing of the Department based on what we heard from others in the public service, political observers, politicians and from people in the Department itself. We felt the management framework for the Department was quite weak and needed to be strengthened substantially. In particular, we said it did not have a critical mass in vital technical skills, including economics and financial sector expertise, taxation policy expertise - which it should strengthen. It had too many generalists.

It had too many generalists. Observers from outside said it was more numbers-driven rather than strategic. I agree with that. It did not have a strong enough engagement with the broader economic community in Ireland. It operated in silos, even within the Department. It really did not have a modern management. It did not connect to its full team and there was some very good people in the Department of Finance that were not being fully utilised because of this management challenge. This was a sort of candour and assessment that the Secretary General of the day was seeking from us and we delivered it and really called it. We made a number of recommendations that dealt with strengthening the human resource management at the Department.

It is very easy to make these observations in hindsight, on the economic crisis and on the management regime. That was core to our mandate from Government and it is what was embraced by the Minister of the day and his Secretary General. We did go out of our way to acknowledge that there were some very gifted people there and now members have been exposed to those people. They have worked very hard over the last four years.

I will very briefly go over the range of recommendations we had on management. First of all, it had a very broad Department. It included public service management, it included senior executive management, it included expenditure management and it included classic macroeconomic management.

Our first piece of advice, we recommended to the Government that the Department should sharpen its focus of activities on the core business of the economy and strengthen its capacity to manage that core business. Our advice was that they should spin-off public service management. We did advise that the Department retain sectoral analysis. The Government of the day moved that out as well. There is, I think, appropriate connections between the two Departments to make things work, but the Department has been sharply focused from where it was and it is more definitively focused on the core economic issues of the day.

We had a number of other recommendations on public service management, and I think those would not be within the Department of Finance now but with the expenditure management Department. I note that given the focus on restraint, there probably continues to be less progress on public service modernisation than should be seen. Canadian public service management is not stellar. The pace of change and modernisation in government seems to be hard, slower paced and more restrained. The Irish system, in particular, needs to be energised to help public servants cope with extraordinary demands for service in a time of restraint. I think not as much progress has happened on that front on the broader public service.

Going back to focusing on the other recommendations we had for the Department of Finance, to strengthen the remaining core structure, we suggested a number of things. We suggested de-layering the executive management team so that there were more appropriate direct reports to the Secretary General. If one thinks of what the management objective is for a world-class Department of Finance, one would say one has to have the right people and manage those people well. It is a knowledge institution where all those people should be connected to the objectives. One has to ensure that those people have a real sense of purpose in providing the necessary advice to the Minister. Their best advice, regardless of what the Minister wants to hear, you get their best advice and then you implement the Minister's decisions. Those three steps - the right people, the right management systems and a focus on professional policy advice. We saw a lot of very good people in the Department. We thought they should substantially increase the number of economists and other financial and tax experts where they were very low by international standards.

We saw a real need to modernise the management regime in basic things such as structuring, communicating and connecting all the members of this team. There are now only 300 people in the Department of Finance. They have to be connected to the sense of purpose the senior executives have and what the Government wants. There is a whole range of issues that should be done to improve that.

Finally, on policy advice I mentioned we had some very important advices on how to formulise some of the policy processes. I am happy to speak to these individual pieces of advice. In the four years since - although I am here to talk about this report which is four years old - there has been a great deal of progress. There has been a much stronger engagement with the EU that has covered off some of our advice for particular fiscal councils and one exists now. Ireland's relationship with the EU has provided greater rigour that has changed the timing of the budgetary process and strengthened that.

I am also aware, from my contacts from Canada and with meetings I have had over the last few days, that the Department has made some very important progress in implementing the ideas we had in place. The Secretary General of the day is better equipped, and the Minister, to talk about that progress. There has been some real progress there.

I also note that there has been a very important step made on repatriating economic sovereignty with early withdrawal from the process and with the troika, which I commend Ireland for. It is driven by economic growth that I hope continues. That is the last comment I shall make.

Canada had major fiscal challenges in the 1990s which lasted for several years. We went through a lot of restraint of spending and tax increases to deal with the challenges but it was economic growth that really delivered us out of that. I really support the additional observation we had in here, that the Minister has clearly run with, which is looking at a medium-term economic plan to get back to the competitiveness focus that Ireland had in the 1990s. It is something that Canada should be doing more of. It certainly is a very important element of what is going to get Ireland through to the sort of economic activity it is looking for.

I have given a brief but complete overview and I welcome questions and comments.