Pat Rabbitte (Dublin South West, Labour) | Oireachtas source

Thank you very much, Mr. Chairman. Mr. Chairman, you have directed that I attend before the inquiry to give evidence on three specified themes in the context of my role as leader of the Labour Party from 2002 to 2007. I have made a written submission, as directed.

I'm bound to say, Chairman, at the outset that it is my view that whoever and whatever was responsible for the banking crisis, it was not the Opposition. As regards the effectiveness of the Oireachtas in scrutinising public policy on the banking sector, it is my view that the Oireachtas has been ill-equipped to scrutinise policy on the banking sector, that it has been the view for very many decades of Members of Dáil Éireann that scrutiny of the banking sector was safely reposed elsewhere, and that notwithstanding recent improvements, Dáil Éireann remains inadequately equipped to discharge this role, and few elected Members could perform such a role and, at the same time, perform their role as TDs as expected by the people. The Finance Committee ought to be better resourced, not to second-guess the regulator or attempt to do his job, but to satisfy themselves that the regulatory mechanism is doing its job and to competently engage with the Minister.

As regards the relationships to the property sector, this will always be a fraught area. It is neither possible nor desirable to close off communication with the property sector but it is necessary to regulate that relationship. That is why the enactment recently of legislation on the conduct of lobbying is welcome. Any modern, functioning economy must have a certain level of construction activity but not one remotely near what we experienced during the property bubble, but a construction sector that could be up to twice what it is at the moment. Public policy should seek to avoid developers using clandestine contacts to dictate policy.

It would appear that some powerful individuals in the financial sector had been lobbying for some time for a bank guarantee. The challenge is to know what's going on, and that if there are vested interests at stake, that they should be declared. Enactment of the Regulation of Lobbying Bill of 2015 will help in respect of the relationship between Government, the Oireachtas, the banking sector and the property sector. The belief abroad is that developers and builders have, on occasion, exerted considerable formative influence on public policy. In addition to the lobbying Act of 2015, I believe that the package of reforms in the area of political funding will also have a positive impact. Political parties, and especially those generously funded by the construction sector in the past, will now be less reliant on that source of funding. There's nothing wrong with government learning from outside expertise. However, it is the task of government to distinguish the public interest from vested interest.

If Parliament is to be indicted for not adequately supervising the supervisors, then parliamentarians would have to be adequately resourced to do the job.

The typical TD is not, in respect of the detail of regulation, in a position to forensically second guess the regulator, nor can the typical TD reasonably be expected to discharge his or her usual functions and, at the same time, competently probe the entrails of banking. Most TDs have believed that regulation of the banks was in competent, well-paid, safe hands and that the job of the Minister for Finance was to keep an eye on them. On both scores, that belief has taken something of a bashing. However, the challenge is not to abandon that model but to reinforce it.

In my written submission, I have drawn the attention of the inquiry to the ... firstly, the report of the DIRT inquiry, of which I was a member, and, secondly, to a report that I prepared in 2005 for the public accounts committee entitled, "Proposals for alterations in the way that Estimates for expenditure are considered by Dáil Éireann". Both reports, I think, are relevant when considering the effectiveness of Oireachtas oversight of the banking sector. Indeed, many of the changes introduced over recent years derived from the recommendations of the DIRT inquiry report, including the proposal for a stand-alone Oireachtas commission that enables parliamentarians themselves to take decisions concerning the effective conduct of parliament. The primary concern of parliament and government should be to ensure that there is in place a banking regulatory system in line with best practice. The tug of war between the two Government parties that gave birth to the hybrid regulatory structure in place at the time of the crisis did not help and has facilitated the buck-passing that we have seen at the inquiry. The Minister for Finance ought to be satisfied that the Department of Finance has the skillset to professionally interrogate the regulator and Dáil Éireann - especially the evolving network of parliamentary committees - should be equipped to engage professionally with the Minister and, where necessary, the Central Bank.

A great deal, Chairman, on your third theme, a great deal has been said and written about the causes of the worst crash that the State has ever experienced. At the end of the day, the cause of our downfall was mainly a property bubble fuelled by tax incentives and over-lending for land and property investment and, indeed, reckless lending in the case of commercial property. The Labour Party sought to address this issue over the years - that we were concerned with here - in a variety of ways. In our view, speculation in building land was the root cause of the explosion in house prices. Consequently, the party introduced the Planning and Development (Acquisition of Development Land) Bill of 2003 to combat speculation in building land. The Bill would cap the price of building land at existing unzoned use value plus 25%. At the time, the cost of the site could be 40% of the price of a home. The Bill also sought to enable local authorities to intervene to cause hoarded building land to come into use. The Bill went, in our view, to the heart of the problem. The Government voted down the Bill. Expert legal advice had assured us to the effect that the Labour Bill could be enacted within the existing constitutional framework. Our experience had been that pressuring the Government to deal with land speculation only resulted in the then Taoiseach kicking the issue into the All-Party Committee on the Constitution. No action was taken, although the All-Party Committee on the Constitution did, in due course, report and endorsed our approach. That committee was advised by Gerard Hogan, senior counsel, at the time, and joint editor of Kelly's The Irish Constitution. He is now a judge of the Court of Appeal.

Labour consistently highlighted how the different property-based tax incentives and tax shelters hollowed out the tax base so that the average PAYE income taxpayer was required to pay the relevant rate but the wealthy or very high earners could mitigate their tax liability. Meanwhile, these property-based tax incentives and shelters were driving the property bubble. We travelled Labour policy wherever the opportunity arose, by way of parliamentary question, amendments to legislation, amendments to finance Bills, in particular, and in public discourse generally. We challenged the pattern of Government delay in tackling these issues, which consisted of reviews of these schemes that postponed action, allowed deadlines to be extended or referred possible solutions to the All-Party Committee on the Constitution, on whose recommendations no action was ever taken. Sometimes our efforts were merely to persuade Government to stick to their own measures, such as demanding the re-introduction of 60% rate of capital gains tax on the sale of hoarded building land to encourage builders to release land. This had been done, following the Bacon report, by the Government in 1998 but then dropped in a subsequent budget. Like most public representatives, Labour became more alarmed at the constantly rising house prices that were putting ... making homes ... that were making homes unaffordable even for two persons on reasonable income.

I am bound to say, however, Chairman, that I did not make the connection between our alarm and what was happening in the housing market and a risk to the financial system. I must admit that it never occurred to me that our banks might fail. That fear did not surface in mainline debate until the autumn of 2008, despite Morgan Kelly's article. There were no credible economic reports that I knew of suggesting that the banks might be at risk. In fact, there were national and international reports suggesting that the Irish financial system was sound. Even towards the end, the public commentary was mainly about a soft landing. The conviction was that those charged with regulating and supervising the banks were doing their job.

In summary then, and in conclusion, Chairman, it's not the job of a TD to regulate the financial system. It is the job of government to satisfy itself that the regulatory system is fit for purpose. It is the job of Dáil Éireann to hold the Government to account. What distinguishes the Irish collapse from the experience of most other countries was the property bubble. We live in a winner-takes-all, adversarial system of parliamentary democracy which has its defects but is probably better than the alternative. Thank you, Chairman.