Oireachtas Joint and Select Committees
Thursday, 23 July 2015
Committee of Inquiry into the Banking Crisis
Nexus Phase
Ciarán Lynch (Cork South Central, Labour)
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We have a quorum. The Committee of Inquiry into the Banking Crisis is now in public session and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off. We begin today, which is our session one, which is a public hearing with An Taoiseach, Enda Kenny TD and Mr. Richard Bruton TD.
I would like to welcome everyone to today's public hearing of the Joint Committee of Inquiry into the Banking Crisis. Our witnesses today are An Taoiseach, Enda Kenny TD, and Mr. Richard Bruton TD. Gentlemen, you're both welcome before the inquiry this morning.
Today, the inquiry will focus upon the roles of the Oireachtas and the effectiveness of the Oireachtas oversight of the Government in the build-up to the crisis and in responding to the crisis. In particular, our focus will be on three lines of inquiry: the effectiveness of the Oireachtas in scrutinising public policy on the banking sector and the economy, the analysis of the key drivers for budget policy and the appropriateness of the relationships between the Government, the Oireachtas, the banking sector and the property sector.
The Taoiseach and Minister Bruton are, therefore, appearing before the inquiry today in the context of their respective roles as leader of Fine Gael, while in opposition, and as the Fine Gael spokesperson on finance, while in opposition.
In normal proceedings when a witness comes before the inquiry, I read out privilege to the witness but as both our witnesses today are actually Members of the House, they effectively are and categorically are already covered by witness, so I don't have to extend that right as I usually would. But I would say that you are directed by the Chairperson this morning and you are directed to only give evidence connected with the subject matter of these proceedings, and as to be given.
I would remind members and those present that are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right and members of the public and journalists are reminded that these documents are confidential and should not publish any of the documents so displayed.
The witnesses has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee and will be relied upon in questioning and form part of the evidence of the inquiry. And if I could now ask the clerk to administer the oath to both of you, please.
Ciarán Lynch (Cork South Central, Labour)
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Thank you. So once again, An Taoiseach and Minister Bruton, if I can invite you to make your opening remarks and can I invite you, An Taoiseach, to make your opening remarks to the committee, please.
Enda Kenny (Mayo, Fine Gael)
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Go raibh maith agat a Chathaoirligh. Tá mé buíoch díot as ucht an cuireadh teacht anseo agus tá mé sásta a bheith ag freastal ar an ... ag an chomhcoiste. I am pleased to appear before the Joint Committee of Inquiry into the Banking Crisis following the direction, which was given pursuant to section 67 of the House of the Oireachtas (Inquiries, Privileges and Procedures) Act 2013, by you as Chairman. We would hope that the inquiry can generate new insights into the cause of the banking crash and related collapse, that help policy-makers ensure that a mistake and mistakes made at that time are never again repeated.
I've been asked to appear here in my capacity as leader of Fine Gael, between 2002 and 2007, specifically in relation to the areas that you've mentioned, the effectiveness of the Oireachtas in scrutinising public policy on the banking sector and on the economy. Secondly, analysis of the main drivers for budgetary policy and thirdly, the appropriateness of the relationships between Government, the Oireachtas, the banking and the property sector, as you've outlined, Chairman.
Prior to my election as leader of Fine Gael in 2002, Fine Gael had been in government previous to that, between 1994 and 1997, during which time I served as Minister for Tourism and Trade.
As a Government ... that Government, comprised of three parties, secured modest public expenditure growth, budgeted for the first Government surplus in a generation and delivered a rapid reduction in Government debt, from 84% of GNP in 1994 down 20% to 64% of GNP in 1997. Obviously, at that time the Government secured Ireland's entry into economic and monetary union and the adoption of the euro as our currency. Economic growth averaged over 7% per year, driven primarily by a very strong performance in exports, which rose to 73% of our GDP - which was an exceptionally high proportion by any international standards. That Government maintained a focus on manufacturing, on exports and on cost control in all areas and between '93 and '97, inflation averaged approximately 2%, which was consistent with the maintenance of international competitiveness - which is so important. In the 1990s, this country doubled its share of the world export market and foreign direct investment flows into Ireland increased significantly.
When the Government changed in 1997, we passed on an economy in which rapid growth had been underpinned by sound public finances, strong productivity, employment growth and a vibrant export-orientated industrial base and unemployment had dropped to below 9%. We met all those necessary economic conditions to adopt the euro, which was a new, strong currency ... a stable currency, with low interest rates to be used by ... eventually by over 500 million people. Ireland looked forward to building a more competitive, inclusive, innovative economy as a platform for long-term prosperity, stability and, as a consequence, social cohesion.
So following the completion of the EMU and the formal circulation of the euro in 2001, the underlying dynamics of the Irish economy shifted dramatically ... dramatically in the following decade. Particularly in the period 2002 to 2007 and particularly with regard to the changed contribution to Irish economic growth from exports and domestic spending. Very important in that was the significant tax incentives that were introduced and subsequently extended beyond the lifespan originally agreed for property investment, things like multi-story car parks, student accommodation, buildings used for third level education, hotels, holiday camps, holiday cottages, rural-urban renewal park-and-ride facilities, living over the shop, nursing homes, private hospitals, convalescent facilities, sports injuries clinics and child care facilities and so on. All of these diluted the previous policy bias in favour of manufacturing and exporting activities. Public spending became a major driver of economic growth, increasing by an astonishing €23 billion between 2002 and 2007. The rate of growth that averaged 10% per year and credit conditions, particularly for mortgages ... they also eased as banks began to borrow more cheaply from abroad under EMU rules. And there were no measures taken either by the national European authorities to impose appropriate lending rules to protect economic stability generally and young families buying their first homes in particular. Household borrowing, as the inquiry will be aware, more than doubled between 2003 and 2007, with this country, Ireland, becoming the second most indebted country in the eurozone by 2007.
Ireland's current account balance - the difference between foreign earnings and foreign expenditure - went from a surplus of €1.9 billion to a deficit of €10.1 billion by 2007 as Irish households began to spend far more than they were earning. Our share of world trade began to decline significantly from 2002 as domestic cost inflation accelerated, with the loss of market share most acute in the manufacturing sector. And from 2000 onwards, most new Irish jobs came from domestic as opposed to exporting sectors, particularly the public sector and construction. Manufacturing and agriculture lost almost 50,000 jobs between 2000 and 2006.
And by 2004 the numbers of people working in the construction sector overtook for the first time the numbers of people working in the manufacturing sector, and by 2006 the percentage of the workforce working in the construction sector was actually higher than any other industrialised country. So by 2007 you had an uncompetitive, bloated, over-borrowed and distorted Irish economy had been left at the mercy of subsequent international events, without the safeguards, institutions and mindset that were needed to survive and to prosper as a small, open economy within a changed euro area. By this point, the economic costs of the banking and wider collapse had already been incurred, even if the true scale of that economic disaster would take several more years to fully reveal itself.
So as is evident from the key speeches and policy documents dating from this period, under my own leadership, our party, the Fine Gael Party, which was the main Opposition party June 2002 to 2007, opposed the main strands of Government economic policy mentioned already, and our Dáil Members voted against the passage of every budget as a consequence. Notable components of our economic policy evidenced from this period were: our opposition as a party to the Government's changes to the structures for financial regulation introduced in 2002; our warnings to the then Government regarding the deterioration in the country's international competitiveness, and, in particular, the rapid price and rapid cost escalation taking place in the closed sectors of our economy; our campaign which we called, "Rip Off Ireland", at the time highlighted the growing divergence in price and cost levels for consumers and businesses between Ireland and our trading partners; we had regular demands for proper cost-benefit analysis to be applied to the proliferation of tax shelters and incentives, particularly for the property sector; and our campaigns to highlight the scale of Government waste of taxpayers' money as public expenditure escalated very rapidly, most notably in our opposition to the Government's decentralisation plan. The "Buck Stops Here" campaign set out by Fine Gael's proposals for securing better value for the taxpayer in the delivery of public services and infrastructure spoke for itself; our critique of the entire budgetary process, and the lack of opportunity for the Oireachtas to properly scrutinise and assess the tax and spending options available to the Government were a very sore point with us; our opposition to the Government's public sector benchmarking pay deals, reflecting the lack of transparency and the failure to link the deals to genuine changes in work practices and improvements in productivity.
So a generalised critique of economic policy by our party during this period was that the then Government was abandoning the competitive, export-oriented, flexible economic model needed to prosper inside the economic and monetary union, and that had been bequeathed to it by the previous Fine Gael-led Government. And that was an economic model built on sound public finances, high productivity, strong policy support for foreign direct investment and the traded sectors of the economy.
The ability of the Oireachtas to scrutinise all of these things was hampered by the bypassing of public representatives as a result of the dominance of social partnership, where all these decisions were made away from the Oireachtas. Government choices in all key policy areas were removed from any kind of scrutiny. The absence at that time of a clear, national, statutory fiscal framework and expenditure rule to ensure sustainable management of the public finances, and the absence of an independent watchdog to police management of the public finances and to highlight any risks that were there. The absence of any requirement at that time to conduct and publish cost benefit analysis of tax shelters and major infrastructure projects, and to subject all major expenditure programmes to regular review; we had overruns on a regular basis.
Restrictions that were introduced in the Freedom of Information Act. So total public spending during the 2002-2007 period increased by €23 billion. The average annual growth rate, at just under 10% per year, was roughly twice the underlying potential growth rate of the economy. And, therefore, the disastrous impact on the underlying health of the public finances was camouflaged by the temporary and unsustainable surge in transaction tax receipts from the credit fuelled construction and property bubbles. For the main, social, political and economic drivers of the growth in Government expenditure were the genuine need to increase investment level in physical infrastructure to address capacity constraints in the Irish economy - we've mentioned some of these - and to support regional development to keep the economy moving throughout the entire country, though it was even clear then that much of the investment was being wasted because of the absence of public sector procurement and project management expertise.
Secondly, the need for public sector salaries to chase the rising cost of living, which in turn reflected the uncompetitive and the closed nature of many sectors of the Irish economy, as well as the rising cost of public services. And those rising costs of the public service should of course have been mitigated by a much stronger drive to secure public sector efficiencies, particularly in the health service and the amalgamation of the health boards into the HSE. That opportunity was lost as a result of the Government's public sector pay benchmarking deals. The doubling of the social welfare budget during 2001 and 2007, at a time of rapidly rising employment, and while there was a genuine need to reduce poverty among vulnerable groups like the elderly, children, the disabled and so on, the rapid rise in payments to working age adults reflected the complete absence of activation reforms that were needed to lower the exceptional rate of jobless households in Ireland, even at a time when the country was allegedly enjoying full employment. The absence at that time of a clear national strategy fiscal framework and expenditure rules to ensure sustainable management of the public finances and the absence of an independent watchdog to police management of the public finances and highlight risks. If the expenditure rule enacted by the current Government, which caps expenditure growth of the underlying potential growth rate of the economy had been adhered to in that period, then spending growth would have been less than half of the 130% increase actually incurred.
Then there was the political cycle unconstrained by any independently-policed set of credible fiscal rules. Budgetary policy during that period was as a result driven by the needs of the electoral rather than the economic cycle. Public spending without any reform increased rapidly up to the 2002 election. Voted spending was up by 21% in 2001, 14% in 2002 and the lead into the 2007 election, up by 13% in 2007. So not only would tighter management of public spending during this period have helped moderate economic overheating at a time of growing risk, it would also have helped to leave the public finances in a much stronger position to protect living standards and the economy from the effects of the property bust and collapse in the construction sector. It has of course been documented that the Fine Gael Party in the 2007 election adopted broadly similar assumptions as the then Government about economic growth, about tax receipts, about public spending over the subsequent five-year Dáil term. These assumptions were drawn from the contemporaneous projections by the Department of Finance and by the Economic and Social Research Institute and our assessment at the time was that these projections were credible on the basis of a steady managed transition back to the competitive export-orientated economic model that drove Ireland's strong and sustainable recovery during the 1990s.
It has been alleged, Chairman, that a relatively small clique of bankers and property owners were able to bring influence on policy-making at that time to secure taxpayer support to favoured sectors and to favoured institutions. This is a matter of public interest for the inquiry to pursue and obviously you will make your own findings. Whatever the truth of the allegations, it is clear that there were features of Irish politics and Irish policy-making system at that time that left it vulnerable to such perceptions. Things like the ability of the Ministers for Finance to introduce or extend tax breaks for favourite sectors of the economy, particularly the property and construction sectors, without published detailed assessments by the Department of Finance or scrutiny indeed by the Oireachtas.
The excessively close relationship between the Central Bank and the Department of Finance at that time and between the Financial Regulator and the institutions that it was charged with regulating. The ambiguity between the relative roles of the Central Bank and the Financial Services Regulatory Authority, when it came to policing the stability of the banking system and protecting consumers and depositors, the corporate funding of political parties to varying degrees during this period, the dilution by the then Government of the Freedom of Information Act, the absence of clear enforcible rules regarding the jobs that could be taken up in the private sector by former Ministers, advisers and civil servants and the absence of any institution to police the resulting conflicts of interest that arose. The lack of transparency and rules regarding the lobbying of public officials by special interest groups, the absence of effective planning regulation at that time and the absence of structured institutionalised national risk assessment processes. So in conclusion, by meeting all of the economic conditions needed in 1997 to adopt a new strong and stable currency with the low interest rates used by the people of the European Union, the Irish people dreamed of building a more competitive, globalised and innovative economy as a platform for long-term prosperity, for stability and for social cohesion.
For hundreds of thousands of families in this country, their dreams turned into a complete nightmare as boom and bust and a stability was replaced by a policy of recklessness and regulatory failures.
To be sure, design flaws that existed in the euro architecture as a whole contributed to this crisis, both here and in the eurozone, and these flaws are gradually being repaired, but there are still serious challenges up ahead. But the lion's share of the damage, Chairman, was done to the Irish economy was the fault of domestic economic and financial mismanagement.
We have learned the hard way that being part of the euro presents, not just opportunities but huge domestic challenges. The need for more effective regulation of the financial system, for greater budgetary discipline, for more responsible and transparent politics, and for relentless pursuit of cost reductions, innovation and product and labour market flexibility so as to maintain our competitiveness in the absence of any control over our exchange rate. So having failed these challenges in the first 15 years of our euro membership, our economic and political institutions are now being renewed and being reformed so that the euro can once become a source of stability, of prosperity, and, indeed, of hope, for the Irish people. Thank you, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Minister Bruton.
Richard Bruton (Dublin North Central, Fine Gael)
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Well, thanks very much, Chathaoirligh. And, first of all, can I just thank you for the invitation, and thank your members for, I mean, what is a truly enormous amount of work, which your members on the committee and you on the Chair are putting into this. I suppose just a few high level things. I think it's always been Fine Gael's view that to deliver enduring growth and living standards in a small, open economy like ours, it has to be built on two basic foundations. One is the foundation of enterprise, innovation and exports; that's the essence of a small trading economy, and the second is a smart state, that is alert, efficient, that's strategic in the way it delivers. And that became even more important when we joined the single currency because we were committing to a hard currency regime. We were going shoulder to shoulder with, you know, really strong economies like Germany.
It's my belief, very strongly, that, you know ... and, indeed, Fine Gael's belief, that the Irish economic crash, it wasn't a result of a tsunami way out in the ocean that swept away a whole bunch of very sustainable and clever economic policies, that the fault lines that made Ireland so vulnerable in those years had developed from bad policy over an extended period of time, and that far from building on enterprise, innovation and exports, economic success had come from speculation, property and debt. That was the contrast. That was the flaw, in the ... if you like, in the underlying, real economy. It was also was undermined, in my belief, by, you know, a State that had become sluggish, wasteful, self-indulgent, in the way it approached its spending and its delivery, and the challenge of public service reform.
I think if you look at the history of this period, I mean, Fine Gael's approach when we were in government with Labour in '94 to 97 was very clear. We had that strong export-driven growth. It was very solid management of the public finances, and that was continued, in my belief, between 1997 and 2000. But as the general election of ... approached, 2001 and 2002 saw the abandonment of a lot of that prudence. And the ... we, in Fine Gael, you know, consistently opposed the bad policy decisions that was building up those fault lines in the economy. And they were ... I'll just isolate four areas where I think it's, you know ... the biggest mistakes were made. One was around sound budgets. You know, as I say, it was abandoned in 2001 and 2002. Spending growth in those two years was something like 35% - extraordinary - way out of line with the growth and the underlying growth in the economy. And we warned Government of that consistently. We warned of the growing and precarious reliance on the construction sector. Towards the latter part of that period, 2006-2007, 25% of Government revenue was coming from construction, so 25% of the cost of running our hospitals, our schools, our gardaí, and so on was coming from the construction sector. That just wasn't a sustainable approach. And we demanded consistently reform in the way budgets were put together, the, sort of, way in which budgets were put together, where there was no proper scrutiny.
The best example, in my view, is to be seen in the lack of scrutiny of tax breaks .. that were ... billions of euros of tax breaks were given out without any scrutiny. A big, massive decision like decentralisation was introduced without the proposal even circulating among Government Departments where it could have been scrutinised. You know, the approach to budgeting was wholly wrong and it produced some very bad, imbalanced outputs.
The strong export performance is the second thing I would single out. That was consistently undermined and we warned consistently of the inflation, the erosion of the competitiveness of our economy by inflation in what economists would call the sheltered sector of the economy, areas regulated by Government or that weren't open to competition, at a time when exporters were facing really tough conditions in the eurozone markets. You know, export prices were generally falling, while this huge growth in domestic prices was undermining our competitiveness. And I think most ... it was most vividly illustrated, and I repeatedly drew that illustration, the growth in agency-supported employment, which is the ... you know, supported by IDA and Enterprise Ireland, they're the heart of our exporting strategy. In those early years, '94 to 2000, they grew by over 17,000 per year, extra people working in the export-oriented sector. That collapsed by 90% in the second period, between 2001 and 2007, so you ... it dropped back to just ... under 2,000. That was the imbalance that was growing. Those are the core of a small, open, trading economy, these companies that are out there winning you new markets and, you know, that was a really damaging element.
The other element was smart spending and, you know, we, in Fine Gael, published numerous reports, like Who Cares?, The Buck Stops Here, focusing in on the massive growth, which I think it had been 133% growth in spending in those short five or six years, just wasn't delivering value for money and you saw poor delivery on fancy plans, you know, plans, like decentralisation ... announced. At the end of its period, it delivered 10% of what it was supposed to. You know, fancy plans on health not delivering. You know, big spending increases but no one held accountable for the delivery and we very strongly, you know, drove for the need for public service reform and that was ... there's no doubt that the drive for public service reform was held back by the then social partnership arrangements, which prevented, you know, delivery of reform.
The fourth area I'd point out is robust regulation and we, back in 2002, when the regulatory structure was being put in place, we opposed that, and it's worth checking the record and going back, we opposed that at Second Stage for the very ... and we set out the reasons: because there had not been an examination of whether our regulatory system was fit for purpose. We had come through a period when you'd seen the Enrons and various breakdowns in financial oversight and we were putting in place a structure that was just simply putting a big bulldog clip around everything that was being done, no scrutiny of the underlying systems, and that was being rammed through and that was a wholly wrong approach. And, I think, right through that period I think we continued to pursue this inadequate oversight of banking. We also pursued this ... the failure to implement the recommendations of the Competition Authority, which was another area of smart regulation that was not being delivered.
I think the sad part of this was that the property boom papered over the vulnerabilities that were building up in our economy. You know, they provided employment that masked the loss of jobs in the export centres ... sectors. They provided tax revenue that masked the fact that they were unsustainable. Those tax revenues were built by young people taking out large mortgages, paying high elements of tax on housing and that's where the funding for a lot of the growth in spending was occurring. It was never a sustainable basis and I think, you know, Fine Gael had always a different approach to the then Government and, you know, the challenge for us then was how to manage those vulnerabilities and the core of our approach, as we approached the 2007 election, was to deliver on that ... this strategy of reverting to one built on enterprise, on innovation, on exports, on sound spending, and that has been a consistent hallmark of the approach we've taken. You can see it in '94 to '97, the critique of policy that we outlined all through those years and again in government in 2011 to 2015. Those, you know, sound bases of growing the basis of a sustainable, small economy that can grow living standards for everyone has been at the heart of our approach.
And, you know, I think we have to get back and that's what we have done in the last number of years, to build enduring growth in living standards by continually reinventing our competitive edge, by disciplining public policy, by evaluation and accountability in what we do. And that, I think, has been characterised, the approach we took throughout this period.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. Bruton. So I now begin with questioning, and, in doing so, I'll invite our first questioner this morning. It's Deputy Pearse Doherty. Deputy, you have 15 minutes.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat, a Chathaoirligh, agus fáilte roimh an Taoiseach agus an Aire chuig an coiste fiosrúcháin. Mr. Kenny, can I start with you in relation to ... one of the key criticisms of Government policy during the years 2002 to 2007 which has a emerged during this inquiry, was the narrowing of the tax base and increasing dependence on transitional taxes. The Fine Gael manifesto in 2007 also commits to, "Cutting income taxes for all taxpayers and keep the low rates of corporation tax and capital gains tax". So, with that in mind, would these commitments not have further eroded the tax base? And what policies, if any, did Fine Gael have to broaden the tax base to provide a more stable revenues for government? And the manifesto is on the screen for your assistance.
Enda Kenny (Mayo, Fine Gael)
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Yes. Obviously, I've read it. Well, your question is about the stability of the public finances and I think it's a very relevant question. I make the point that we've always believed in sound public finances together with an unrelenting focus on national competitiveness, that these are the conditions that would apply for, you know, lower interest rates, high level of investment and, as a consequence, strong economic and employment growth. So, back in the period when my party was in government in '94-'97, I recall that was my first senior Ministry in trade and tourism. And the emphasis, really, was on being lean and competitive and, as a consequence, there were up to 1,000 jobs a week being created in terms of foreign direct investment-----
Ciarán Lynch (Cork South Central, Labour)
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I need to move here-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Just bear with me one second because we are on time restriction here and this ... there's a specific question in relation to the Fine Gael manifesto of 2007 and the question is: the commitments that you were giving to cut tax, income tax, for all taxpayers and to keep capital gains tax down at the current levels.
Pearse Doherty (Donegal South West, Sinn Fein)
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How ... would that not have eroded the tax base further? And what policies did your party have at that time to broaden the tax base - if any?
Enda Kenny (Mayo, Fine Gael)
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Well, I just want to make the point here that the trend through from the period in government through opposition to the ... to our current position in government, stands as a principle for competitiveness, low interest rates, strong economic performance. In the 2007 election, Fine Gael actually adopted a joint economic and fiscal programme with the Labour Party, and that meant that we'd keep our 12.5% corporation tax rate, that we'd reduce the standard rate of income tax from 20% to 18%, as well as other tax reforms to support one income families and to improve the design of the stamp duty regime with particular reference for first-time buyers. That was because we believe that keeping taxes low on work and investment, combined with proper regulation and a competition reforms to improve the country's cost competitiveness, was a core plank of our plan to transition the economy back towards the export-led model that we passed on in 1997.
Obviously, we also committed in 2007 to keeping the public finances in surplus in general government terms and, specifically, we made it clear that all our commitments on both the spending and on the tax side were subject to the overall riding commitment to adhere to the rules of the Stability and Growth Pact. So those commitments, Deputy, on tax and spending were consistent on the basis of the growth forecasts that were available at the time, both from the ESRI and from the Department of Finance, which were forecasting growth average of about 4%, between the period 2008 to 2012. Obviously, we understood quite clearly that level of growth couldn't be achieved unless the competitiveness of the economy was restored. So, like the huge loss of competitiveness in there during 2002 to 2007, together with Government waste on public spending, was a central theme of our critique. So-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Sorry, Mr. Kenny, I -----
Enda Kenny (Mayo, Fine Gael)
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So in respect of the-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I just-----
Enda Kenny (Mayo, Fine Gael)
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In respect of the-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I just interrupt you .... we're four minutes into this question, I need an answer in terms of your policy commitments and there's two specific questions. It is, would the policy commitments of Fine Gael have further eroded the tax base? And what policies, if any, did Fine Gael-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----have to broaden the tax base to provide------
Pearse Doherty (Donegal South West, Sinn Fein)
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-----more stable revenues-----
Enda Kenny (Mayo, Fine Gael)
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Yes, as I-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----for government?
Enda Kenny (Mayo, Fine Gael)
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Yes, as I said to you, we ... the commitments on tax and spending that we set out in that manifesto were consistent with the projections on the figures from the Department of Finance and from the ESRI and we were very clear that the levels of growth that were forecast in there of 4% could only be achieved if you had strong oversight and a really strong competitive element to our economy. And those tax positions, to retain the corporation tax of 12.5%, to reduce the standard rate from 20% to 18%, as well as a number of other reforms that I've mentioned - stamp duty and one-parent families - were entirely consistent with that model and, obviously, Fine Gael and Labour put together a joint fiscal document in that regard.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Now, would you appreciate answering my question, which is the policy commitments and not the consistency of your policies, but the policy commitments and not the projections of the ESRI, but your policy commitments to reduce income tax for everybody and to keep tax levels at the current ... in terms of capital gains tax and corporation tax, would that not have eroded the tax base?
Enda Kenny (Mayo, Fine Gael)
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The point ... I've said to you three times now, is that we were, as an Opposition party, entirely consistent in accepting the projections from the ESRI and from the Department of Finance in respect of their growth figures but that that should be based on the element of competition and the tax position that we set out-----
Ciarán Lynch (Cork South Central, Labour)
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Okay, Taoiseach-----
Enda Kenny (Mayo, Fine Gael)
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-----of a reduction from 20% to 18% and of the corporation tax rate was designed to get our economy back to a competitive export-orientated model that we'd passed on. There were elements of that that we considered important.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Can you just hold the clock a second there? I just need to come in for a moment here, Taoiseach. The question the Deputy is answering is a micro exercise of the political manifesto of the Fine Gael Party at that time and the question that is being put is the specific measures as opposed to the macro general issues. So ideas such as 18% ... reductions in taxation means a loss of revenue to the Exchequer. That has to be met with compensation in public expenditure and addresses like that. So if I could assist the member in his questioning to you, it would be specifics with regard to micro policy measures as opposed to the macro general intent of the manifesto. Back to yourself, Deputy Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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Well, I might just say, for your information, Chairman, we've been very consistent here that we have never supported increases in taxation where they would impact on work and job opportunities and that's been translated from '97 right through our Opposition policies from 2002 to 2007 and now again in government.
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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Sorry, Deputy.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Doherty, you've possession again.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, I'm moving on. I'm still no wiser whether you believe that your commitments would have further eroded the tax base-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----and what policies that you had at that time to broaden the tax base. But time is of the essence. During your time in opposition, did you actively seek views and opinions from banks, property developers or their trade bodies in order to develop property strategy, Mr. Kenny? And how did you ensure that policies were developed in a way which balanced the needs of all stakeholders?
Enda Kenny (Mayo, Fine Gael)
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Well, you'll recall that in 2002, Fine Gael had a very difficult election. I think I had ... I think it was 30 Deputies I had at the time. Obviously, to rebuild a party nationally takes a great deal of time and effort. So in the presentation and the preparation of programmes or proposals or issues for the Dáil and for the Oireachtas, no more than any other party, Fine Gael would consult with different groups and organisations and people around the country to canvassed ... you know, canvass views from far and wide. But, obviously, the political test whether those ... whether interest groups that meet with the political process had any sway in their individual interests are something that interested me in the sense of the greater good. I have to say that while you come across occasionally people who've a very specific focused interest group from their own agenda, it played no part in Fine Gael's wider interest. So our ... our ... you know, we had a critique year after year about what was happening in terms of the housing sector, what was happening in terms of the whole social partnership area, where year after year, the Oireachtas was completely bypassed and decisions were made away from the Oireachtas in terms of the social partnership decisions that were made by Ministers and no reference, good, bad or indifferent, to the Houses of the Oireachtas. In addition to that, you had the issue of benchmarking, to which we objected very strongly-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Well, outside of the policy-----
Enda Kenny (Mayo, Fine Gael)
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----and opposed those increases.
Pearse Doherty (Donegal South West, Sinn Fein)
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Again, just coming back to the question again. The question was: did you actively seek the views and opinions of banks, property developers or other trade bodies? Is that a "Yes", just ... or a "No"?
Enda Kenny (Mayo, Fine Gael)
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Yes. My ... I wouldn't have had meetings with the governors of banks or directors of banks. My spokesman on finance at the time was Richard Bruton. Obviously, he would have met with different elements of the financial sector in the preparation of Fine Gael documents from our point of view.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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But I wouldn't have been personally, actively seeking out ... our decisions, Deputy, would have been made by the Front Bench of the party and the parliamentary party in its entirety on those issues.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Okay. Mr. Kenny, I'd like to explore the conversations you had with Matt Moran, the chief financial officer of Anglo Irish Bank, a senior figure in that bank. It was reported in the Sunday Independenton 21 July 2013 by journalists, Tom Lyons and Daniel McConnell-----
Ciarán Lynch (Cork South Central, Labour)
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What meeting are you talking about there, Deputy, now?
Pearse Doherty (Donegal South West, Sinn Fein)
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This is in relation to July ... it's in relation to just after the guarantee. It's in the period of opposition.
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Pearse Doherty (Donegal South West, Sinn Fein)
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Oh, it's reported at a later stage.
Ciarán Lynch (Cork South Central, Labour)
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Is the Taoiseach familiar with the ... maybe if-----
Enda Kenny (Mayo, Fine Gael)
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I know the reference he's making-----
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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-----but I don't have the paper in front of me that you're talking about.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, well, I'll ask the question then-----
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Pearse Doherty (Donegal South West, Sinn Fein)
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-----and you may be able to respond. That article said that you rang Mr. Moran twice on 17 and 18 November 2008 "to brief him on both Fine Gael and the then Fianna Fail-led government strategy". Mr. Kenny, can you confirm or not to the inquiry as to whether these conversations took place? What was the purpose of these conversations, if they did take place? Who initiated the conversations? And what were discussed?
Enda Kenny (Mayo, Fine Gael)
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I recall what you're talking about. I attended at a meeting with the principals of Anglo Irish Bank in their headquarters prior to the crash and did so with Deputy Bruton and a number of others from the Fine Gael Party. And there was a-----
Pearse Doherty (Donegal South West, Sinn Fein)
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What timeframe is prior to the crash? Just to-----
Ciarán Lynch (Cork South Central, Labour)
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I'll allow him to answer and I'll bring you back in, Deputy.
Enda Kenny (Mayo, Fine Gael)
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I don't have the ... I can follow up with the exact date-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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-----for you but I think it was 2008, Deputy. And there was a presentation given there by a senior member of Anglo about the structure of their bank and the way that loans were approved and mortgages were approved and that this was a very stable, strongly performing bank and all of that. The Mr. Moran you refer to was at that meeting. I didn't speak to him at that meeting because the presentation was done by the principal ... by one of the principals there. Mr. Moran is from Castlebar. I wouldn't have known him other than to see him over the years as a younger person. But his brother did say to me that he wanted to say something to me. And for that reason, I would have made contact with him. I think he was abroad at the time. I don't accept the article that you refer to or the truth of that because I only ... I made a call because I was asked to make a call, that he had something to say to me-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Was-----
Enda Kenny (Mayo, Fine Gael)
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-----in any event, I had no conversation of any substance with Mr. Moran.
Pearse Doherty (Donegal South West, Sinn Fein)
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Was it one call or two calls? The article says it was twice.
Enda Kenny (Mayo, Fine Gael)
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Well, it may have ... it may have been two. I can't-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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-----confirm that to you. I may have made a call and ... that he wasn't there or whatever.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Mr. Kenny, Mr. Moran, in the article continues to talk to say that Mr. Moran in an e-mail to David Drumm said ... and, again I'm quoting from the paper. It says, "Enda says we are to be an 'offshoot' of [Bank of Ireland]." Did you inform Mr. Moran that this was-----
Enda Kenny (Mayo, Fine Gael)
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No, I have no recollection of informing Mr. Moran of anything of substance in so far as either Fine Gael's propositions or whatever else was going on.
Pearse Doherty (Donegal South West, Sinn Fein)
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The article also says ... and some of this is coming from e-mails between the senior executives of Anglo. Mr. ... it also reports ... says that Mr. Kenny said, "Also some 'noise' about Anglo but nothing specific." Can you recall as to what you meant by "some 'noise' about Anglo" or is that something that you-----
Enda Kenny (Mayo, Fine Gael)
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I would have no knowledge of Anglo Irish Bank. My only connection with them ever was at the ... at a formal meeting that I attended as part of a group of Fine Gael people going to see all of the banks and Anglo made their presentation in their headquarters and Mr. Moran was there.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Again, the article ... in an e-mail from Mr. Moran to Drumm, it says, "Enda K called ... Said that today a lot of rumour circulating in Leinster Hse concerning deal with BoI (Bank of Ireland) and ILP (Irish Life and Permanent." Were you informing senior executives of Anglo Irish Bank as to-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----conversations?
Enda Kenny (Mayo, Fine Gael)
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No, it was never my business to be in contact with senior members of banks in the first place. I made the call because I was asked to do it by his brother, that he had wanted to say something to me. I reject that assertion and that allegation in that newspaper report, or in that e-mail, completely.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, can you tell us what you said to Mr. Moran, from the best ... your recollection?
Enda Kenny (Mayo, Fine Gael)
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No, all I said was that I was asked to make a call to him, that he had wanted to say something to me, or so I was led to believe. He didn't say anything to me.
Pearse Doherty (Donegal South West, Sinn Fein)
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He didn't say anything to you on the phone.
Enda Kenny (Mayo, Fine Gael)
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Of any substance about any banks. And I gave ... I would have given no information whatsoever because I wouldn't be in possession of that information-----
Pearse Doherty (Donegal South West, Sinn Fein)
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So this is, okay, this is after the guarantee and prior to recapitalisation. It also is reported that you said "Getting very rough on the ground for business, said Bruton", which is Minister Richard Bruton, "issued a statement this afternoon pushing for a bank recap." And it's understood that, actually, that statement was issued on that same day. Did you mention that to Mr. Moran?
Enda Kenny (Mayo, Fine Gael)
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I don't recall mentioning anything about Fine Gael policy position in so far as recapitalisation would be concerned. I certainly would have said, as everybody would have evidence of around the country, that things were getting very difficult for business.
Pearse Doherty (Donegal South West, Sinn Fein)
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But you did not discuss recapitalisation of the banks-----
Enda Kenny (Mayo, Fine Gael)
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I would never discuss Fine Gael policy or Government policy with anybody unless it was appropriate to do so and certainly not with bankers.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. So you didn't discuss the issue of recapitalisation with Anglo Irish Bank on that telephone call?
Enda Kenny (Mayo, Fine Gael)
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Well I can't recall mentioning a recapitalisation to anybody. Obviously, Fine Gael had a policy position in respect of Anglo Irish which ... We were the first party, I think, to outline what we thought should happen to it.
Pearse Doherty (Donegal South West, Sinn Fein)
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Why were Fine Gael pushing for bank recapitalisation at that time, which is late November 2008?
Enda Kenny (Mayo, Fine Gael)
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Gabh mo leithscéal?
Pearse Doherty (Donegal South West, Sinn Fein)
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Why were Fine Gael pushing for bank recapitalisation at that time?
Enda Kenny (Mayo, Fine Gael)
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I think Fine Gael were obviously very concerned about what was happening to businesses and credit in the country and the situation. While the cracks had been there before 2007, obviously the people made their decision in a general election. Fine Gael adopted a policy position in respect of banks and Deputy Bruton would have all the details of that because he presented his proposals to the Fine Gael Front Bench.
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I ask, Deputy Bruton, you were very critical of the tax reliefs in your opening statement in relation to the property tax reliefs and indeed Mr. Kenny outlined them in his opening statement. Can I ask you, Mr. Bruton, why did you table an amendment in the Finance Bill in February 2004 looking for an extension of the tax reliefs to allow for, not full planning permission to be required, but outline planning permission - and your colleague Jimmy Deenihan argued that a specific case in relation to a hotel in his constituency would not be able to avail of the scheme which was the foundation of the amendment - given what you tell the committee in terms of your party's opposition to these tax reliefs and their extension?
Richard Bruton (Dublin North Central, Fine Gael)
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Well I don't have the detail but from what you describe yourself, it would appear that some project who was very close to the deadline of a relief had a planning arrangement-----
Ciarán Lynch (Cork South Central, Labour)
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Minister Bruton, can I just interject for a second, there is mobile interference coming off your table below there, if I could ask, you have to have your phone switched off, putting it on silent is not sufficient.
Richard Bruton (Dublin North Central, Fine Gael)
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No, the phone is on airplane mode.
Ciarán Lynch (Cork South Central, Labour)
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Okay. And maybe the Taoiseach ... it may be the Taoiseach's.
Enda Kenny (Mayo, Fine Gael)
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Mine is switched off, to be honest with you.
Ciarán Lynch (Cork South Central, Labour)
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Okay, all right. It's just picking up, I'm getting something from broadcast there. My apologies.
Richard Bruton (Dublin North Central, Fine Gael)
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In 2004 my ... I mean, I don't have the document to which you're referring but from what you describe of it, it would appear that there was some projects coming to the end of a period and there were some projects who were in planning and there was an issue of could they, you know, complete their planning within the terms of the scheme? And naturally that is something that, you know, is worthy of consideration if a lot of effort had been put into an individual project under ... if you like, with the reasonable expectation that they would get support.
But you know, across the board we were not supportive of tax breaks and I can, you know, cite numerous examples. This debate raged ... it was around 2002 when the Government identified that some of the tax breaks were not fit for purpose and I recall an Indecon report showing that the benefits were less than half of the costs and there was clearly evidence that the construction sector was becoming stronger and stronger. The house building programme, as you know, built to extraordinary levels. It was not a time to continue those reliefs. And we consistently opposed the extension of those reliefs as a policy tool.
Pearse Doherty (Donegal South West, Sinn Fein)
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Do you accept, bar the amendment that you officially tabled in your own name in the finance committee on 2004, which as Deputy McCreevy says, "The Deputy's amendment [which is your amendment] seeks to achieve an extension of the transitional arrangements for the existing schemes of capital allowances for hotels and holiday camps." and there were a number of other schemes as well which you-----
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, there was an individual case which had been in a planning process and had got into some sort of difficulties and wasn't able to make the deadline and the case was whether an extension could be allowed to ... There was a legitimate expectation, I suppose, that the project was built on the basis ... was being developed on that basis. And it was in an area that needed such support and it seemed reasonable to put that up for consideration by the Minister.
Pearse Doherty (Donegal South West, Sinn Fein)
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And in relation to ... From your understanding of ... and being on the finance committee at that time, the argument that you have put forward in relation to specific projects being captured and not being able to avail of these reliefs and obviously if you extend them, you extend them for not just the individual project that may be knowledgeable to you but other projects as well that-----
Richard Bruton (Dublin North Central, Fine Gael)
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No, this was an issue-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Can I just finish the question, sorry. Do you also ... do you believe or not that was the same type of argument that was provided by Government in extending the tax reliefs in 2002, 2004 and 2006?
Ciarán Lynch (Cork South Central, Labour)
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Thank you, Deputy, now I'll bring you back in again. Mr. Bruton.
Richard Bruton (Dublin North Central, Fine Gael)
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No.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Thank you. Deputy Kieran O'Donnell.
Kieran O'Donnell (Limerick City, Fine Gael)
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Thank you Chairman. I want to welcome the Taoiseach and Minister Bruton to the hearing. The period 2002-2007, what concerns, and this is to both witnesses .... what concerns did you have about the rate of growth in the domestic Irish banks in terms that their loans portfolios around property ... and the credit policies they were adopting? And can you please give me examples of how you both would have articulated these concerns at the time? Taoiseach.
Enda Kenny (Mayo, Fine Gael)
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Is that for me?
Kieran O'Donnell (Limerick City, Fine Gael)
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For both.
Enda Kenny (Mayo, Fine Gael)
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Well, clearly, we opposed the structure of financial regulation that had been put in place by the previous Government. Deputy Bruton will expand on the reasons that he led Fine Gael's opposition to that legislation in the Dáil, and for very good reason. We expressed concerns about the direction of the economy more generally up to 2007, including a credit growth which I pointed out in my opening statement there. But the ... My concerns focused mainly on the total loss of competitiveness of the Irish economy and the shift away from that export-orientated model that we had which was very successful. As far back as 2002 and 2003, in my position as Leader of the Opposition in the Oireachtas, we gave prominent notice to the warnings issues by the National Competitiveness Council. In 2002, for example, I said, you know, Ireland has crashed down to the bottom of the competitiveness league. 2003 we launched the rip-off campaign that-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Specifically, I suppose the question really specifically, Taoiseach, is around growth in the loan portfolios of the banks specifically, is the kernel of the question. Specific.
Enda Kenny (Mayo, Fine Gael)
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Well clearly the situation that was becoming evident in banks was that serious loans were being given out for very finicky reasons in many cases and clearly the extent of borrowing increased absolutely dramatically, I've given you those figures earlier on. In 2003, 2005, 2006 I pointed these out in budget contributions in the House to the Government of the day in respect of the dangers that were applying here. And you'll note that in respect of Deputy Bruton's positions on those, particularly in respect of the construction sector, the extent of loans being given out, the overruns in many of the infrastructure projects - port tunnel, PayPal, all of these things - which were fuelling a credit boom.
Kieran O'Donnell (Limerick City, Fine Gael)
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And Minister Bruton?
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, I think like ... I obviously have to go back and see, but I see one statement I had at the time, €118 billion increase in Irish indebtedness in two years. This was the start of 2007.
Kieran O'Donnell (Limerick City, Fine Gael)
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Where was this made?
Richard Bruton (Dublin North Central, Fine Gael)
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This was on foot of "the Central Bank's monthly statistics for last December reveal that in two years alone Irish residents have increased their indebtedness by €118 billion".
Kieran O'Donnell (Limerick City, Fine Gael)
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Was it in the form of a press release from you? Was it?
Richard Bruton (Dublin North Central, Fine Gael)
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It was on the back of the then report of the Central Bank but I think over the period of, you know, throughout the period, you know, banking, lending, financial regulation was-----
Kieran O'Donnell (Limerick City, Fine Gael)
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That would have been '07, prior to '07.
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, throughout that period, I mean, the concerns... as you know, at least as the Taoiseach has outlined, in 2002 we were very unhappy with the Central Bank and financial regulation structure, that we didn't believe it was fit for purpose. Those concerns continued right through 2004, 2005. You had a number of cases where the banks were not compliant with their obligations. The banks were seen to be having excessive profits compared to other states, we challenged that as to whether the regulatory system was addressing adequately the growth in the banks.
Kieran O'Donnell (Limerick City, Fine Gael)
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Did you challenge it enough from 2002 onwards?
Richard Bruton (Dublin North Central, Fine Gael)
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Well clearly it was never enough in the sense that the banking system was highly exposed. The Central Bank itself, as you know, in their stability reports of 2005 and 2006, they highlighted the vulnerabilities that were there, the excessive growth in credit, the excessive reliance on property, the excessive reliance on overseas funds. But none the less, they concluded, the Central Bank and Financial Regulator, that none the less the system was robust.
And in 2006 they actually said that it was more robust than it had been in 2005, which was, was probably hard to understand, and, you know, we did have the Governor of the Central Bank in before committees and, you know, the picture was one that, yes there was high growth but the, you know, look at the value of the assets on the other side of the balance sheet. So I think there was an inadequate probing of, of this issue by those who were the regulators. From our point of views, I suppose, we saw the vulnerabilities but, we highlighted, I suppose, particularly what was happening in, in the public sector, where an alarming dependence on construction was emerging as a base of public spending, as well as, if you like, individual credit decisions.
Kieran O'Donnell (Limerick City, Fine Gael)
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Can I feed that into the manifesto 2007 and, Chairman, it’s Vol. 2, page 73 to 78 for the witnesses, and specifically really what I want to ask is: do you both believe that looking at the assumptions underpinning the budget, that your due diligence on the rate of growth around the assumptions was robust enough? You referenced the ESRI and Department of Finance but feeding into account that you had concerns about construction, and within the, the manifesto, the budget proposal, what did ye ... what were the measures ye put in place to, to deal with the imbalance of construction taxes making up 25% of tax revenues in terms of ... and potentially, did you see that there would be ... what contingents did you put in place for maybe a fall in tax revenues from construction, did ye anticipate a fall? So, two questions: were your due diligence in terms of the assumptions robust enough, in hindsight? And secondly, what measures did ye put in place to deal with, did ye see a reduction coming in construction taxes and what measures did ye put in place to rebalance the economy in that regard?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, as, as you say, you know, in retrospect, due diligence of economic expectations wasn’t strong enough but political parties weren’t the source of forecasts and no political party would be credible in offering our forecast of what’s happening to the economy. So, we relied on the Department of Finance and ESRI forecasts. Clearly, in retrospect those forecasts were wildly optimistic but we, we relied on those. We built into our manifesto, and you’ll see it there, the ... a provision that within the public finances, a contingency would have to be built into the public finances for the expectations, you know, for what might go wrong because of vulnerabilities. We also very clearly, I mean, the previous four years had been characterised by a growth in the rate of public spending from about 6% up to 13%, a progressive growth in spending as the election approached. We did the very opposite, we said “we must now grade back our growth” and we did that in line with what had been our traditional view, that it should be kept related to the, the growth in GDP of 2%-----
Kieran O'Donnell (Limerick City, Fine Gael)
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But, but Mr. Bruton, looking at page 78 of your budget manifesto, current spending was running ahead of, of growth over the years proposed. Can you explain why that was the case? Against the background of construction taxes, did you have concerns that construction taxes would fall?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, our current spending was forecast over the period to be grow at 8%, GDP was growing at 4% and the, the policy rule we had had, as going back to 2002, was nominal growth in GDP plus 2 points-----
Kieran O'Donnell (Limerick City, Fine Gael)
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What did you project nominal growth at at the time?
Richard Bruton (Dublin North Central, Fine Gael)
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Well obviously, between 4.2% and 8% you had inflation, which was running around two and you had the 2% margin. So, we, we projected in line with the policy that we had pursued back in 2002 and was consistent that growth should ... that growth in public spending could be somewhat higher but have to be within the pattern with growth of the economy. What had been going ... in the years prior to that, was huge surges in spending, totally unrelated, and the reason why that was possible was that the stamp duty and the property taxes and so on were, were coming in. So, we very clearly said, you know, we need stamp duty as, as stamp duty as you probably will recall, was an extraordinary tax. It was a step tax; it grew in this exponential basis so that when you went over certain thresholds, you went from maybe zero to paying €10,000 or from paying €11,000 to paying €22,000.
Kieran O'Donnell (Limerick City, Fine Gael)
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Then a final, final question-----
Richard Bruton (Dublin North Central, Fine Gael)
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So we, we said, you know, we ... and that was locking first-time buyers out of the market, it was becoming an excessive source of, of, of reliance-----
Kieran O'Donnell (Limerick City, Fine Gael)
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You realise Mr. Bruton, I have, I have limited time-----
Richard Bruton (Dublin North Central, Fine Gael)
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I beg your pardon, sorry.
Kieran O'Donnell (Limerick City, Fine Gael)
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-----and the Taoiseach, I want to bring in as well. Did ye build contingencies into the budget in terms of fall in taxes from the construction sector?
Richard Bruton (Dublin North Central, Fine Gael)
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Yes we provided in, in, in the policy manifesto for a contingency in, in that respect.
Kieran O'Donnell (Limerick City, Fine Gael)
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At what level?
Richard Bruton (Dublin North Central, Fine Gael)
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I don't know what the level, we, we said that in, in budgeting that would have to be an element, I don't have that detail.
Kieran O'Donnell (Limerick City, Fine Gael)
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So, was ... ye were looking at a reduction in current spending over the period?
Richard Bruton (Dublin North Central, Fine Gael)
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We were looking at bringing down the growth rate ... on, on ...a, a spending growth rate.
Kieran O'Donnell (Limerick City, Fine Gael)
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Spending on a growth, spending on a growth rate?
Richard Bruton (Dublin North Central, Fine Gael)
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Spending growth rate, which had been going in the opposite direction in the years before.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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If I may interject there, Deputy, if it’s helpful actually ... in , in 2003 we did the rip off campaign at the time. In 2005, I made the point to ... the Minister for Finance, Brian Cowen, at the time, about the, the construction sector had been boosted to 250,000 employees, heading towards 90,000 units. Ten or 15 years before that we were on ... based on exports and competitiveness. In 2006, I made those warnings much more pointed, pointed out that the share of world trade peaked in 2002 and had been in decline subsequent to that ... our, our trade grew, grew very strongly. I finished off that contribution by saying that if anything, the budget they were introducing threatened to further undermine the competitiveness of small businesses and exporters and the relentless and uncontrolled increases in current spending was very dangerous. What Deputy Bruton pointed out there in respect of the stamp duty was absolutely clear. House prices back in the decade of 1997-2007 had risen by over 300%, from €102,000 to €323,000 ...and even higher for second-hand houses and we brought in a series of propositions to, to make that much more appropriate; no stamp duty for the first-time buyers up to €450,000, 9% in excess, for non-first-time buyers, nought to €100,000, zero tax and the next €350,000, 5% tax, and above €450,000, 9%. And that was, that was designed to, to sort of have a more appropriate tax regime but make it possible for first time, first-time buyers to get into the, into the market in a way, and that was compatible, if you like, with a slowing house, house market. House prices were falling in 2007, with the new housing starts and it led to ... it led to an increase in liability.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay. Can I ... in your witness statement, Taoiseach, on page 6, you make reference to the excessively close relationship between the Central Bank and the Department of Finance at the time, and between the Financial Regulator and the institutions it was charged with regulating. My colleague, Joe Higgins, referred to it, affectionately as “Siamese twins”. And can you clarify in what way you regard the relationship between the Central Bank and the Department of Finance that have been excessively close? Would this have not been a normal situation to manage the economy and regulate the economy properly? And similarly with the Financial Regulator and the banks, how should such relationships be managed and how should they be objectively measured? So, you speak about this excessively close relationship between the Department of Finance and the Central Bank and then between the Financial Regulator and the institutions they were regulating. So, you might expand on that Taoiseach, what you mean.
Enda Kenny (Mayo, Fine Gael)
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Yes, this is not a ... it’s not a controversial statement because the pattern of appointing Central Bank Governors was almost exclusively from the ranks of senior civil servants in the Department of Finance without any external scrutiny and without any external competition. I believe that was a serious mistake. I think it’s clear that this led to the absence of any, sort of, constructive tension, if you like, between the, between the two or dissonant viewpoints between the two institutions regarding the direction of the economy and the risks that we faced. Clearly, with regard to the relationship between the Financial Regulator and the banks, I note that the ... the former Financial Regulator, Mr. Neary, acknowledged in his testimony to your inquiry here that having the Irish Banking Federation organise a retirement party for the chairperson of the Financial Regulator was utterly inappropriate. This was, if you like, systematic of a relationship that lacked, sort of, the necessary, you know, bite in authority and ... wasn’t, wasn’t appropriate.
I know that Ms Burke from ... of both IFSRA and formerly from the Central Bank, spoke to the inquiry of this excessively close relationship, she said:
Senior banking executives had direct contact with senior executives in IFSRA, often without the knowledge of, not to say engagement with supervisory staff. Staff were regularly requested by senior IFSRA executives to review decisions or issues based on these decisions or were told by contacts in banks that the issues had been or would be discussed with our senior executives
To me she said, "At its most benign it indicated a disconnect between BSD and the senior IFSRA executives." She said it also signalled a "manifest lack of support for staff, undermining them in their dealings with banks and-----"
Kieran O'Donnell (Limerick City, Fine Gael)
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And Taoiseach how was ... in the limited time I have, how is the situation different now? Like, you speak about the situation then. How is it different now? How is it improved?
Enda Kenny (Mayo, Fine Gael)
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There is a different process of making appointments to these important positions. Those remarks that I mentioned there were followed through by others to the inquiry here and you have all those on record. But this is an important change that the Government have brought about here where there is, you know, an application process, an examination-interview process and a scrutinising process of the capacity of people to fill these positions. Some are from abroad and some are from at home. It's a big change from what applied before where the vast majority of Central Bank Governors came from within the Department of Finance in a seamless transfer and, therefore, there couldn't be the, sort of, you know ... shall I say, appropriate relationship between two important entities.
Kieran O'Donnell (Limerick City, Fine Gael)
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Thank you.
Ciarán Lynch (Cork South Central, Labour)
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There is phone interference there. I can even hear it inside in the room at the moment, folks. Deputy John Paul Phelan.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you, Chairman. Good morning, gentlemen. I've only six minutes so I would ask you to be as brief as possible in your answers. Continuing on from Deputy Doherty's question earlier Taoiseach, in relation to the Sunday Independentarticle from 21 July 2013, I want to put a quote from it to you:
In one email, dated November 19, 2008, Mr Moran tells his boss, Mr Drumm, that "Enda" told him that the State was considering telling Bank of Ireland to take over Anglo to prevent it from collapsing.
Do you recall having that conversation with Mr. Moran? If so, how were you aware of that information?
Enda Kenny (Mayo, Fine Gael)
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Would you repeat that, Deputy?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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The quote is:
In one email, dated November 19, 2008, Mr Moran tells his boss, Mr Drumm, that "Enda" told him that the State was considering telling Bank of Ireland to take over Anglo to prevent it from collapsing.
Do you recall having that discussion with Mr. Moran?
Enda Kenny (Mayo, Fine Gael)
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I don't recall that, no.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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I don't. My only association with Mr. Drumm was a meeting I attended.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay and I want to reference that meeting as well. You told the Dáil on 25 June 2013 and I want to quote you directly. You said:
I had the doubtful privilege of calling into Anglo Irish Bank with Deputy Bruton, when he was the party's spokesman on finance, a couple of weeks after the guarantee went through. We met all of the principals in the bank's building on St. Stephen's Green.
Firstly, who sought the meeting? And, secondly, can either of you recall who was present on the Anglo side and what the purpose of the meeting was?
Enda Kenny (Mayo, Fine Gael)
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Yes, we would have sought the meeting because we went and visited both Anglo Irish, Bank of Ireland, AIB - I attended at those three myself. And the purpose of the meeting was to have a discussion about the general economic situation and to inquire about the healthy state, or otherwise, of the banks. And that's why I said that, in the case of Anglo Irish, a presentation was given that was to the point that Anglo was a model of a bank that would emerge from the recession as the strongest of any bank, that all of the loans approved - both in America, in Ireland and in Great Britain - were approved by the people who sat at the other side of the table. I recall Mr. Drumm being there; I recall Mr. McAteer being there; I recall Mr. Moran being there; I think, to be honest with you, that there were seven or eight on that side. I don't recall the other names. I can have them sent into the Chairman, if you wish.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. What was the nature of the meeting? Like, was it ... you say that you had sought the meeting itself. Did you feel that you were getting the full picture, I suppose, from Anglo? This is a couple of weeks to-----
Enda Kenny (Mayo, Fine Gael)
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Well, I did ask before I left, I said, "I'm not a banker but can somebody tell me, I'm hearing on the streets that things are not as you're presenting them here". And the answer that I got was, "Well, we can tell you that the model that we have here for Anglo Irish is an outstanding model. This bank will come through the recession stronger than any other."
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Do you feel with hindsight that the meeting should have taken place or-----
Enda Kenny (Mayo, Fine Gael)
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I do. I think it was an important ... it was strictly a formal engagement from representatives of a political party, inquiring legitimately from banks as to their views on the state of the economy and their position in so far as credit and lending was concerned and their response to our questions about the health, or otherwise, of the banking position they were in.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Can I ask you - and I only have two and a half minutes left - when were you first informed of the Government decision of 29 September 2008 in relation to the blanket guarantee that was entered into? And who did you have that discussion with?
Enda Kenny (Mayo, Fine Gael)
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I was in ... I was actually out in, I think, it was the TV3 station in the morning. I had a call from the late Minister for Finance, Brian Lenihan. I was actually just about to start an interview. I think at that stage that he may have spoken to Deputy Bruton as our spokesman on finance, and the question that he asked me was like, "What would Fine Gael's position be if a guarantee were given in respect of the banks?" And I recall saying to him, "Look, I'm doing an interview here but we have to have a banking system because it's the lifeblood of the economy but I'd need to know the conditions that you're talking about."
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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And was the conversation with Minister Bruton prior to the conversation with yourself?
Enda Kenny (Mayo, Fine Gael)
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Yes, I think that ... if I'm ... if I recall correctly, the late Minister Lenihan may have contacted his opposite number before ... I think, the interview was sometime after seven o'clock in the morning. I'm not quite sure of the time but I can check that out. That's the first I heard of it.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay and that was seven o'clock in the morning of the 30th, on the following morning?
Enda Kenny (Mayo, Fine Gael)
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It was early in the morning and he called me himself.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Minister Bruton, can you-----
Richard Bruton (Dublin North Central, Fine Gael)
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No, my recollection is something similar. I mean, I think rumours were coming through the night before that there was going ... there was pressure, that the banks were in serious difficulty and that something might happen and so I think the following morning Brian Lenihan phoned to say the Government was making this decision and, obviously, there was ... he was setting up briefing and debates and so on. So, you know, I think at that stage, clearly, one of the things we'd seen with Northern Rock, the fear of a run on the bank where, you know, even if you have a sound bank and there's a run on the bank and people want to take out their deposits, it can bring down even a sound bank, let alone banks that were, as subsequently proven, not sound. So, clearly, you know, the ...a run on the bank would have been a very serious issue and I think that was the context within which it was presented as a-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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One more question. I'm sorry for interrupting but there's only ten seconds left and I have to ask you. During your time in opposition do you feel that you were able to make effective use of decision-making processes within the Oireachtas to strengthen legislation, particularly financial and banking sector legislation? Minister Bruton, maybe, first.
Richard Bruton (Dublin North Central, Fine Gael)
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No, I mean I think I've outlined it in my submission. I mean, repeatedly there wasn't. I mean, at the very first time when the Central Bank and IFSRA legislation came in, I sought that there should be a proper study of the adequacy of our oversight mechanisms, that we should, you know, in light of then financial breakdowns like Enron and so on, that we needed to stress test our approach. There was no such provision. That Second Sage amendment, which sought to defer the legislation until such a review had taken place, was not accepted by Government. There was then no provision for hearings to be held by the committee. We had, obviously, amendments but, ultimately, the Bill was put through at the end without our amendments, but, you know, I think that was a serious mistake. And I think repeatedly ... and I did outline it on the piece that I said on Oireachtas supervision ... you know, the intention, even back to the Public Service Management Act of 1997 when, you know, there was supposed to be a certain approach to spending strategies and outcomes and evaluations, rolling evaluations, that had just rusted over in that period. There was no evaluation. The way in which the budget itself was put together allowed no scrutiny, particularly no scrutiny of tax expenditure. But even spending wasn't properly scrutinised.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I just want to put that question, my time as just elapsed, to the Taoiseach as well. Did you feel that you had effective use of the decision-making processes in the Oireachtas with regard to legislation for banking in the financial sector?
Enda Kenny (Mayo, Fine Gael)
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Such as they were, my regret would have been that the Government didn't listen to the consistent advice that Fine Gael would have given from our point of view; clearly, it has changed now. I suppose my biggest regret politically is that we didn't win the '97 election, that this might never have happened, but it did. And just on a point, I noted from one of my notes here, Mr. Chairman, just for your information. I think that meeting with Anglo was after the guarantee was given. I want to clarify that for the members of the committee.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Senator Michael D'Arcy. Senator, ten minutes.
Michael D'Arcy (Fine Gael)
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Thank you, gentlemen. In 2007, the Fine Gael manifesto also called for tax cuts and additional public expenditure in many areas, for example, the extension of medical cards-----
Ciarán Lynch (Cork South Central, Labour)
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Sorry, Senator, I'm going to have to make an interruption there, please. Look, it's not fair to witnesses, it's not fair to people who are trying to broadcast these proceedings and it's not fair to all others. Sometimes the phone issue is a proximity issue, it's not actually the person themselves, but it is people having ... all members need to have their phones in safe mode, all members. And I would say the same to people in the public Gallery, please. Thank you.
Michael D'Arcy (Fine Gael)
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Can you restart the clock, Chairman?
Ciarán Lynch (Cork South Central, Labour)
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I'll restart the clock here, I will indeed. Turn off the phone and I'll turn on the clock.
Michael D'Arcy (Fine Gael)
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Only six minutes. In the Fine Gael manifesto of 2007, it called for tax cuts and additional public expenditure in many areas. An example is the extension of medical cards. Can you explain how your expenditure policies would have been less pro-cyclical than the Government's? Let's start with Mr. Bruton.
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, I suppose at that time, the key issue for us was, as I said, two things. One was restoring enterprise, innovation and exports, that was the model. That had been severely undermined, and we believed that part of that was a tax policy that would be more supportive of enterprise. So we did, with the economy forecast as it was then, to be on a reasonable growth phase, we believed that what we needed to do was to wind back the rate of growth of public spending, and introduce taxes and other measures that would drive economic recovery and enterprise recovery and if you look at our ... I don't have the time ... but if you look at our, our manifesto, you'll see numerous areas which we've subsequently done in government, of how we would rebuild an enterprise base and look at reforms right across the whole system to deliver better access to finance, easier to start a business and so on. So the issue really was, was getting value out of the system, and a lot of our focus was on, you know, restructuring the economy, not on the cyclical dimension. That was the ... it was about how do you restructure an economy to deal with the vulnerabilities that were growing up.
Michael D'Arcy (Fine Gael)
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Taoiseach, you mentioned about the '97 election, the expenditure by the State in 2000, or in 1997, was €18.8 billion. A decade, 11 years later, it was €63 billion. Again, a similar question to the 2007 Fine Gael manifesto: what were the specific policies that you were advocating, that Fine Gael were advocating, to lower expenditure in a period, in that decade, where it had gone from €18.8 billion spend to €63 billion spend?
Enda Kenny (Mayo, Fine Gael)
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Well, we pointed out the growth in public expenditure, we opposed the way that benchmarking had been introduced, for instance. We called for a renegotiation of the principle of the way decentralisation was being promoted and consistency in respect of both of the lowering of income tax and the retention of corporation tax, of the tax rate. So ... where we tried to focus, from our Opposition perspective, was to get back to being a lean, export-oriented, growth economy, which was based on manufacturing and on exports, which were proven in the ... in '94-'97, and continued for a year or two after that, until you had an extraordinary explosion in the construction sector, where you had a lot of credit and a lot of activity, which, sort of focused, I suppose, the minds of Government then, on their assumption that you could run all the services from the taxes that were coming in from a fuelled property, property section.
Michael D'Arcy (Fine Gael)
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You're talking about growing the economy and it bringing in additional moneys. What I'm asking you were, in terms of the '07 Fine Gael manifesto, were there specific policies that you were advocating to lower expenditure? An example in that same decade or period, the public sector pay bill went from €8 billion to €18 billion. Were you, or did you advocate policies to reduce those figures or what were your specific policies to reduce expenditure?
Enda Kenny (Mayo, Fine Gael)
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Well, they were outlined in the programme itself. But we were consistent in our criticism of the lack of scrutiny from social partnership, in the directions that were given by, for instance, Finance in respect of benchmarking, the lack of scrutiny in terms of major infrastructure projects which overran seriously, and the wastage in public expenditure. So we wanted our tax position to be well focused but to get back to a point where you were going to have growth in your economy, which would create jobs and as a consequence, allow for services to be spread throughout the country, particularly to the most vulnerable. And we've mentioned issues like the disabled or the medical cards or those who were in vulnerable positions.
Michael D'Arcy (Fine Gael)
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Taoiseach, on page three of your witness statement, the first bullet point, you state: "Significant tax incentives were introduced - and subsequently extended beyond the lifespan originally agreed - for property investment ... hotels ... holiday camps, holiday cottages". You were the Minister for Tourism and Trade when a pilot programme was introduced, it became known as the seaside resort. Can I ask, during your period in ministerial office, was there analysis done in relation to why that tax break was introduced, and if there was analysis done, was it done by your Department or was it done by the Department of Finance on the basis of introducing a pilot scheme of this nature?
Enda Kenny (Mayo, Fine Gael)
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Yes, when I was Minister for Tourism, obviously, we sort of looked at a jaded tourism sector which had so much more potential than it was actually achieving. In the course of, you know, travelling throughout the country, you came across particular areas that were clearly in need of some sort of infrastructure investment. And people from all over the country, from particularly the coastal areas, said "Look, we're out here on a limb. This place is falling asunder. You've got to do something to stimulate investment so that we can have a product that people will want to come and enjoy and therefore, you know, be able to contribute to the economy." And we discussed that at some length, as to what might happen, and the decision was that there should be a pilot scheme introduced in a small number of areas. That was expanded to include 15. It was done on the basis of the district electoral divisions as determined by the local authorities. It was different now than the, you know, the urban sort of renewal scheme, which was a much smaller scale. I have to say that the response was one that was assessed. I think it generated about €700 million or €800 million worth of work in terms of infrastructure, construction and so on. I would say that some of the towns which were designated, Senator, took this in a far broader way than others. Some, where their hotels went after the scheme and provided facilities for, you know, a much broader range of tourist coming in, whether it be pools or whatever else, some areas did better than others. But I think it generated about €600 million to €700 million and ended, I think, then in 1999. And no more than the case that was raised earlier, there were planning problems with some of these, so where people entered into the scheme that if they had gone beyond a certain point of, you know, a contract being signed or building under way, it was allowed to finish its course. But the reason for the case in the first instance was because many of these communities said "Look, we are really stranded here, we have a jaded product, there's a clear need for some infrastructure investment", and so that kind of pilot scheme was designed and put in place. And so, you know, the Revenue Commissioners, the Department of Environment and Local Government, Finance, Bord Fáilte, Shannon Development, they all put the details together and obviously there were meetings held in the locations that were chosen, from financial people about how they, how the scheme would actually work. So it was assessed and I suppose there was a qualifying relief and the tax foregone in that scheme, I think, was about €250 million altogether.
Michael D'Arcy (Fine Gael)
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Just very briefly-----
Ciarán Lynch (Cork South Central, Labour)
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Very briefly, now, because you're over time.
Michael D'Arcy (Fine Gael)
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In a question to Minister Brian Lenihan dated 11 November 2008, the Minister says:
At the time of publication the estimated output of self catering resorts was between 5000 and 6000 units. However, the report also stated ... the scheme did not contribute, in any significant way to the achievement of a key tourism objective [for] “the attraction of overseas tourists” but probably assisted in the achievement of regional spread in domestic tourism terms.
Mr. Kenny, the figures that the Minister for Finance, at that stage, gave was a tax foregone, a tax break of €319 million and if you read that ... the analysis of that response is quite clear, that there wasn't an assessment subsequent to the scheme. The scheme didn't contribute towards the expectation of improving tourist facilities, giving the people the reason to go beyond an extension of 5,000 to 6,000 units. And I suppose, what I'm trying to come at, Mr... Taoiseach, is how we got to a stage where pilot scheme moves-----
Ciarán Lynch (Cork South Central, Labour)
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I need to push on, Senator. If it's relevant-----
Michael D'Arcy (Fine Gael)
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I am, Chairman, moved ... but it's relevant to the overall point-----
Ciarán Lynch (Cork South Central, Labour)
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Just ask the question, please.
Michael D'Arcy (Fine Gael)
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-----how it moved from a pilot without obvious analysis to a cost to the State of €319 million without then subsequent analysis.
Ciarán Lynch (Cork South Central, Labour)
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Okay-----
Michael D'Arcy (Fine Gael)
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I mean how the business of State is done, doesn't look great in that circumstance, Taoiseach.
Ciarán Lynch (Cork South Central, Labour)
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Okay. I just make one intervention here, now. The purpose of the witnesses today and in the next session is to account for their role. It's not for Government to be account ... or the witnesses here are not to be accounting for Government or Government decisions. It's their aspect to processes and decisions that were made at that time. Okay. Mr. Bruton.
Richard Bruton (Dublin North Central, Fine Gael)
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Well, clearly we have advocated that tax expenditure should be put under the same scrutiny as anything else and I think that has been a consistent part of the budgetary strategy we articulated in those years because I think it is true, as the Deputy said, that a huge commitment, that no one had known the size of it, to the property sector had built up and it was renewed each year and there wasn't scrutiny. And the same was true of many other tax expenditures. So, our view was that you did need to introduce such scrutiny and evaluation in the same way as you would ... well, you needed scrutiny and evaluation on the spending side and the ... you know, one of the problems in those years that the mechanisms that were in place for evaluation, which were sanctioned by the 1997 Act, were simply not implemented by Government in those years. So, you know, the evaluative machinery wasn't in place to do the work that ought to have been done on tax expenditures as well as many of the other areas of waste.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Joe Higgins.
Enda Kenny (Mayo, Fine Gael)
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I might just say on that, for your information Senator, that in 2000, an interdepartmental committee comprised of Revenue Commissioners, Department of Environment, Finance, Revenue, Tourism ... they did an analysis of the scheme which had been extended up to December 1999 and they are the figures that I gave you. That they reckoned that there was €600 or €700 million generated, €250 million foregone. Now, the late Minister Lenihan, obviously, may have carried out a more detailed analysis of that particular scheme issue.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Joe Higgins.
Joe Higgins (Dublin West, Socialist Party)
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Mr. Kenny, when you were leader of a major Opposition party from 2002-07, were you able to meet with staff or officials from the Central Bank or the Financial Regulator?
Enda Kenny (Mayo, Fine Gael)
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I'm sure I was but I didn't.
Joe Higgins (Dublin West, Socialist Party)
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There was no meetings - structured or informal?
Joe Higgins (Dublin West, Socialist Party)
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Okay. Based on your experience of that time and looking into the future, should there be a structured possibility for parties in opposition to meet with the Central Bank and the regulator in relation to financial issues of the day?
Enda Kenny (Mayo, Fine Gael)
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Yes, of course. There should be.
Joe Higgins (Dublin West, Socialist Party)
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Thank you. Mr. Kenny, the Fianna Fáil Party has been heavily criticised for hosting an annual fundraising initiative in a marquee in ... during Galway Race week, and it was said that many developers, including some of the biggest debtors in NAMA, were said to be there making contributions. Now, on 6 February 2011, Michael O'Farrell, correspondent with the Irish Mail on Sunday, under a heading revealed "Fine Gael secret cash from developers" said the following, and I quote, "An investigation by this paper has established that the party [that's Fine Gael] has been able to bring in up to €150,000 a time by hosting business men to lavish golf days at luxurious British and Irish courses." And Mr. O'Farrell goes on to mention the K Club and also to mention some of the biggest debtors in NAMA as being contributors, including major ... as well as major accountancy firms and a banker. Mr. Kenny, was the Fine Gael Party as close to sectors of the property industry and developers as Fianna Fáil allegedly was?
Enda Kenny (Mayo, Fine Gael)
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Certainly not.
Joe Higgins (Dublin West, Socialist Party)
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How do you explain this interaction then and what's the difference between the Galway tent, which you often criticised, and these golf classics?
Enda Kenny (Mayo, Fine Gael)
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Well, I would say to you, Deputy Higgins, to run a major party, obviously costs a considerable amount of money. The vast majority of Fine Gael's fundraising came from our national draw, and still does, from ordinary members of the party and supporters around the country. Any occasions of a social nature were certainly not in the terms that you described them there as and obviously would have had to comply with all of the regulations of SIPO. But let me repeat for you that Fine Gael's fundraising is, in the vast majority, came from the national draw and as you'll realise, we put an end to corporate donations entirely.
Joe Higgins (Dublin West, Socialist Party)
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But what was the difference at the time, Mr. Kenny, between you receiving donations, substantial enough for golf classics, from property developers or construction interests as the Fianna Fáil Party?
Enda Kenny (Mayo, Fine Gael)
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I would say if anybody wished to participate or contribute in a Fine Gael golf classic, which no longer applies, or whatever, it certainly had no bearing, from our party's point of view, on any particular interest that they might have. I suppose, in any democracy, people are entitled to support who they wish but let me assure you that in so far as the Fine Gael Party was concerned, the relationships that you referred to did not apply and anybody who participated in a golf match or whatever, I'm not sure how they played.
Joe Higgins (Dublin West, Socialist Party)
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Yes. Mr. Kenny, in the last few days when representatives of the Fianna Fáil former Government and, indeed, developers were questioned, they answered, if I may say so in more or less the same terms that you did now. What was the difference between your approach to accepting donations from developers and the former Fianna Fáil Government?
Enda Kenny (Mayo, Fine Gael)
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I don't know the extent of what Fianna Fáil representatives may have accepted from developers or whatever. I'd remind you that the Fine Gael Party was an Opposition party, struggling in opposition. That the vast majority of our fundraising came from our national draw and that anything else was in ... was strictly in accordance with the SIPO regulations. As I said, and make this very clear to you, Deputy Higgins, that any group or any individual who would have met with ... from a Fine Gael point of view, that had no bearing on any policy adopted by the ... by our political party.
Joe Higgins (Dublin West, Socialist Party)
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The former leader of your party who is now Minister for Finance, in 2001 prohibited corporate donations voluntarily to Fine Gael. You reversed that when you became leader in 2002. Is that correct?
Enda Kenny (Mayo, Fine Gael)
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Well, any contributions to the political party were in accordance with SIPO. We have now ended corporate donations entirely.
Joe Higgins (Dublin West, Socialist Party)
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Last question for you, Mr. Bruton, if I may. Mr. Bruton, in a budget delivered by the Fianna Fáil-Progressive Democrat Government in December 1997, the Government reduced capital gains tax from 40% to 20%. In the subsequent ten years, during the property bubble, massive profits were made by land speculators and developers. There was ... it was said at this tribunal when Mr. Derek Quinlan was here that one syndicate of wealthy people that he organised made €53 million on a land deal and that particular tax reduction reduced their tax liability from €21 million to €10 million, making a gain of €10 million ... €10.5 for wealthy individuals. In the 2007 Fine Gael manifesto, you very specifically opted to keep that tax break. In view of the major speculation and profit-taking that had occurred previously, why did you maintain that position?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, I think, you know, low rates of corporate tax, low rates of capital gains tax and low rates of ... and competitive rates of income tax are consistent with an enterprise strategy. The difficulty, I think, what happened in those years is that property had taken over ... speculation had taken over from, if you like, a genuine enterprise sector and you see the figures yourself. I mean, there was an explosion, not only in, you know, capital gains tax but stamp duty receipts, VAT from housing. All of these property-based taxes became the heart of Government spending programmes. 25% of the cost for running hospitals was coming from these property-based structures.
That was unsustainable and, you know, what needed to be done was to sustain ... to have a credible approach to the whole building sector and to regrow your enterprise sector. So, consistent with that, we saw a capital gains tax at 20% ... is a reasonable approach for the ... for the enterprise sector. I mean, as you know, in government we have ... when more pressure came on, increased that tax by 65% in the last, you know ... in this ... in the present Government.
Joe Higgins (Dublin West, Socialist Party)
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Mr. Bruton, that election was still held in the ... at a time of property prices and land prices being massively higher. Did you think that it was correct that individuals who buy land, sit on it for a few years, then get planning permission - therefore, the benefit of that land has hugely increased - and they sell it on, that they should be rewarded by halving the capital gains tax as the Fianna Fáil-PD Government did?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, my belief was that - and I articulated it on several occasions - that the planning system was the problem that was at fault there, not the capital gains tax regime ... that our planning system had simply ... was not fit for purpose and we were encouraging a structure, as you say, of people going to more and more remote areas, getting land rezoned, putting people on impossible treadmills ... that we didn't have a proper planning system and it was part of our wider critique of ... of, if you like, strategic planning that stretched to the way public spending was managed, the way tax expenditures were scrutinised, the way public service was reformed. You know, we needed to have more effective sectoral policies and planning was one of the areas ... we particularly needed reforms. But as far as the tax regime, we supported a 20% tax regime as reasonable, on capital gains. If you set up a business and it is successful at ... you know, it's reasonable to expect that such an entrepreneur from a genuine business would get a ... you know, would get the rewards of his success and that's ... that's what a capital gains tax is about.
Joe Higgins (Dublin West, Socialist Party)
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Did you take any measures-----
Ciarán Lynch (Cork South Central, Labour)
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Final supplementary, Deputy, and then I'm going to call a break.
Joe Higgins (Dublin West, Socialist Party)
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Did you take any measures to distinguish what you call an entrepreneur, or a genuine entrepreneur creating wealth, from property speculatory ... speculators?
Richard Bruton (Dublin North Central, Fine Gael)
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Absolutely. Our whole ... our whole strategy was built around-----
Joe Higgins (Dublin West, Socialist Party)
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What would ye have done in 2007, Minister?
Richard Bruton (Dublin North Central, Fine Gael)
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-----our whole strategy was built around rebooting the whole enterprise sector-----
Joe Higgins (Dublin West, Socialist Party)
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But just to clarify, Mr. Bruton, because we have ... my time is up and we have to have a break. In the 2007 manifesto, did you make any provision to distinguish between what you call genuine entrepreneurs creating wealth, etc., and people making massive speculative gains from land dealing?
Richard Bruton (Dublin North Central, Fine Gael)
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Absolutely, and, I mean, you're-----
Joe Higgins (Dublin West, Socialist Party)
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But how?
Richard Bruton (Dublin North Central, Fine Gael)
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-----the proof of the pudding is in the way-----
Joe Higgins (Dublin West, Socialist Party)
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How did you do that when you maintain that-----
Richard Bruton (Dublin North Central, Fine Gael)
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In the very same ... in the very same way as our Action Plan for Jobs in the last number of years has focused on all the barriers that prevent exporting and innovation and job creation. We looked to, you know, to make it easier to start a business, make it easier to get access to credit in areas of enterprise, you know, developing the innovation base of the economy, rebuild the skill base that ... in manufacturing-----
Joe Higgins (Dublin West, Socialist Party)
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Yes, but-----
Richard Bruton (Dublin North Central, Fine Gael)
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-----as you know had ... had been demolished in that period-----
Joe Higgins (Dublin West, Socialist Party)
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But just-----
Richard Bruton (Dublin North Central, Fine Gael)
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-----we needed to rebuild the manufacturing base and invest and-----
Ciarán Lynch (Cork South Central, Labour)
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Deputy Higgins, I do understand what you need to push and I do need to come to a conclusion-----
Richard Bruton (Dublin North Central, Fine Gael)
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But he-----
Ciarán Lynch (Cork South Central, Labour)
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-----so I'm just going to ask you to summarise very precisely-----
Joe Higgins (Dublin West, Socialist Party)
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Yes-----
Ciarán Lynch (Cork South Central, Labour)
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-----what you want.
Joe Higgins (Dublin West, Socialist Party)
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Yes, the net ... the net point, Mr. Bruton, is this: in the 2007 election manifesto, when you elected to maintain capital gains tax at the 50% cut introduced previously by Fianna Fáil and the Progressive Democrats, did you thereby make any distinction in relation to the tax treatment of what you call the genuine entrepreneur creating wealth and individuals making massive profits from land speculation?
Ciarán Lynch (Cork South Central, Labour)
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The question is made. Minister Burton ... no, not Minister Burton, my apologies.
Richard Bruton (Dublin North Central, Fine Gael)
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No, not on the tax system. The changes that we sought to develop were the ones that you can see in practice in the Action Plan for Jobs, which is about making it easier to create employment, you know, creating the incentives to rebuild an enterprise sector, which had been demolished by the construction ... as I say, the growth in export-oriented job growth had fallen by 90% between that earlier period and the latter period. That was the key fault-line in the economy. We were a small trading economy; you had to rebuild that sector and you ... that was what we put our focus on. How would that be done? And we ... the approach we ... we wanted to take in that manifesto is the very same one as ... that we have worked on in government to get that whole of Government approach to build ... to rebuild a strong enterprise culture, strong exporting base, go further afield, build up your trade missions, build up your capacities and that was the approach we took.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. It's just coming up to 11.05 a.m, I'm proposing a five-minute comfort break to return and 11:10 a.m. In doing so, just to remind both Minister Bruton and the Taoiseach that you are under oath and that the session is now going ... suspended. Is that agreed? Agreed. Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Right, what I'm now proposing to do is that we return back to public session. Once again to remind members about their mobile devices, please, because it has been problematic. And we're now back in public session, and in doing so I now invite Senator Susan O'Keeffe. Senator.
Susan O'Keeffe (Labour)
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Thank you, Chair. Mr. Bruton, how many times did you seek to meet with officials from the Central Bank or from the Financial Regulator or from the NTMA in your role as financial spokesperson? Or did you ... or were you able to do that?
Richard Bruton (Dublin North Central, Fine Gael)
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I met with them on occasion, and, obviously, we met with them when we scrutinised them in the Oireachtas finance committee. I couldn't give you a count, but, clearly, we were throughout this period, obviously, as legislators challenging them in committees. There were a number of instances, as you know, through that period where bank overcharging, proper, you know, weaknesses in supervision, and, you know, we scrutinised all of those as they developed, and towards the end the, you know, the precarious growth in lending was an issue. And we scrutinised the stability reports and so on. So I kept very much abreast of the issues developing within the sector.
Susan O'Keeffe (Labour)
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But would you have been very much, if you like, on the outside as an Opposition person? Does that mean that you were not given access? You wouldn't have seen documents that they had? You would have just had the briefings that were there, the financial stability reports and so on?
Richard Bruton (Dublin North Central, Fine Gael)
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That's right, yes.
Susan O'Keeffe (Labour)
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How close could you get? How close did you get, or were you able to, or was it literally if you're not in government you can't come in?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, you know, obviously you can seek a briefing, and you will get a briefing, so there's no one would refuse you a briefing, but it would be a briefing as ... of an Opposition spokesperson. You didn't have privy to any, you know, assessments of this or that institution or anything like that. There would have been a commercial sensitivity.
Susan O'Keeffe (Labour)
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Do you recall when, or if, you became aware of the NTMA's approach to their so-called safe harbouring policy of not putting deposits ... choosing not to put deposits into Irish banks from late 2007 on? Do you ... were you aware of that? Were you briefed? Did you know?
Richard Bruton (Dublin North Central, Fine Gael)
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No, I can't recall such a briefing.
Susan O'Keeffe (Labour)
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Okay. So that would have gone on without your knowledge? Okay. Do you recall when you became aware, leading into the crisis, say, at the Saint Patrick's Day massacre, the contracts for difference, the Seán Quinn contracts for difference in Anglo - was that something that you would have known about?
Richard Bruton (Dublin North Central, Fine Gael)
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I mean, I wouldn't have known anything that wasn't in the public domain. Obviously, I kept abreast with any issues that were arising in the public domain, and it was largely from public ... you know, it was from public sources that Opposition obtain the vast majority of their understanding. Obviously, that triggers parliamentary questions and you would, you know, get privy to additional information from the Minister's reply, but it would be from public sources, not private sources.
Susan O'Keeffe (Labour)
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Did you ever have any informal/private briefings with bankers from any of the key banks? I'm not here referring to the meetings that the Taoiseach has referred to that you had with the banks where you went as a group, but I'm talking about you yourself.
Richard Bruton (Dublin North Central, Fine Gael)
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No, it wouldn't have been a feature. I mean, I would occasionally have met the banks about some particular issue, but no, there was no, if you like, briefing in terms of this is the policy position that banks would like to see implemented or that. I mean, there would be occasional meetings around an issue. If I thought it warranted it, I'd look for a meeting about some specific issue. But it was, you know, that was the nature of it. I think, you know, we were fairly trenchant critics of the banks in those ... in that period in terms of the excessive profitability, the charging regime, the ... our belief that there was rip-off, or dissatisfaction with the level of consumer protection being pursued at the time within the regulatory system. So, you know, that was ... it was ... that was the nature of the thing.
Susan O'Keeffe (Labour)
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Would you have had ... and I'm talking here now about the very brief time before the actual night of the guarantee, let's say September. Did any of the bankers seek to meet you to express their concerns, to talk to you, to see if you could be of assistance? Because we've been aware there have been all kinds of meetings going on with all kinds of bankers. Did any of them seek you out?
Richard Bruton (Dublin North Central, Fine Gael)
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No, there was ... no one sought me out. You know, but obviously after Northern Rock there was very much a heightened awareness-----
Richard Bruton (Dublin North Central, Fine Gael)
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-----of financial vulnerabilities, and it was the subject of a lot of the parliamentary questions that I was submitting to Ministers at the time ... to the Minister for Finance at the time.
Richard Bruton (Dublin North Central, Fine Gael)
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So, you know, there was a heightened awareness of this issue.
Susan O'Keeffe (Labour)
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That's fine. Do you believe that while you were in opposition you had available research? Specialist technical areas, such as financial stability, did you have enough resources at your disposal, or was it up to you to create the resources?
Richard Bruton (Dublin North Central, Fine Gael)
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No, I think we never had those resources and I do recall going way back, I think it was an academic in Trinity, Jonathan Westrup, I think was his name, who, you know, did pose the question: who guards the guardians, so to speak? If the Oireachtas is, you know, the body that, ultimately, has a role, how well-equipped is it to do that task? And I think it wasn't well-equipped, neither in having access to the information nor the analytical armoury at its disposal.
Susan O'Keeffe (Labour)
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Finally, Taoiseach, if I may: yesterday, when Sean Mulryan gave evidence, in his statement he said that if you broke it down by political party 19.5% of his disclosed political donations were given to Fine Gael. And I am wondering are there any other property developers that you are aware of, that you can name, that would have made any donations to you? And did you ask property developers because I think he said he gave money when he was asked. If somebody came and said, "We're doing a fund-raiser", he would look and see whether he would give it. He didn't, I think, say that he got out of bed and gave the money, so to speak. So are you aware of any other property developers that would have given money to Fine Gael in that time? And did Fine Gael actively seek donations from that sector?
Enda Kenny (Mayo, Fine Gael)
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As I said Senator, the vast majority of Fine Gael's funds have come and always come from our national draw and from my time as leader, anybody who wanted to participate in any social fundraising activities such as applied in those early years of golf classics or whatever could do so. I did not go on a campaign of asking developers or anybody else to say "please give me money." If they wanted to participate in a golf classic well then fine, all those things would have to be in accordance with the regulations of SIPO. But because of all of that perception and everything else put an end to all of that. If a deputy wishes to hold a golf classic now, they'll have a very minor nature and they have to be authorised by Fine Gael at national level. So if somebody wanted to hold a competition in Sligo or Donegal or Kerry or wherever they would have to have express authorisation to do that.
Susan O'Keeffe (Labour)
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So you do not recall any other-----
Ciarán Lynch (Cork South Central, Labour)
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It's been answered. I'm moving on to another questioner.
Enda Kenny (Mayo, Fine Gael)
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No I do not. I have never been on the trail of developers or contractors.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Michael McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you, Chair. You're very welcome, Taoiseach and Minister. Taoiseach, in your witness statement, you state as evidence, as you put it, that Fine Gael opposed the main strands of Government economic policy, that Fine Gael voted against the budgets between 2002 and 2007. I have to put it to you Taoiseach: is it not the case that Fine Gael voted against those budgets, not because you were arguing that the Government was spending too much money but because Fine Gael was arguing that Government was not spending enough money on different areas in public services?
Enda Kenny (Mayo, Fine Gael)
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Well, of course, it is a political House as Deputy McGrath well knows and make your political points. But, like, for me, politics is first and last about people, and you cannot deal with those on the margins who are vulnerable unless you have a functioning economy. I will go back to the point, Deputy McGrath, indeed, before your time here as a Member. In respect of benchmarking, in respect of the decentralisation programme, the excessive waste, the lack of scrutiny, the extension of tax concessions by the Department of Minister for Finance just like that, that this was not the way to go and that you needed a more controlled more examining structure so that if you had a functioning economy, you could actually deal with those who were clearly out on the margins, vulnerable and-----
Michael McGrath (Cork South Central, Fianna Fail)
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You are critical in your statement, for example, of the growth in public spending of €23 billion between 2002 and 2007.
Michael McGrath (Cork South Central, Fianna Fail)
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So apart from benchmarking, which was, I think, in the order of €1.3 billion, specifically what other areas of public spending which were significant did Fine Gael oppose at that time?
Enda Kenny (Mayo, Fine Gael)
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We had a long campaign in the Dáil about the so-called PPARS project. I think I called it PayPal earlier on; my apologies to PayPal, Chairman.
Michael McGrath (Cork South Central, Fianna Fail)
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PPARS.
Enda Kenny (Mayo, Fine Gael)
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You had PPARS, you know, had the port tunnel, the overruns, you had grossly excessive costs, despite tenders and original estimates.
Michael McGrath (Cork South Central, Fianna Fail)
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Well, in current spending, Taoiseach, in terms of social welfare-----
Enda Kenny (Mayo, Fine Gael)
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Well, the benchmarking process was the one-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----education, health, that's €1 billion. But of the other €22 billion-----
Enda Kenny (Mayo, Fine Gael)
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I remember being down in Killarney and saying this €500 million in extra charges is not on and I objected to that. I got a lot of stick for it within my own party at the time, indeed. But that and the general, sort of, looseness about public expenditure, without any, sort of, analysis of performance or delivery was an economy running out of control and it clearly went over the edge.
Michael McGrath (Cork South Central, Fianna Fail)
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Can I put it to you Taoiseach that in opposition and as leaders of the Opposition, you have a great opportunity to set the political agenda. Now I have had a look back over Leaders' Questions, Private Members' motions from the Opposition and, for example, in 2005, 2006 and 2007, Fine Gael had 43 different Private Members' slots. You used them on a wide range of issues from accident and emergency, liquor licensing, animal remedies, health, greyhound doping, waste management, road safety - all important issues. But not once do I see a Private Member's motion, for example, on the issue of the system of regulating banks, on the increase in lending to property and construction or on what you might have regarded as excessive public spending. You had an opportunity to set the agenda and to challenge Government and to hold Government to account on these key areas, which were subsequently exposed, but you didn't use that platform, I submit to you during Private Members' or Leaders' Questions on a regular or consistent basis to pick up those issues.
Enda Kenny (Mayo, Fine Gael)
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Yes, well, I'll make the point to you, Deputy McGrath, the Private Members' business in the structure of the Dáil is one element for political parties to raise issues of either national or more local importance. I am not sure where the greyhound doping business came into the Private Members' but it is of interest to some.
Michael McGrath (Cork South Central, Fianna Fail)
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June 2006.
Enda Kenny (Mayo, Fine Gael)
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But, obviously, both in my position as leader and, obviously, with Minister Bruton's position as financial spokesman at the time, you had other opportunities by way of priority questions, the presentations in respect of the budget. If you look at, I think, about 184 press releases from Minister Bruton, they were all about competitiveness, about effective spending, about analysis of that based on getting back to where we were at the end of 1997, export-led growth so that you could create jobs and people, obviously, could benefit from that. So I mean, you know, the Private Members' business is an opportunity for parties and, obviously, backbench Deputies and Front Bench Deputies want to raise issues that might be of more local than national importance. So from our point of view you've had the opportunity and different operations and a specific focus through the spokesman on finance on dealing with the issues of regulation. Minister Bruton met with the banks on occasion to discuss that and pointed these things out consistently in budgetary contributions about the growth in public spending, the focus on the housing and the property construction sector and where that was going to lead us to. I did the same myself, in 2003, 2004, 2005, 2006 and 2007 in terms of budgetary contributions.
Michael McGrath (Cork South Central, Fianna Fail)
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You said that in the approach to the 2007 general election that Fine Gael accepted the independent economic forecasts by the Department of Finance and the ESRI, for example, but can I put it to you Taoiseach that not only did Fine Gael accept the economic forecasts, but you also contested the election, competing on the same ground as the outgoing Government parties. For example, the promises on 2,300 more hospital beds; free health insurance for every child under 16; 100,000 more medical cards; 2,000 more gardaí on our streets; increase the old age pension to €300; effectively abolish stamp duty; cutting income tax; an increase in current spending projected over the five years of €17.4 billion; a tax package of €2.4 billion. So not only did you accept the broad macroeconomic forecast but you were actually competing on the same ground of cutting taxes, raising public spending and investing in public services and in capital expenditure. Was it not broadly the same message?
Enda Kenny (Mayo, Fine Gael)
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I wouldn't paint the Fine Gael Party in the same box here as the noble party to which you belong yourself. We did point out and took a very principled stand on benchmarking and on decentralisation, at some political cost I might say, because populism was as rampant then as it is now and people seeing 53 locations for decentralisation on the back of an envelope said, "This is great."
But actually, obviously, it was never delivered because, as you know, there were only 2,000 of the 10,000 jobs actually delivered through a system that hadn't even been thought out properly.
You make the point that, you know, we were advocating even for more public spending. Well, far from that, because a central focus of our opposition to Government was the massive waste and the inefficiency at Government level. Public spending, as I said, being increased without the ... any reforms in the public service and the budget process to which you were delivering for the people.
Back in 2002, I warned, in my response to the budget to the then Minister for Finance, Charlie McCreevy, that expenditure grew by 50% in two years, while revenue grew by 4%, no corresponding increase in public service over the same period. Pay costs up 11%, social welfare up 8%, rest of spending is up just 1%. These are stark figures, as you know.
In 2004, I said that taxation and spending have more than doubled in recent years. So, in 2005, I said that what happened yesterday was the injection of an unusually large amount of money in the economy - this, coupled with the money that would come from the SSIAs, will fuel a massive consumer spend which will inevitably lead to increases in costs and prices, as the spending Government spending follows political and election cycles, not economic cycles. And six months before the election, I said the budget continues the reckless expansion of Government taxation and spending without the necessary public sector reforms.
So while we did accept the figures from the Department of Finance and from the ESRI, obviously those growth figures that were projected could only apply if you had a focus in an economy that was competitive and lean, and focused on that.
Michael McGrath (Cork South Central, Fianna Fail)
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Finally ... I just want to raise the issue of how open to scrutiny was the Government decision-making process. For example, was the Oireachtas sufficiently aware of the stakeholders with whom Government Ministers might have consulted in the pre-legislative stage? How was this information made available? And, in your opinion, were Opposition parties adequately consulted by Government, in particular, on issues which may have been deemed to be of national importance?
Enda Kenny (Mayo, Fine Gael)
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No. You see, we now have a situation where you have pre-legislative scrutiny for members of parties and none on all of these issues. The fact of the matter was, you went into the Dáil as an Opposition party. The Government had already done its deals with benchmarking, the process completely secretive, utterly removed from all of the scrutiny that would apply in the Oireachtas, and all of that paper was actually shredded, gone forever, never to be seen again. And the same applied through the social partnerships works. It's very different now, where you have public affirmation, public comment, public analysis and public scrutiny. So, in my view, an Opposition party was certainly labouring against a situation here where Government held all of the aces, held all of the opportunities to make its decisions removed from scrutiny of the Oireachtas in a way that's very different from what it is now.
Michael McGrath (Cork South Central, Fianna Fail)
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We'll argue that point somewhere else, Taoiseach.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you.
Enda Kenny (Mayo, Fine Gael)
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Thank you, Deputy McGrath.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Senator Sean Barrett.
Sean Barrett (Independent)
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A Chathaoirligh. Just while you mentioned shredding, Taoiseach, are there any records of the night of the guarantee electronically or otherwise still around in the Taoiseach's Department?
Enda Kenny (Mayo, Fine Gael)
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The only file I saw on that, Senator Barrett, was quite an extensive file of sort of acknowledgments and emails, but there wasn't anything of real substance in the Department of the Taoiseach. Probably much more of that material is available in the Department of Finance.
Sean Barrett (Independent)
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Yes. Mr. Dermot McCarthy-----
Enda Kenny (Mayo, Fine Gael)
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I'll just make this observation now, and I don't have, you know, detailed evidence of it, but I would think that while the current Government is being criticised for setting up an Economic Management Council, which myself and former Tánaiste Gilmore put in place, it did mean that there was regular discussions between the parties in government and the Departments about issues of the day that were critical, and God knows, we had enough of these over the last number of years, particularly in the early part. I would be maybe concerned that there wasn't the level of engagement, you know, driven from the top between the Departments and, therefore, the necessary ... the appropriate senior civil servants. I'd like to have seen more of that because you have that now. If there's something going on, people are always engaged to, kind of, deal with the challenge, or whatever the issue might be.
Sean Barrett (Independent)
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The thought I had ... throughout there, Taoiseach, was from Mr. Dermot McCarthy, the former secretary, who did raise the prospect that there were some material, perhaps on electronic records, from the night of the guarantee. That's why I asked you that.
Enda Kenny (Mayo, Fine Gael)
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Yes, and I've sent those on to one ... I think ... Deputy Martin, I think, asked for that from me in that whatever correspondence is there has been sent on long ago.
Sean Barrett (Independent)
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Thanks, Taoiseach. And the top of your page 5, in your introductory remarks, you said, "the absence of any requirement at that time to conduct and publish cost benefit analyses on tax shelters and major infrastructure projects and to subject all major expenditure programmes to regular review;". And indeed Mr. Bruton says, "questionable project selection". Can we bring forward the Government economic evaluation service and have it feeding into Parliament and informing the decisions? And, in particular, could this inform the capital expenditure programme that's imminent, I think, in a matter of months, that it should be soundly evaluated rather than based on, you know, historical documents left around Departments, or people pushing their own pet projects?
Enda Kenny (Mayo, Fine Gael)
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Well, you're aware of all the ... the way that budgets were always drafted for years where secrecy always applied, and the Minister for Finance of the day came in and read out the budget to the House. We ... the spring economic statement, which is introduced now by the Government, sets out the parameters of the budget, and we're not going beyond that, and that's a €1.2 billion to €1.5 billion range divided on a 50:50 basis between both the Minister for Finance and the Minister for expenditure, and Government obviously will reflect on that.
The national economic discourse down in Dublin Castle recently, not only allowed for people to engage in public, but also for them to send in their propositions in respect of the forthcoming budget in October, and that will include, I assume, their, you know, propositions in respect of capital expenditure and so on. So the capital programme will go out ahead for a number of years. It will involve considerable expenditure, and clearly there are some issues that must be dealt with. For instance, you know, the ... in this major city here, the situation regarding transport has got to be addressed.
So, we've had the opportunity to discuss the spring statement; you have regular sessions in the Dáil, be it on housing or other areas of the economy, and when the Government do publish its capital programme, Senator, that will be available and obviously will be discussed and debated as well.
Sean Barrett (Independent)
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But the Wright report did draw attention to the ... an expertise deficit in the permanent Government, and will this be addressed by the Government economic service?
Enda Kenny (Mayo, Fine Gael)
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Well, in the Department of Finance now, the unit is open for all political parties and individuals and groupings to have completely independently verified assessments of the costs of programmes and proposals that they're putting forward. Obviously, you have to have an election next year, and that facility is already, I assume, being used by different parties. I'd like to think that we can continue to reform the system, Senator, so that when the opportunity presents itself that there can be far ... you know, to the best extent possible, openness and transparency about the issues of the day that are going through in a way that has never been done before.
Sean Barrett (Independent)
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And how would you integrate the Oireachtas into that process, Taoiseach?
Enda Kenny (Mayo, Fine Gael)
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Well, I think you can do it either through the ... we've started with the pre-legislative scrutiny of the Oireachtas committees available to all the Deputies and Senators, and I would assume that either through the appropriate finance committee or the scrutiny committee that these things can apply, and rightly so, because it's all taxpayers' money and the people's interest. I'd be of strong supporter of that.
Sean Barrett (Independent)
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Thank you very much. Tá an t-am thart. Thanks Chair.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Eoghan Murphy.
Eoghan Murphy (Dublin South East, Fine Gael)
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Chairman, and thank you to both the witnesses. A lot of the areas I wanted to discuss have already been raised, so if I'm repeating myself please just let me know. Minister Bruton, in relation to regulation, in your opening statement, on page 4, you talk about a new structure for the Financial Regulator introduced in 2002. Is it true to say that you didn't feel it was a good structure for regulation, and for overseeing financial sector in Ireland?
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, I think ... well first of all, I think the biggest objection I had was that we hadn't stress tested the actual powers, the capabilities, the method of overseeing the financial institutions. There was a bigger debate about whether it should be ... the regulator should be independent, stand alone, or be part of the Central Bank, and that dominated, if you like ... that institutional debate dominated the conversation, where I thought, personally, that the more important thing was were they fit for purpose, were they capable of overseeing the sort of financial problems that were already evident. But, again, we would have favoured a single ... a stand-alone regulator, an independent regulator.
But I think that was less central than the issue of their capabilities and were they robust.
Eoghan Murphy (Dublin South East, Fine Gael)
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So, I mean, you had concerns about the model and you had concerns about their capabilities, so why did you trust their work?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, I had a lot ... I mean, the period after that was a sustained issue of ... a period of calling into question as to whether they were up to scratch and we saw a period when, you know, a number of practices were revealed - of overcharging and so on in the banks - and it always appeared to me that the regulatory system arrived breathless and late, as they say, rather ... and they responded to whistleblowers or some revelation in the ... in the press that led to the issue. So that continued to leave a question mark as to whether the system was sufficiently forensic to do the job.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. When it comes to the 2007 election manifesto, I can't find anything in it relating to prudential regulation ... the need to improve our prudential regulation of the banks or really anything about the banking sector at all, in terms of substance. So, why not, if you had these concerns from 2002?
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, it's a valid point. I suppose we didn't have a detailed, if you like, alternative scrutiny mechanism for overseeing banks and our policy at the time, in 2002, was we needed a robust evaluation of how fit for purpose it was. So, that was a question of doing a detailed assessment. It wasn't a sort of a policy change. Personally, I'm not sure that the structures were at the source of the problem; it was the lack of forensic investigation, the rather cosy relationships that were there and so on. Those were the weaknesses.
Eoghan Murphy (Dublin South East, Fine Gael)
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So, what was, I mean, Fine Gael's reaction then to Northern Rock? Again, the concerns are there and Northern Rock happens, it's queues in the streets in Dublin; did you approach the Financial Regulator or Central Bank directly at the time?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, I obviously took the issue up immediately with the Minister for Finance and I questioned the Minister for Finance - and I have it there somewhere - you know, in detail about whether, you know, a failure of a bank, were we in a position to deal with that? How confident was he that there were no such vulnerabilities in our system? Had we the proper powers and capabilities in place? So, those questions were asked and they were, indeed, also asked of the Central Bank and the regulator. The assurances were given that they were.
Eoghan Murphy (Dublin South East, Fine Gael)
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But there was no way - excuse me - for the Oireachtas to directly scrutinise their work or hold them to account?
Richard Bruton (Dublin North Central, Fine Gael)
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No. I mean, obviously we didn't have access to the financial institutions and I think, as Senator Susan O'Keeffe said, we probably didn't have the forensic ... well, perhaps Deputy O'Donnell did, but we didn't generally have the forensic capabilities of investigating, even if we had them, but we didn't have them.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Taoiseach, did Fine Gael know about the dangers to the economy going into the '07 election? Did it see the risks ahead in terms of the banking sector, or the property sector?
Enda Kenny (Mayo, Fine Gael)
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Yes, if you look back at the statements from 2002 onwards, all of the budgetary statements and the major economic statements that were made. Deputy Bruton - as he was then - pointed out consistently of the bubble that was forming around the ... around the housing, property and construction sector and he had consistently questioned Minister Cowen in respect of bank lending, the stress testing that should be carried out here. But let me go back to the dangers that we were pointing out consistently of benchmarking, of social partnership, of overruns, of inefficiency, of a situation where you were not getting the value for money that people, you know, actually needed in respect of what they were spending. I pointed that out consistently.
Eoghan Murphy (Dublin South East, Fine Gael)
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I don't mean to cut you short, I'm short on time myself. I'm talking, though, about 2007 and the Opposition ... and Fine Gael, as the main Opposition party, going to the people. Did it raise ... or, sorry, did it actively decide not to raise the dangers of the economy or the potential risks that were coming down the line as part of that message to the people that goes on in a campaign?
Enda Kenny (Mayo, Fine Gael)
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Well, I ... we did actively point out that we were heading in the wrong direction and that we needed to get back to a point where you were lean and competitive, where you were export-orientated, because you were never going to be able to deal with the social consequences of continuing to have public spending increasing at the rate that it was, of borrowing to continue to do that and, therefore, putting your vulnerable elements of your society in really ... really serious difficulty. So, our thread, right through from 1997, was you had a functioning economy, competent management of that economy and, therefore, the opportunity to spread the fruits of that economy to where they were needed most - to the vulnerable people. And, in opposition, it continued for a while until the focus became on the property sector in particular. So, in '03, '04, '05, '06 and as we prepared for '07, Fine Gael had consistently pointed out the dangers of where we were.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. We have the liquidity problems in the banks then coming to light in '07. We come then into September 2008 and, looking at the Dáil records immediately after the night of the guarantee, we see Michael Noonan, in the Dáil, questioning the solvency ... the potential risk to solvency of the banks. Why didn't Fine Gael, as a party, put that position forward? And why did Fine Gael come to support the decision, the guarantee? Did you consult with Labour and what did you make of their decision not to support the guarantee?
Enda Kenny (Mayo, Fine Gael)
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Well, as I said, when the question of the guarantee came to me first of all in the morning, my response was you needed, you know, a functioning banking system as the lifeblood of the economy and the guarantee that was ... that was being put up by the Government at the time, we needed to know the conditions of that. Obviously, Fine Gael took a view here that we would support the banking guarantee for that reason - that the economy and business and trade is where you need to be - and obviously the issue was argued in the Dáil. I remember the question that Deputy Noonan asked in respect of liquidity ... liquidity or solvency. We supported the business so that we'd be able to ... that banks would be able to open the following morning, that there were three substantial buffers totalling €80 billion that would be called upon before there would be any exposure to the taxpayer - that was, shareholders' funds, ECB funds and a future levy on the banks similar to the insurance levy, which, in the words of the Taoiseach in the Dáil, he said would pay for the difference through a levy over time, rather than expecting the taxpayer to do so. Obviously, the situation has changed now following the discussions with Europe. And, secondly, that the Government would return within three days with details of the new regulatory scheme that would govern the banks in the post-guarantee world. We also sought, from our point of view, through Mr. Bruton, amendments and assurances in relation to the ... that the regulatory system would be improved substantially, that there would be more detail on the powers granted to the Minister under the Act and how we plan to use them to create an improved regulatory situation, that the guarantee would cover deposits and bonds and not other obligations that were introduced into the Dáil debate, that there would be restrictions on payment of dividends and on bonuses, that there would be improved oversight - with three people appointed, nominated by the public accounts committee - that there would be representation by the Government on the boards of the banks covered by the guarantee, that there would be codes of practice for risk committees and that there would be ... the importance of continuing to keep credit flowing into the economy. So they were the reasons we took the view that you needed a banking system that functioned, therefore, you needed to-----
Eoghan Murphy (Dublin South East, Fine Gael)
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And just a final-----
Ciarán Lynch (Cork South Central, Labour)
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Wrap up, Deputy, because you're over time.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chair. Just then, if you felt that was the responsible position in terms of the Oireachtas, in terms of opposition, what did you view then of Labour's position not to support the guarantee?
Enda Kenny (Mayo, Fine Gael)
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Well, obviously, the Labour Party were perfectly entitled to ... to their view, as a political party, on where they stood on it. I think ... I think Labour wanted to see, I think, all of the details before they would make a decision on the guarantee and obviously Fine Gael took a view that this was a real emergency here, that you were in a really difficult position, that you needed a functioning banking guarantee system and banks to be open the following morning. I mean, I've said this publicly before, very shortly after the election, of which my own Government was elected, we were told that you were very close to the edge of that precipice; that it might be ... it might be akin to what you've seen in-----
Eoghan Murphy (Dublin South East, Fine Gael)
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In '08?
Enda Kenny (Mayo, Fine Gael)
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-----in Greece recently, in terms of liquidity and capacity for people to draw money from banks and do business. So we took the view, "This is a real emergency here." These are the things that we looked for. There were elements of the guarantee, the buffers that were in there, as I've said; the return of the Minister within three days with the new regulatory powers and all the rest of it. Fine Gael took a view, as a political party, "What are you going to do here? This is a really serious situation." So, we supported the guarantee; obviously the Labour Party took a different view and were quite entitled to do so.
Eoghan Murphy (Dublin South East, Fine Gael)
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But were ... I mean, did you support the guarantee with those views taken on board by the Government or regardless of whether they were taken on board or not?
Enda Kenny (Mayo, Fine Gael)
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No, we wanted these things put in place that would give far greater scrutiny, far greater authority to the Minister for Finance-----
Ciarán Lynch (Cork South Central, Labour)
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Come on now, Deputy Murphy.
Enda Kenny (Mayo, Fine Gael)
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-----and those details would be important, from our point of view.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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But the immediate crisis was that there was an €80 billion, three-buffer zone here and that the Government would come back within three days of the details of the new regulatory regime to be outlined in the House by the Minister for Finance.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Senator Marc MacSharry.
Marc MacSharry (Fianna Fail)
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Thanks, Cathaoirleach, and just to say, that was 12 minutes.
I have five questions that I wish to ask.
Ciarán Lynch (Cork South Central, Labour)
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Sure.
Marc MacSharry (Fianna Fail)
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And the first four of those only require a "Yes" or "No" answer. They're all for you, Taoiseach, and the last one might require a little bit further. I'd ask for the indulgence of the Chair. Can I ask you, Taoiseach, "Yes" or "No", that in your pre-budget considerations, commentary, proposals or, indeed, manifestos in the relevant period, did you ever propose expenditure cuts and tax increases?
Marc MacSharry (Fianna Fail)
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Can you give examples of that for us?
Enda Kenny (Mayo, Fine Gael)
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Yes, we proposed ... we've done this now, with broadening the tax base in respect of property charges and water charges-----
Marc MacSharry (Fianna Fail)
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No, no. I'm talking about the relevant period.
Marc MacSharry (Fianna Fail)
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In the run-in to the election in 2007-----
Enda Kenny (Mayo, Fine Gael)
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We proposed the expend-----
Marc MacSharry (Fianna Fail)
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-----Taoiseach?
Enda Kenny (Mayo, Fine Gael)
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Yes is the answer. We proposed the expenditure cuts, in particular-----
Enda Kenny (Mayo, Fine Gael)
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In relation to the benchmarking process, in relation to the whole idea of what was coming through-----
Marc MacSharry (Fianna Fail)
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Okay. And what portion of the €17.4 billion increase in current expenditure outlined in the Fine Gael manifesto? How could you say that that constitutes a proposed decrease in expenditure, Taoiseach?
Enda Kenny (Mayo, Fine Gael)
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Well, the position was that we accepted the figures for growth from the ESRI and the Department of Finance.
Marc MacSharry (Fianna Fail)
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You were proposing the reduction of tax to 18%-----
Ciarán Lynch (Cork South Central, Labour)
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That's not enough time for a response, Senator. You-----
Marc MacSharry (Fianna Fail)
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-----how could that be constituted as an increase in taxation?
Enda Kenny (Mayo, Fine Gael)
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You're asking me five "Yes" or "No" answers, and you're making a statement here-----
Marc MacSharry (Fianna Fail)
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No, but it's just I've watched an element of, you know, political manoeuvring over the last number of questions and I just want to get specifically to the facts.
Ciarán Lynch (Cork South Central, Labour)
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Sorry-----
Enda Kenny (Mayo, Fine Gael)
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The first "Yes" or "No" answer, is that, yes, we did propose cuts in public expenditure-----
Marc MacSharry (Fianna Fail)
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But just not in the manifesto?
Enda Kenny (Mayo, Fine Gael)
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In social partnership, in proper analysis of major infrastructure overruns and in a situation where there was no scrutiny or delivery in terms of what people were expected to ... for their money. The answer is that-----
Marc MacSharry (Fianna Fail)
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Okay, I'll move on there. Taoiseach, how is it credible for you and your colleagues, with clean hands, to criticise the previous Government on expenditure and taxation, when you called for more expenditure and less taxation? I mean, how is this credible? I mean, would your policies of the day not have led to an even harder landing in the crisis?
Enda Kenny (Mayo, Fine Gael)
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I've dealt with those questions-----
Marc MacSharry (Fianna Fail)
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No, "Yes" or "No"? I'd like it again, because I mustn't have been listening.
Ciarán Lynch (Cork South Central, Labour)
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I'll afford you plenty of time, Senator. There'll be no difficulty there. Taoiseach?
Marc MacSharry (Fianna Fail)
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Thanks, Chairman.
Enda Kenny (Mayo, Fine Gael)
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Well, we've dealt with that question earlier on, that ... I don't accept that the model that we were following here was an economic model where you had competitiveness central to what you do, you had a lean focus on value for money. And we repeated that on so many occasions and go back again to the major issues of the way Government conducted its business - social partnership, secrecy removed away from the Oireachtas scrutiny, the whole idea of decentralisation costing billions, and benchmarking with no analysis for reform or delivery in terms of the taxpayers' money.
Marc MacSharry (Fianna Fail)
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As my colleague has said earlier, and he's outlined for you that those particular measures would have been a couple of billion. Nevertheless, your manifesto, policy and all of your line spokespeople and shadow Ministers of the day were calling for more expenditure and less taxation in all those Private Members' motions on animal health and all those vital issues of the time, nothing on regulation, though I did note, from the manifesto in 2007, a 25% reduction in the regulatory burden. I mean, is it not fair to say, Taoiseach, that what we're talking about in here is a fabrication of the facts of the day? Would your policies not have led-----
Ciarán Lynch (Cork South Central, Labour)
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Okay-----
Marc MacSharry (Fianna Fail)
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-----to a harder landing?
Ciarán Lynch (Cork South Central, Labour)
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Senator-----
Marc MacSharry (Fianna Fail)
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"Yes" or "No"?
Ciarán Lynch (Cork South Central, Labour)
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Senator, the question is leading-----
Marc MacSharry (Fianna Fail)
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No, they wouldn't? That's fine. Given your criticisms about the social and recreational contacts between previous Governments and developers, the Galway tent which we have spoken so much about in here and so on, can you inform the committee if you have ever accepted hospitality from a developer in the form of transport by road or air?
Enda Kenny (Mayo, Fine Gael)
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What do you mean by road? You mean getting a lift from somebody?
Marc MacSharry (Fianna Fail)
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I'll ask the question again. Did you ever accept hospitality from a developer in the form of transport by road or air?
Enda Kenny (Mayo, Fine Gael)
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Deputy, I've travelled so many places by road and air over the years. Tell me what you're taking about.
Marc MacSharry (Fianna Fail)
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No. I'm merely asking the question. Have you ever? So it's a "Yes or "No", I think.
Enda Kenny (Mayo, Fine Gael)
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Does that mean that if I travel from Dublin to Mullingar with a developer, that I've to answer "Yes"?
Marc MacSharry (Fianna Fail)
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I presume it does. I don't know. You tell me. Did you travel with developers? Did you travel with developers-----
Enda Kenny (Mayo, Fine Gael)
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I think that-----
Marc MacSharry (Fianna Fail)
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Did they give you lifts?
Marc MacSharry (Fianna Fail)
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Did they bring you on planes?
Enda Kenny (Mayo, Fine Gael)
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I always had my own car. I never had a plane and I never will have one.
Marc MacSharry (Fianna Fail)
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So is the answer "No" or "Yes"? I mean, it's a simple question, Chairman?
Ciarán Lynch (Cork South Central, Labour)
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The witness ... you're entitled to ask a question and-----
Enda Kenny (Mayo, Fine Gael)
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You must have a basis for your question.
Ciarán Lynch (Cork South Central, Labour)
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-----the witness is entitled to answer it.
Marc MacSharry (Fianna Fail)
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The basis for the question is, and we've been consistent, Taoiseach ... and I'm sure your advisers can tell you that we've asked these kinds of questions of everybody of a political nature in here, from all parties and none. So I'll ask the question again. Have you ever accepted any hospitality from a developer by way, as you put it yourself, a lift in a car, a flight on a plane, a lift on a private jet or so on, "Yes" or "No , a helicopter? "Yes" or "No"?
Enda Kenny (Mayo, Fine Gael)
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Well, can I ask you what you ... define what developer-----
Marc MacSharry (Fianna Fail)
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No, I'm asking the questions, Taoiseach.
Ciarán Lynch (Cork South Central, Labour)
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Sorry, if I just can intervene. The legal advice I have is that what ... the Dep .. or Senator can ask the question if he wishes. "Yes" or "No" is not ... is a direction to tell the witness how to respond. The witness is entitled to make his own position on how they will respond. And to assist in getting the fullest answer possible, if there are particular matters rather than generality, if that can be put, it would certainly help the situation here.
Marc MacSharry (Fianna Fail)
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Okay, I appreciate and note the legal advice. Having said that, Taoiseach, I'm putting the question the same way. "Yes" or "No", the affirmative or the positive, have you ever accepted hospitality from a developer by way of transport, by road or air?
Enda Kenny (Mayo, Fine Gael)
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Deputy, like, you know, during the course of my time as Opposition leader, we would have hired transport, air transport occasionally, to get from one part of the country to the other. I have never gone around asking developers, saying, "Would you give me a lift here, there or everywhere?" I've always tended to have my own transport, and like, I can be clear on this. I have never sought hospitality or transport from a developer for that purpose. Like, this is ... you know ... if I say to you, "I travelled 200 yards in a car with a developer." What do you mean by that? He's a contractor who builds five houses or 200 houses or 5,000 houses or whatever. This is ... the question is ridiculous. If you have an issue, then you should-----
Enda Kenny (Mayo, Fine Gael)
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-----tell me directly.
Enda Kenny (Mayo, Fine Gael)
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Because I mean, I ... you know I-----
Marc MacSharry (Fianna Fail)
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I mean, the question is ridiculous?
Ciarán Lynch (Cork South Central, Labour)
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Well, the-----
Enda Kenny (Mayo, Fine Gael)
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I've travelled on thousands of occasions-----
Marc MacSharry (Fianna Fail)
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Surely, I can have the protection of the Chair and of the legal advisers to the committee?
Ciarán Lynch (Cork South Central, Labour)
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I've given my legal advice on this. The question has been made. The witness can respond to it and-----
Ciarán Lynch (Cork South Central, Labour)
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-----unless we can move into a specific on this, I don't know. I think we will just be in a circular place on it, okay?
Enda Kenny (Mayo, Fine Gael)
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Chairman, I would assume that the Senator, in asking his question - perfectly entitled to ask the question - that-----
Enda Kenny (Mayo, Fine Gael)
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-----that, obviously, he's got some basis for it. Let me be quite clear to your committee. I have never been in the business of looking for hospitality or transport from people by air or by road. We've tended to travel on roads-----
Ciarán Lynch (Cork South Central, Labour)
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Senator MacSharry?
Marc MacSharry (Fianna Fail)
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We'll move on. I've two further questions. Taoiseach, isn't it true that, from the outset, that you have potentially endangered the integrity of this inquiry by loaded comments about "the axis of collusion between Fianna Fáil and the banks?"
Marc MacSharry (Fianna Fail)
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Okay. Final question. Why did you change the configuration of the original committee when the Government did not secure a majority?
Enda Kenny (Mayo, Fine Gael)
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That was because of a decision taken by the Senate, of which you are an esteemed member yourself and, obviously, regularise the position from what was originally intended ... to what was originally intended.
Marc MacSharry (Fianna Fail)
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Did you contact the leader of the Senate from the United States, where you were on a trip at the time, and say to him, "Take MacSharry out"?
Enda Kenny (Mayo, Fine Gael)
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I would never have said that. I would never say, "Take MacSharry out." I've had many discussions with your good father about politics and the west of Ireland and all the rest of it. And far be it from me to attempt to make a decision that people have as their democratic right at the end of the day. What I did want to do was ... we had set up from ... and this is very ... you're an independent committee ... to set it up with a particular structure. That intended structure was somewhat changed by a decision in the Senate and I just wanted to put it back to what it was originally intended. And that did not mean the demise of Senator Marc MacSharry.
Marc MacSharry (Fianna Fail)
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Yes, and just very finally, can I ask, that in that context, did people in Fine Gael and Government parties, other than Senators, prescribe what was to happen in that process-----
Marc MacSharry (Fianna Fail)
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-----such as yourself, for example?
Enda Kenny (Mayo, Fine Gael)
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No, I ... we had set out numbers to attend on the committee of inquiry into-----
Marc MacSharry (Fianna Fail)
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Nine, and then you made it 11, yes. Why was that?
Ciarán Lynch (Cork South Central, Labour)
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Allow him to answer now, please, Senator.
Enda Kenny (Mayo, Fine Gael)
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Because a decision was taken, I think, in the Senate-----
Enda Kenny (Mayo, Fine Gael)
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-----that changed that intended structure. So I wanted to regularise the position and that was the reason why.
Marc MacSharry (Fianna Fail)
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To secure a Government majority-----
Enda Kenny (Mayo, Fine Gael)
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But you've acted-----
Enda Kenny (Mayo, Fine Gael)
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As God is my judge-----
Marc MacSharry (Fianna Fail)
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I mean, tell me now. If that's not the reason, it's not the reason but-----
Enda Kenny (Mayo, Fine Gael)
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As God is my-----
Marc MacSharry (Fianna Fail)
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-----I'm asking you: was it the reason?
Enda Kenny (Mayo, Fine Gael)
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As God as my judge here, Senator, you ... the four members from my party who attend here, I have never spoken to them about anything to do with your commission of inquiry. You are entirely independent and I wrote to them to that effect, and they can confirm that to you.
Marc MacSharry (Fianna Fail)
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Now that there's a majority for the Government, of course.
Ciarán Lynch (Cork South Central, Labour)
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Well, there is a majority-----
Enda Kenny (Mayo, Fine Gael)
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But you're not operating on that basis. I assume-----
Enda Kenny (Mayo, Fine Gael)
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-----you do your business your own way.
Marc MacSharry (Fianna Fail)
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Everyone leaves their jerseys at the door, Taoiseach.
Enda Kenny (Mayo, Fine Gael)
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But, as I say, far be it from me, Senator ... for you to ask me a question ... would it be my intention to take out another west of Ireland man from the job that you're doing. That's not ... that's the ridiculous question.
Marc MacSharry (Fianna Fail)
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Thank you, Chairman. Thank you, Taoiseach.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Senator, and I want to bring matters to a conclusion, if I can. And if I can put a question to yourself, Minister Bruton. Very simply, as Opposition spokesperson for finance, what level of contact did you have yourself with the banking sector during the growing crisis years, including that of the IFSC? During that period of time, were you subjected to lobbying by interest groups or what meetings would you have had with those groups or sought from them and how did you devise what you considered to be appropriate policies for that sector? And I've one or two supplementary questions on that and I'll take that as the general first, Mr. Bruton.
Richard Bruton (Dublin North Central, Fine Gael)
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No, I don't think I had any meetings at which there was lobbying for some change in the regulatory structure or the banking regulation from the banking system. You know, I developed most of my policy from talking to independent economists, academics. You know, that was really the source, you know, to provide some outside insight into this system and that's where, you know, a lot of our critique came from. A lot of the evidence of excess, you know, profit taking within the banks came from outside independent studies. So, no, it wasn't ... there wasn't a big lobbying campaign going on, and we introduced no measures to favour financial institutions in respect of it.
Ciarán Lynch (Cork South Central, Labour)
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One of the propositions that this inquiry will have to ... will test and has been testing is the following: that principles-based regulation was a universal framework in which all OECD countries and associated ... operated within, but a proposition could be made that light-touch regulation was an interpretation of it in this jurisdiction that made principles-based regulation ... or principles-based regulation as did ... the operation, somewhat different and that the establishment of the IFSC created a particular dynamic around that - that everybody wanted to see the IFSC succeed and a message had to be sent out to that sector. Were you somebody who promoted, during your term in opposition as a finance spokesperson, that Ireland was a place to come to where you would get soft-touch regulation or light-touch regulation?
Richard Bruton (Dublin North Central, Fine Gael)
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No. I mean, I played no such role in opposition. I mean, I was not part of any promotion of the IFSC - good, bad or indifferent. I mean, I think, to be fair though, the regulatory failures were not in respect of the international financial institutions. By and large, the regulatory failures were, you know ... bog standard domestic banks was the problem that prevailed. I think, you know, principled regulation, without a credible threat of discovery and enforcement doesn't work, you know, so that's where the weakness was. There wasn't a credible threat of discovery and enforcement and I think that's where things came unstuck in terms of the model that, you know, you're talking about.
Ciarán Lynch (Cork South Central, Labour)
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Okay. I had one or two other questions but Senator MacSharry actually took them for me, so I'll actually move on to the next ones. The issue of ... finally, is the issue of the soft landing and the general political consensus that could be proposed or suggested that everyone was very much in a groupthink, both Government and Opposition ... that everybody ... that, okay, there was going to be a turndown, but it was going to be a soft landing in ... and I know, as Minister for Finance, that you would have access to Finance ... to senior Finance officials. that would be a common practice in opposition during that time in ... and any Opposition spokesperson would have access to the general secretary of a given Department. This committee has yet to establish whether there was any evidence of a soft landing within the Department of Finance. Did you ever test that evidence - to go and see if that was there?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, I think our belief was ... you know, we weren't economic forecasters so we accepted Finance and ESRI forecasts that prevailed at the time but it was certainly our view that in order to realise that sort of growth, you had to retool your economy very considerably and a lot of our emphasis was: how do you address the vulnerabilities that we had seen build up in the economy? So our focus was, you know, we need to fix a number of things to sustain that progress. We weren't forecasting a hard landing. We were saying, you know, "We have allowed vulnerabilities grow up here. We need to manage those vulnerabilities in terms of enterprise or restoring our export base-----
Ciarán Lynch (Cork South Central, Labour)
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But I-----
Richard Bruton (Dublin North Central, Fine Gael)
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-----addressing our competitiveness", and that was the focus of our approach.
Ciarán Lynch (Cork South Central, Labour)
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I'll return to the root of my question though, Mr. Bruton ... or, Minister Bruton. As a ... as if ... the senior person in opposition in any political party other than the party leader is the finance spokesperson. It is the person who engages in all the big operations inside in the House. You do it for Question Time, you do it for parliamentary questions, Ministers' question time, all the rest of it, and that position is also based upon ongoing contact, which ... I assume that you would have had contact with senior Department of Finance officials at the time or you would have had regular contact with them or sought regular contact. Would I be right in that regard, yes?
Richard Bruton (Dublin North Central, Fine Gael)
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Yes, but that would be around, like, finance Bills-----
Ciarán Lynch (Cork South Central, Labour)
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Of course, yes.
Richard Bruton (Dublin North Central, Fine Gael)
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-----you know, individual measures, not around-----
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Richard Bruton (Dublin North Central, Fine Gael)
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-----you know, global economic, sort of, forecasting.
Ciarán Lynch (Cork South Central, Labour)
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The general consensus was, particularly in 2006 onwards, that there was going to be a soft landing. At any time, did you ask the Department of Finance to produce evidence to you, that was of their own manufacturing, that there was a soft landing coming?
Richard Bruton (Dublin North Central, Fine Gael)
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No, I didn't. I mean, I suppose what we diagnosed was that what needed to be done was to rebuild our export base, to, you know, look afresh at the way spending was being undertaken. It wasn't a question of spending cuts as a lot of people talk. I mean, the economy was growing in those years. It could afford economic ... a growth in public spending programmes. The problem was that spending programmes grew at twice the rate that was affordable and they didn't deliver value. So we looked beneath that bonnet and say "Why is that happening?" So we looked at, you know, issues like benchmarking, looked at issues like how ... how are budgets put together? What accountability is there for outcomes within the system? Are individual public servants or Ministers made accountable? When they say they will do something, is there any day of reckoning? We found that that was all absent and, you know, so we were-----
Ciarán Lynch (Cork South Central, Labour)
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I just ... I appreciate all that-----
Richard Bruton (Dublin North Central, Fine Gael)
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-----delivering-----
Ciarán Lynch (Cork South Central, Labour)
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-----but I just need to confirm one thing and I'm not asking you a "Yes" or "No" question. I just need you to confirm for me or not was ... were you provided of ... this is evidence owned and supported by the Department of Finance, not analysis of external views, but a ... supporting evidence or evidence-based material of the Department of Finance, was it provided to you, or did you seek it, of a soft landing?
Richard Bruton (Dublin North Central, Fine Gael)
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No, I mean, we would have accepted Finance publications as ... as what represented their view. We didn't, you know, believe that there was some alternative view in the Department of Finance that wasn't in their published reports. So-----
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Richard Bruton (Dublin North Central, Fine Gael)
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-----you know, we didn't go looking for officials to second-guess their public reports. I mean, I suspect if we had, we would have been told that, you know, "Our advice is for the Minister, it's not for the Opposition and this is the published material that provides, you know, our considered view of where the economy is going."
Ciarán Lynch (Cork South Central, Labour)
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Okay.
Richard Bruton (Dublin North Central, Fine Gael)
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So, you know, I don't think such ... you know, such briefings weren't being made available. Effectively, counter briefings to what Government was saying was its view of the world wasn't available.
Ciarán Lynch (Cork South Central, Labour)
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All right, I'm going to move to wrap up. Deputy Pearse Doherty. Deputy, you've three minutes.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat. Mr. Kenny, when it was put to you by Deputy McGrath about that your Government advocated increase in expenditure, you replied saying, "Far from that." I would like you to refer to Vol. 2, page 78, and if you would indulge me, we'll actually look at some numbers, and I would ask you then to show me how you didn't advocate increased expenditure. What I want you to look at, in particular, is ... this is your election manifesto of 2007, which shows clearly that, under Fine Gael, you planned to increase current expenditure by €17.4 billion over the five-year term and capital expenditure by €3.4 billion in excess of that, which is in excess of €20 billion over the five-year term, which is very similar to the €23 billion that you criticised the Government for spending over the previous five-year term.
Do you accept, first of all, that under the Fine Gael proposals you were going to increase current voted expenditure by €17.4 billion from 2007 to 2012. Just if we can get that confirmation we can then move on to ... To give you the figures it goes from €37 billion up to €54 billion.
Enda Kenny (Mayo, Fine Gael)
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I made this point to you before, like. What we pointed out here is that in our analysis of the economy you had gross wastage of money - utter inefficiency. You had systems that were neither scrutinised nor analysed and were done away from any accountability of the Oireachtas. And these projections, based on the figures from the ESRI and the Department of Finance were predicated on knowing that you couldn't achieve them unless you brought back your economy to being competitive and-----
Pearse Doherty (Donegal South West, Sinn Fein)
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So when you sorted out all the waste and all the efficiency and all the competitiveness that you laid out in your manifesto, you still planned to increase current expenditure by €17 billion, do we accept or deny that fact?
Enda Kenny (Mayo, Fine Gael)
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The figures speak for themselves but the-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Enda Kenny (Mayo, Fine Gael)
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-----the underlying issue is, as I've said, since 1997 we were focused on running the economy competently, had incompetence in the management of the public finances, and weren't being able to create that.
Pearse Doherty (Donegal South West, Sinn Fein)
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That was just the first question. So you do accept that you were going to increase current expenditure by €17 billion. If we go to the bottom of that, because you were very critical of the Government in terms of your statement where it says ... where you say on page 5 of your statement but I'll just quote it - so, if we can leave the figures up on the screen - you say, "The average annual growth rate at just under 10% per year was roughly twice the underlying potential growth of the economy." If you see on this table down below in terms of what you were planning over the five years ahead, you were planning to increase expenditure by 8% while the growth rate was 4.2%. Would you agree that that was exactly what the Government had done the previous five years where the growth rate was 5% and they increased expenditure, on average, 9.8%?
Enda Kenny (Mayo, Fine Gael)
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No, I don't accept that because we had a very different financial model here.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, I'm not talking about the financial model, I'm talking about the numbers.
Enda Kenny (Mayo, Fine Gael)
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But the figures that we set out there-----
Ciarán Lynch (Cork South Central, Labour)
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We'll bring it back in, Deputy.
Enda Kenny (Mayo, Fine Gael)
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-----were predicated on running public finances competently, running an efficient economy, and focusing on where we should be focused, on getting value for the people's money, being able to have a situation where you didn't tax employment out of existence and where you were able to use the fruits of that economy to help the vulnerable and the disadvantaged. So that's not in those figure, but that was the principle and the thread running through Fine Gael's economic policy since the 1990s and before. And as I said if that had been applied right through the 2000s, we wouldn't have ended up in the mess that we ended up in.
Pearse Doherty (Donegal South West, Sinn Fein)
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Well, if that was applied, what is happening at this point in time even to your policy, you wouldn't be able to implement that. But I want to go back to my core points here. The point I've made in looking at the figures, and let's talk about the figures Taoiseach, what Fine Gael was advocating at that time was to spend twice of what the growth rate was in the economy. The growth rate you were projecting was 4.2%, you were increasing net voted expenditure by 8% which was what the previous Government had done for the five years previous, where the growth rate was an average of 5% and they increased net voted expenditure by 9.8. Do you accept that that is what you were planning in terms of the macroeconomic figures?
Enda Kenny (Mayo, Fine Gael)
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I've said that the programme for the manifesto speaks for itself. But I've already said to you that Fine-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Is that a "Yes" or a "No", just?
Ciarán Lynch (Cork South Central, Labour)
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Give a bit of time, Deputy, to respond.
Enda Kenny (Mayo, Fine Gael)
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-----Fine Gael's philosophy was to deal with cutting costs and running the business far more efficiently. We had proposed index links capped on charges from State bodies, we had proposed a 25% cut in Government-imposed red tape, we had proposed national skill and uptraining for 100,000 to be able to cater for the changes that were coming. We had proposed a new network telecoms so that people would be able to do their business in any part of the country and we had proposed serious powers for regulators to reduce costs in regulated sectors like energy and telecoms. So the figures were predicated, Deputy Doherty, on running that-----
Pearse Doherty (Donegal South West, Sinn Fein)
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I'm not adding a supplementary, I'm actually at the original question. Because the Taoiseach can read the entire 90-page manifesto if he wants, I want to focus into two lines and four numbers. And the question is very simple. Because the document doesn't speak. You're the Taoiseach and I want you to confirm, is the interpretation that I have of the document, is that the Fine Gael plan in terms of expenditure over the five years was to increase expenditure at a rate twice of what the growth rate was in the economy, which was in line with what Fianna Fáil had done in the previous five years where they increased expenditure twice in line of what the growth rate was in the economy.
Enda Kenny (Mayo, Fine Gael)
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I'll repeat for you again, Deputy Doherty, Fine Gael had a very different economic model than Fianna Fáil and in accepting the predictions or the projection from ESRI and from the Department of Finance, we understood that you couldn't achieve those rates without having a competitive, focused, regulated, scrutinised and accountable economic system. And that's what our model was. It was right through from '97, right along in opposition and now in Government we're implementing more of what should have happened back in the mid-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Taoiseach, there's been a lot of-----
Enda Kenny (Mayo, Fine Gael)
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So you have your-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Some of your previous comments have been put to you in term of this inquiry. I'll put another quote from you, where you called on people to stand by the Republic and assist the inquiry. Can I ask you to assist me in the question I have? Do you accept that the Fine Gael - and I'm not talking about your economic model-----
Ciarán Lynch (Cork South Central, Labour)
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You're drifting out of ... I'm ready to make an intervention, I don't want to do that so can I get you to ask your question.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, I'll ask the question if you can get the Taoiseach to answer it.
Ciarán Lynch (Cork South Central, Labour)
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Fair enough, now one second. I'll assist both you and the witness.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. So I want to ... Because I'm putting it to you that you've said that far from increasing expenditure, you did the opposite, right? So I want to make this point and can you answer, please, the point I'm making and if you need clarification in terms of the question I'm putting, maybe seek it. Do you accept from the four numbers that is on your screen from the Fine Gael election manifesto that Fine Gael were planning to increase expenditure at twice the rate of what the projected growth was in the economy, which was in line with what the previous Government had done in the previous five years where they increased expenditure at twice the rate of what growth was in the economy?
Ciarán Lynch (Cork South Central, Labour)
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Okay. Thank you.
Enda Kenny (Mayo, Fine Gael)
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Well, that is not right-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Taoiseach.
Enda Kenny (Mayo, Fine Gael)
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-----because the figures are the figures that were adopted by the Fine Gael parliamentary party in the 2007 Fine Gael election manifesto. Those figures are the figures that were adopted by the Fine Gael parliamentary party. But the Fine Gael economic model was vastly different from what Fianna Fail had proposed and were implementing. And your comment that this was the same as the Fianna Fail party is just not consistent with reality. Because we had consistently from 2002 onwards pointed out the dangers to the economy, the necessity for having accountability, regulation, value for money, efficiency, competence in running a national economy and that was not in any way evident in what the Government of the day were at.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you. Deputy O'Donnell to wrap up, please.
Kieran O'Donnell (Limerick City, Fine Gael)
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Taoiseach and Minister Bruton, if you had been elected as Taoiseach in '07, Mr. Kenny, what would you have done differently in terms of dealing with the banks and the bank guarantee than was done by the Government of the day?
Enda Kenny (Mayo, Fine Gael)
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Well, we'd have implemented the propositions that Fine Gael have put forward and, obviously, a great deal has changed both at home and abroad in terms of bank and bank structures. Clearly, as I pointed out, Deputy O'Donnell, the situation where you had a seamless evolution from being in the Department of Finance to being in the Governorship of the Central Bank without any difference of opinion or allowing for that, that's all changed. And from 2002 right through to 2007, the warning signs were indicated by Fine Gael at every opportunity and particularly in respect of the budgetary contributions made by myself and by the spokesman at finance but, obviously, people made their choice in 2007 and, despite the fact, Deputy O'Donnell, that people knew and were well warned about the cracks that were appearing in the Irish economy, they made their choice and almost gave the Government of the day an overall majority. I suppose the situation so far as being populist is concerned is still around. But, clearly, we've learned lessons since then. If Fine Gael had been elected in 2007, it would have tried to rectify that position. I would have preferred if they had been re-elected back in 1997 and it wouldn't have arisen in the first place.
Kieran O'Donnell (Limerick City, Fine Gael)
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And, Mr. Bruton, in terms of the approach to the banks, in terms of the guarantee itself, what difference, looking back now and reflecting on your period in Government, what different of an approach would Fine Gael in Government have taken in terms of putting a bank guarantee and the approach?
Richard Bruton (Dublin North Central, Fine Gael)
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Well, I think, you know, going right back to 2002, you know, we were very critical of the regulatory system that was being put in place, we did not think it was fit for purpose ... and that was, sadly, proven right over the subsequent years. So we were right to call at that time for a detailed review and when it came back through the subsequent years, when enforcement powers came back for consideration again we raised that issue that there hadn't been a proper stress testing of the model and I think that was proven to be a serious vulnerability. Obviously, when the guarantee ... you know that bank collapse started, as we've outlined ... the Taoiseach has outlined in detail why we supported the guarantee. You were at a point where, you know, you feared a run on the banks, you needed to protect depositors ... but we raised all of the right questions about whether, you know, was there an adequate buffer and could this impact. I think as soon as it became clear that this wasn't just a liquidity issue, it was a solvency issue, we strongly advocated that within each bank, there should be the separation out of a bad bank, which would have left the shareholders and the bondholders holding, if you like, the assets that were questionable and they would have to recover from those assets as best they could to recover the value of their shareholding and their bond holding. That was clearly the model we advocated - the separation of good from bad. That wasn't done, as you know, but that was the position we took and I think we were right in that. We took the view that, you know, Anglo ... there shouldn't be more recapitalisation of Anglo, that it was a bank that should be wound down in an orderly fashion at a time when we were being told that it should be kept open as a going concern. So, we did take different views on those. I think, by and large, at the time, based on the information we had available to us, those were sensible policy positions to take up. So, you know, I think we have a very credible record in relation to how we handled this crisis, but, clearly, no one has perfect foresight or perfect hindsight and, you know, it ... this was an appalling disaster that no one anticipated in its scale or impact on people but I think the policy position and the scrutiny that we applied was the right scrutiny and policy positions.
Kieran O'Donnell (Limerick City, Fine Gael)
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And finally, Taoiseach-----
Ciarán Lynch (Cork South Central, Labour)
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Quickly now.
Kieran O'Donnell (Limerick City, Fine Gael)
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In ... what assurance can you give to the public that the measures that have been brought in will ensure that a banking crisis doesn't happen again in Ireland and that we don't have a property bubble for the ordinary person-----
Ciarán Lynch (Cork South Central, Labour)
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You are moving in now to Minister Noonan's space when he's in before us in September, okay? And really, I want to put a stop to that there, okay. Thank you very much. I'm going to bring matters to a conclusion. I, in doing so, I would like to thank An Taoiseach, Enda Kenny, and Minister Richard Bruton, for their participation today with the inquiry and with their engagement with us. I now would like to, in doing so, formally excuse the witnesses and propose that we suspend - it's coming up to 12.25 p.m. - that we suspend until just after 12.45 p.m. if that's agreeable, okay?
Ciarán Lynch (Cork South Central, Labour)
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I now call the committee back into public session; is that agreed? Agreed. We now proceed with our second hearing of today, that's the hearing with An Tánaiste, Joan Burton TD, and Mr. Pat Rabbitte TD. The Committee of Inquiry into the Banking Crisis is now resuming in public session, and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off? Our next witnesses today are An Tánaiste, Joan Burton TD, and Mr. Pat Rabbitte TD. You're both very welcome before the inquiry and the committee this afternoon.
Today the inquiry is focusing upon the role of the Oireachtas and the effectiveness of the Oireachtas oversight of the Government in the build-up to the crisis and in responding to the crisis. In particular, our focus will be on three lines of inquiry: the effectiveness of the Oireachtas in scrutinising public policy on the banking sector and the economy, analysis of the key drivers for budget policy and the appropriateness of the relationships between Government, the Oireachtas, the banking sector and the property sector.
The Tánaiste and Deputy Rabbitte TD are, therefore, appearing before the inquiry today in the context of their respective roles as the Labour Party's spokesperson in finance while in opposition and as the leader of the Labour Party while in opposition.
In normal circumstances - excuse me - when a witness appears before here, they don't have privilege and privilege is extended to them by virtue of this committee's powers. In this regard, as both Members are current Members of the House, there is no requirement for me to extend privilege to the witnesses in that regard. However, I would state that the witnesses are directed that only evidence connected with the subjects of these matters to these proceedings is to be given.
I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right, and members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.
The witness has, or the witnesses have been directed to attend the meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning and form part of the evidence of the inquiry. And now can I ask the clerk to administer the oath to both witnesses, please?
Ciarán Lynch (Cork South Central, Labour)
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So welcome again, Deputy Rabbitte and Tánaiste Burton. If I can invite you to make your opening remarks, and if I can begin with Deputy Rabbitte, please? Deputy Rabbitte.
Pat Rabbitte (Dublin South West, Labour)
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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.
Ciarán Lynch (Cork South Central, Labour)
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Thank you, Deputy Rabbitte. Tánaiste.
Joan Burton (Dublin West, Labour)
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Thank you, Mr. Chairman, and I want to thank you and the members of the committee for the invitation to be here today.
In my written statement, I've set out in detail my analysis of the causes of the banking crisis. In brief, I agree with the assessment in the Regling and Watson report that while the crisis, clearly, had an international dimension, this was very much, unfortunately, a homemade crisis in many respects. The economic crisis, of which the banking crisis was an integral part, I think, for the Irish people it can be viewed as a tragedy in three acts. In act 1, the key decisions which led to the crisis were made by the Government, the banks and the Financial Regulator. In act 2 came the unravelling of the solvency of the banking system. This was also the point at which the then Government made the fateful decision to provide the bank guarantee. This was the most damaging and expensive decision in terms of the cost of dealing with the crisis, which unfolded in act 3.
The decision to provide a blanket guarantee was made with effect from 30 September 2008. It's a matter of record that at the end of the subsequent Dáil debate, the Labour Party was the only party to oppose the guarantee. We did so because we believed that the extent of the potential liability posed a real risk to the solvency of the State and I believe that this decision has been fully vindicated by subsequent events. The banking guarantee locked the country into a cycle which led to the bailout of 2010 and everything that flowed from that date. In looking at how the crisis arose, cheap credit became available in Ireland after the adoption of the euro. As Regling and Watson identified, much of this lending was concentrated on the property sector and comprised loans to a limited number of developers. This pattern of lending was reckless in the extreme and it should have prompted intervention by the Financial Regulator. However, no such intervention occurred. The practice of light-touch regulation prevailed and, with the benefit of hindsight, it's also clear - not least from the contributions made in this forum - that a measure of regulatory capture applied.
Put simply, the regulator, the regulation system and structure was too close to the banks.
During the Dáil debate in 2003 on the Bill to establish the Irish Financial Regulator, I said, "The Bill does not refer to the necessity for parameters and ethical criteria for responsible lending. This is a major deficiency." Tax based incentives put in place by Government spurred on the reckless lending. I believe that tax-based incentives can play a legitimate and a very positive role in stimulating development in certain circumstances, such as to encourage necessary, social or economic development, particularly where the market has failed to do so. Any such incentive, though, has to be proportionate, targeted and temporary. However, by the time I became the finance spokesperson of the Labour Party, which was in late 2002, appointed by Deputy Rabbitte to the opposition and for some time before that, it was very clear many of these tax incentives had actually run their course. It was also clear that their continued use was stroking ... stoking a construction industry which was already overheated and a bubble in land prices which itself, the bubble, was aided and abetted by grossly irresponsible rezoning decisions in some parts of the country.
In my Second Stage speech on the Finance Bill in February 2003, I said: "The Minister for Finance is obviously a disciple of the Augustinian school. He always announces his steadfast determination to dismantle the bewildering edifices of tax shelters but [he] is never quite ready to do [so]". My prediction, I think, proved, you know, prescient, as year after year, the Minister constantly found reasons to delay their expiry. I repeatedly stressed my view that the incentives were being used as a tax shelter rather than as a development tool and they were being used by wealthy individuals to shelter income from Revenue. I pointed out in my 2006 reply to the budget, more than 1,000 of Ireland's wealthiest people paid ... these were people with incomes in excess of a million euros a year, paid an effective tax rate of between nought and 5%.
I believed that the Government of the day was, as I said at the time, addicted to tax shelters. No doubt, this was, in part, a matter of political judgment and prejudice, but I believed then, and I still believe, that the reliance of the principal Government party on financial contributions from developers also played a part. The culture of the Galway tent was unhealthy for politics and it contributed to pushing the building industry ultimately to disaster.
Also during this time, I pointed to what I considered to be abuses of the stamp duty regime to reduce the liability of wealthy individuals. Amongst those abuses was the practices of resting contracts, whereby the parties to a particular agreement delayed or avoided the execution of a stampable document so as to reduce or to avoid or to postpone almost indefinitely liability. Another abuse was the use of contracts for difference, which I highlighted in 2006. The committee will be aware that a proposal for a modest duty - 1% - on such contracts was withdrawn by the Minister for Finance, Brian Cowen, following extensive lobbying from finance and other industry sources.
Contracts for difference were subsequently used by investors in Anglo Irish Bank, with disastrous consequences. Had the duty been in place, it might have given - the 1% ... it might have given some of those involved pause for thought.
The budget was in surplus in every year from '97 to 2007, with the exception of 2002. And, in fact, when the previous rainbow Government handled over, there was a very small surplus on the budget.
Contemporary estimates of the structural balance by the EU Commission, the IMF, and the OECD did not identify a problem. The large disparity between the apparently healthy headline figures and the underlying reality was accounted for by the over-reliance on construction related taxes that the committee members are well aware of - stamps, CAT, VAT, CGT, all elements of the bubble in tax revenues. This over-reliance on construction-related taxes was the root cause of the collapse in the national finances, which occurred in 2008, and subsequently. The problem was compounded by the fact that the budget policy was driven by the electoral cycle rather than by the needs of the economy. It's no coincidence that the peaks in public spending occurred immediately before the 2002 and the 2007 general elections.
I've been asked to comment specifically on the oversight role of the Oireachtas in the period under review and my colleague, Deputy Rabbitte, has dealt with it in detail. The primary role of the Opposition is to hold the Government to account. I believe that the Dáil and the Seanad have generally served us well but they're far from perfect. Our system is adversarial - Government proposes and Opposition usually opposes. One of the reasons behind the establishment of the committee system was to provide a less adversarial setting for debate. In recent years, it has become normal practice for independent regulators to be made accountable to the Oireachtas in the first instance and while this practice is right in principle, it's important that committees are sufficiently resourced to enable members to carry out their duties effectively. The accountability of the Financial Regulator is a case in point.
It seems that in the run-up to the banking crisis, everyone concerned, including the Taoiseach, Government Ministers, senior civil servants and the Oireachtas, presumed that the regulator was doing its job and that the assurances of banking stability did not warrant serious investigation. This assumption proved to be fatefully wrong and Deputy Rabbitte has traced the evolution of the committee system after the DIRT inquiry. The system now is better equipped to do its job than it was ten years ago. Nevertheless, it's still debatable if a better resource system of Oireachtas oversight would or could have pointed up the potential dangers facing the banking system before the crisis hit. Equally, I doubt if our current Oireachtas oversight could prevent a similar crisis happening again if those who are primarily responsible for preventing such crisis - the Government, the Central Bank, the Department of Finance - were blind to its very existence. You know, I'm very conscious of raising through questions, through statements, through contributions to committees and to the Dail a whole series of issues, some of which I've referenced to there, but, you know, I was doing that as an Opposition Deputy on behalf of the Labour Party.
So, better resourcing of the committee system is important if we're to empower the Oireachtas in its dealings with the Executive. And I would say, if your inquiry is minded to make such a recommendation, then I, as leader of the Labour Party, will give the recommendations, in that respect, very serious consideration. Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much Tánaiste. I now commence questioning and if I can invite in Deputy Michael McGrath. Deputy McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes. Thank you very much, Chair, and you're very welcome, Tánaiste and Deputy Rabbitte. Tánaiste, can I ask you, as the architect of the Labour Party's financial and economic policy leading into the 2007 general election, and if I can take you to the agreed budgetary platform with Fianna Gael, which will be put up on screen there now. And essentially, the Labour Party was proposing going into that election that over the following five years that current expenditure would increase by €17.4 billion, capital expenditure by about €3.5 billion. You were proposing a tax package of tax reductions of €2.4 billion.
So, in total, a package of about €23 billion over the following five years. And it was based on an assumption of economic growth from the Department of Finance and ESRI of in the region of 4% and you were recommending that current expenditure would grow at double the rate of economic growth over that period. So, how can you claim - if you do claim - that the Labour Party's proposals going into that election were any less pro-cyclical than the outgoing Government at that time?
Joan Burton (Dublin West, Labour)
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Well, Deputy, for a number of reasons. First of all, the Labour Party manifesto was very much prepared in conjunction with other Labour Party colleagues, including, obviously, the then leader of the Labour Party, Deputy Rabbitte. But in the documents that you sent me, I just want to highlight two quotes from the ESRI reports which, when I read, just brought me back to the atmosphere of that period. In the ESRI report of December 2005, the ESRI actually spoke about the growing aura of invincibility about the Irish economy and then, in the very last paragraph, they introduced, as was common at the time, and the then Taoiseach of the time utilised it quite a lot, the notion of a "soft landing"; bit like a soft day in the west of Ireland; a little bit of rain, but it wouldn't do you any harm. That's the way it was set out. And, as late as May 2008, and I remember when I read this being really upset by it, the ESRI said there were difficulties but the Irish economy would rebound; it was resilient in face of adverse circumstances. And again, one of the famous quotes of the era: "The fundamentals are sound". Now, in that context, if you were to take the Labour Party manifesto of then, you would see that the Labour Party manifesto is, first of all, based on the growth estimates and figures provided by, and examined by, the Department of Finance, the ESRI figures-----
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, I said that in my question, Tánaiste.
Joan Burton (Dublin West, Labour)
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Sorry, sorry, I am answering your question.
Michael McGrath (Cork South Central, Fianna Fail)
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We're three minutes in and you haven't even gone near answering the question.
Joan Burton (Dublin West, Labour)
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Actually, I have, Deputy.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
You haven't. You're giving-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, Deputy, am I allowed to answer?
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----colour and context and background. Can you answer the question, please?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I'll intervene if-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Chair-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I will and-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----can I ask you to help me in this regard?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I certainly will, yes.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
There's over three minutes gone.
Ciarán Lynch (Cork South Central, Labour)
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Just stop the clock a second. It's just, kind of, coming back to where we were revisiting this morning. There's an issue here with specific numbers and to stand up the numbers over the policy platform. The Deputy's question is that there is a cyclical and pro-cyclical presentation in the figures here and how does ... over the lifetime of Government, that would be compounded and compounded. So, do you stand over that this was a pro-cyclical-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
They were the figures, Deputy, available to us from eminent organisations, particularly the Department of Finance-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
On economic growth, Tánaiste, yes.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----and the ESRI.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
On economic growth, but the figures here are the agreed Labour and Fine Gael figures-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Based on------
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----on your spending plans.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Based on-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
They're not from the ESRI or the Central Bank; let's be clear now.
Joan Burton (Dublin West, Labour)
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Based ... sorry, sorry, based on the figures that are indicated in relation to growth in the tables on page 78 of the documentation that you provided us with-----
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, on growth.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----and we set it out very clearly. But in the Labour Party's manifesto, we started the section dealing with the economy with, "Sound economic management is a fundamental requirement of good government" and we said that budgetary policy would be absolutely linked in terms of our commitments in the context of the various structures of the European Union. Not only that, we actually criticised, in that document as well, the vast waste of money which occurred, Deputy, in those years on a whole series of vanity-type projects. I don't know if you remember PPARS, e-voting, the Bertie Bowl, the big shed down in Punchestown, the M50 West Link-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Can I distil it down to-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----the decentralisation; we were-----
Michael McGrath (Cork South Central, Fianna Fail)
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Can I distil it down to a very simple question: do you accept that the Labour Party, going into the 2007 general election, was advocating a continuation of pro-cyclical fiscal policy?
Joan Burton (Dublin West, Labour)
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No, the Labour Party was advocating changes in relation to the management of how the tax system dealt with, for example, the bubble that I've just described. There were tax breaks amounting to billions a year. The Labour Party also proposed to address the issue-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----of waste in public spending-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So just-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----and the Labour Party also-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Just to clarify-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----you are denying that a tax and expenditure package of €23 billion over five years and a proposal to spend at twice the rate of the projected economic growth, you're denying that that's pro-cyclical?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, you're trying to put words in my mouth.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
No, I'm asking you a question.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
You're actually ... no, you're trying to put words in my mouth.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
No, you did say it wasn't pro-cyclical so-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
And what I'm saying-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----you know-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----is that the proposals by the Labour Party and by Fine Gael were very, very carefully costed and they took into account as well the significant savings that would be made by policy changes-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----which would result in the tighter running-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Was it-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----of the public finances.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Was it pro-cyclical?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
In the context of the figures for growth that were provided by, as I said-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----the organisations I've referenced, growth at that point was still expected. You're talking about 2007. As Deputy Rabbitte has said, nobody, in 2007, actually anticipated the entire collapse of the entire banking and construction system. We knew that there were difficulties ahead and, in fact, our detailed manifesto sets out, in great detail, how the budgetary policy-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----would be driven by respect for the guidelines-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----in relation to spending-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is that-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----from the European Union.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Tánaiste, is that a seven-minute way of saying "Yes"?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, I just said to you that we were given information which was costed and which was verified by both the Department of Finance and by the ESRI and we proposed changes to stop the waste of spending, which had become notorious at that stage-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----in relation to various issues and we proposed as well significant changes and savings in relation to tax breaks, which were given to very wealthy people and which were driving a bubble in relation to speculation in building land, in particular.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay. Tánaiste, can I just take you to the events around the bank guarantee?
Michael McGrath (Cork South Central, Fianna Fail)
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And you deal with this at length in your witness statement and you state that the Labour Party stood alone in opposing the bank guarantee. When the Bill was initially introduced in the Dáil on 30 September 2008, it passed Second Stage without a vote. The Labour Party didn't oppose it at that stage. The issues you put on the record in your Second Stage speech and by the then ... and by Deputy Gilmore, as leader, were narrow in nature about the publication of the guarantee scheme, about remuneration that the bankers would enjoy, about how lending practices were going to be regulated, going forward. You supported the Bill at Second Stage and opposed it, subsequently, but can you just outline to us how your alternative would have worked? What were you actually advocating at that time in the teeth of that crisis?
Joan Burton (Dublin West, Labour)
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Well, my principal criticism of Fianna Fáil and of the Finance Ministers and taoisigh was that there was a series of warning shots which were given in Ireland in relation to banking and banking regulation. And Northern Rock had happened a full year beforehand and, at that stage, Deputy, I had made it very clear to the then Minister for Finance, Mr. Cowen, that action should be taken in relation to bank regulation. And that Northern Rock needed to be taken very, very seriously.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
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Subsequently, all over the following year, I became increasingly, I have to say, alarmed by the information which was coming in respect-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----of Anglo Irish Bank. I came, as is the responsibility of any Opposition Deputy, to the various fora that exist in this House - the Finance Committee; on occasion, in relation to spending in particular, the public accounts committee - and-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
But can you clarify-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----I set out-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----what you were advocating-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----and I set out-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----at the end of September?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----I set out my concerns. My ... I advocated-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What were you advocating?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----the ending of tax breaks, I advocated-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
No, on the immediate and severe banking crisis at the end of September 2008-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Oh, in relation to that-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----what were you advocating?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----our concerns was around the blanket nature of the guarantee. We set that out very specifically, very clearly - the blanket nature of the guarantee. The uncertainty about the amount of responsibility and liability that the guarantee was going to put-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----on the very frail shoulders of the Irish taxpayer.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
And your proposal was?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
And on the fact of the treatment-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Tánaiste?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----of certain classes of bondholders. On all of those, we were extremely concerned.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
And your proposal was?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
And the proposal was that the blanket bank guarantee was inappropriate because it was putting too great a burden of debt-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
And instead-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----onto the shoulders of the ... and, by the way, at that point, Deputy, as you probably remember, because you were one of the advocates for what you described at the time as ... and others-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Tánaiste I-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
------as wearing the green jersey.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----I need you to focus upon-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----your own behaviour, at that time-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----to answer the question with regard to what was the thinking-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
The-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----and what was the alternative to doing-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----the-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----what actually happened.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----the proposal was in relation to the level of debt that was going to be put on the shoulders of Irish taxpayers. I would also say to you, Chairman, that we had limited information. In fact, a lot of the information that could be gleaned was picked up not just from the limited parliamentary information that was available but from commentary in terms of economic commentators-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Chairman, can you stop the clock please. I am utterly frustrated. I am dealing with a very senior and experienced politician who knows this game inside out. The questions are not being answered. They're not being answered-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----and I'm sick of it.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I'm going to just ... the proposition here is very, very clear. Is that the ... when the guarantee was in real time ... over the couple of days that actually happened, the ... a position was taken on that by Government and by the Labour Party and other parties. The proposition is ... has two aspects to it, certainly, why were there concerns with not supporting it at that particular time and the second part of the proposition is what was being proposed as an alternative to the proposed route that was before the House? Is that a fair reflection of the question, Deputy, before I restart the clock?
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The question is, what was the Labour Party alternative?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay. Exactly. Okay.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, just to be very clear, Deputy-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Tánaiste, please, I need to get that answered now.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----our concern, just to spell it out to you-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
You've given a detailed critique.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----was that the nature of the guarantee was, at that point, indefinable. We didn't know what the extent of it ... except that it was the State taking on an enormous liability which was subsequently quantified as being in the region of €440 billion. And what-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
€375 billion, Tánaiste, but, yes, we won't-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----I said-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
----- won't argue over that.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----at the time was quantified as being in the order of €440 billion. If there were refinements of the figure later on, they were later refinements. I'm talking about what information was available. Remember, the guarantee-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Chairman, I'm wasting my time here.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Like, I'm not getting any answer to the question I'm putting.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
And I'm asking you to-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
What the-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----defend my right to ask a question and have it answered.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
And I've asked the Tánaiste ... and I'll repeat it again. The ... there's two ... and I will say that there's two propositions to the question. There is: why was the position taken and what was the alternative that was being put forward?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, the alternative that was possible was, for instance, to actually have the banks which were the most exposed, in fact, either fail or be nationalised. Now, when you look at it - and if I go back to that period of time, and you can check this - my concern was, if you like, in relation to two items. First of all, the banks which had caused the difficulty were two, in particular - Anglo and Irish Nationwide. One was a boutique developers' bank, serving a relatively small number of developers who had very large presence in the Irish market-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Tánaiste, I will have to press this now.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
The second-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
No, I will-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
We're back to commentary.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I will really, really have to press this.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
We're back to commentary now.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Is-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
But I'm explaining my approach. I thought that's what you asked me.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Well, can I say to you, Tánaiste, and I've read your Second Stage speech on the guarantee Bill-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----you didn't mention Anglo. It's not mentioned.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
There were no actual institutions mentioned-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----I believe by anybody, including yourselves, in the course of those conclusions.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes, but you now claim to have had huge concern about Anglo-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----and when the stakes-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
And I expressed that-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----when the stakes-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----when I visited the Department of Finance. We were invited in, just before the debate, and I expressed that to the officials in Finance. They actually told me that the Anglo and the Irish Nationwide model were actually very clever models, which I didn't understand.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay, but you didn't express it on the floor of the Dáil-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
I chose to disagree-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----when the Bill was being debated-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----because my concern ... my concern-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----at the time.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, sorry, if you look at the records of those times, there was a general advice not to actually mention institutions for fear that it would come .. cause damage to institutions which might, in fact, be in a stronger position than others-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay, so under-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----and I took that responsibility and that advice and that, if you like, request, which came from the now ... the former Minister for Finance, Brian Lenihan. I took that very seriously and, as far as possible, I abided by it because I saw it as being in the interest of those institutions which might survive, if they could survive.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I will accommodate you more time, Deputy, okay.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Thank you. In terms of the rescue of the banking system, Tánaiste, and you have been consistently very critical of the approach that was taken at the time and you've spoken there about an alternative to the guarantee which would have involved possibly nationalising or allowing-----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----some banks to fail. But can I ask you, ultimately, how money would have been saved under your alternative? Money would be saved if somebody didn't get repaid. So who wouldn't have got repaid under your alternative? Is it depositors, is it senior bondholders were going to be burned at that time? Can you just explain, in practical terms, how money would have been saved in the alternative model of rescuing the banking system?
Joan Burton (Dublin West, Labour)
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Well, in the earlier period of Northern Rock and in the period around the bank guarantee, I advocated, and it's on the public record, that there would be very significant deposits, there would be very significant guarantees for depositors in the banks because my view was that ordinary depositors in the banks needed a high level of guarantee - not just to protect them but also to prevent a run on the banks which, as the events of the guarantee unfolded ... and, by the way, it was presented by your Government at the time as being a cost-free exercise. I think we're all wiser now that we know that when banks fail, the cost is very significant. However, if the crisis which was evolving in relation to the two institutions that I was concerned about ... and, by the way, I was a member then of the finance committee and we had the various banking companies' representatives in on several occasions and the ... in the course of questioning, it was always to probe how they were actually dealing with, in effect, the bubble. So if the actions had been taken ... my greatest regret about Brian Cowen, who is, you know, is somebody-----
Michael McGrath (Cork South Central, Fianna Fail)
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My greatest regret at the moment is that you're not answering the question-----
Ciarán Lynch (Cork South Central, Labour)
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I'm going to make an intervention here, Tánaiste-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----that's my regret.
Ciarán Lynch (Cork South Central, Labour)
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-----I don't want-----
Joan Burton (Dublin West, Labour)
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No, no-----
Michael McGrath (Cork South Central, Fianna Fail)
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And my question-----
Joan Burton (Dublin West, Labour)
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I am answering-----
Michael McGrath (Cork South Central, Fianna Fail)
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You're not, you're not-----
Joan Burton (Dublin West, Labour)
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But sorry this-----
Michael McGrath (Cork South Central, Fianna Fail)
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You're not-----
Ciarán Lynch (Cork South Central, Labour)
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Sorry-----
Joan Burton (Dublin West, Labour)
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Well-----
Michael McGrath (Cork South Central, Fianna Fail)
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You're not answering at all.
Ciarán Lynch (Cork South Central, Labour)
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Excuse me, please. I don't want to raise the gavel for the second time for the entirety of this ... hearings. The ... I would ask witnesses to refrain from the behaviour of other witnesses that can be cited here in the general context of things. And, likewise, I've done this with other witnesses and I want to remain consistent. The question that has been put is: was there an opportunity for potential savings in an alternative reproach that was being put forward?
Joan Burton (Dublin West, Labour)
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Yes, and the opportunity for the savings, Mr. Chairman, was to have taken action an awful lot earlier, particularly given the warning that Northern Rock constituted one full year in advance. One full year in advance. But, at the time of the guarantee, for example, the Government ... the then Government, had no resolution legislation in place and the guarantee was sprung overnight. There was a, you know, a midnight ... through-the-night meetings in which the decision was made. We woke up the next morning to be told about it and it was a fait accompli. So what Deputy McGrath is actually asking is: did I agree with the bank guarantee? No, I didn't. Could it have been done better-----
Michael McGrath (Cork South Central, Fianna Fail)
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No, I can say what I'm asking, Tánaiste-----
Joan Burton (Dublin West, Labour)
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-----could it have been done-----
Michael McGrath (Cork South Central, Fianna Fail)
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I don't need you to rephrase my question-----
Joan Burton (Dublin West, Labour)
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-----could it have been done better-----
Michael McGrath (Cork South Central, Fianna Fail)
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My question is-----
Joan Burton (Dublin West, Labour)
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-----and at less cost?
Michael McGrath (Cork South Central, Fianna Fail)
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And, even subsequent to the guarantee, you know, you're making the point that there was a better way of dealing with the banking crisis, let's say even at the guarantee and subsequently. And my question is, that you only save money in terms of rescuing the banks if somebody doesn't get repaid.
Joan Burton (Dublin West, Labour)
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Well-----
Michael McGrath (Cork South Central, Fianna Fail)
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So who wouldn't have got repaid under the Labour Party model of rescuing the banking system?
Joan Burton (Dublin West, Labour)
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Well-----
Michael McGrath (Cork South Central, Fianna Fail)
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That's my question.
Joan Burton (Dublin West, Labour)
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Well, for one, the sub debt ... because this was debt which had been taken out as these banks were getting into trouble at very high rates and that was a very risky sub-debt investment. That was one of them.
But can I just say this, Deputy McGrath, I think there's, if I may so ... in terms of the question you're asking, if a sovereign state takes an action, which offers guarantees, once that is done, Deputy McGrath, you have to take the fact that that is there on board. I would not have approached the guarantee in the way the Government did. I think it could have been done-----
Michael McGrath (Cork South Central, Fianna Fail)
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But I'm giving you the opportunity to outline what you would have done instead of the guarantee-----
Joan Burton (Dublin West, Labour)
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Yes, I suggested to you-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----and how you would have saved money.
Joan Burton (Dublin West, Labour)
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I suggested to you that it could have been approached either by nationalisation-----
Michael McGrath (Cork South Central, Fianna Fail)
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And how would that save money?
Joan Burton (Dublin West, Labour)
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-----or by closing down the institutions which were the biggest destabilising risk to the whole Irish system.
Michael McGrath (Cork South Central, Fianna Fail)
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And who wouldn't have been repaid and, as a result, you would have achieved savings?
Joan Burton (Dublin West, Labour)
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Well, that would have depended at what point in time, Deputy, that that was done. Had that been done a year previously when that Government was put on notice and the banking system and the regulation system was put on notice in relation to Northern Rock that there were difficulties in relation to banking, well, then, while all bank failures are costly, I do not believe, myself, that the level of costs that would ... that was incurred would have been incurred.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Joan Burton (Dublin West, Labour)
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I can't give you a precise figure-----
Michael McGrath (Cork South Central, Fianna Fail)
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I'm not asking for a figure.
Joan Burton (Dublin West, Labour)
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-----but it would have been significantly lower.
Michael McGrath (Cork South Central, Fianna Fail)
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I'm not asking for a figure, but the only specific-----
Joan Burton (Dublin West, Labour)
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It would have been-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----you have offered is subordinated debt and, as you know, there were liability management exercises of about €15 billion in respect of subordinated debt. There was a total of €1.4 billion of sub debt repaid during the guarantee because it was guaranteed. So you've offered that specific, but you haven't offered anything beyond that.
Joan Burton (Dublin West, Labour)
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The ... but the guarantee in its major purpose, which was to get deposits to flow back into the Irish banks and stop a run on the banks, did not succeed in that purpose, Deputy. So the guarantee was a disaster for the Irish people because, in effect, what happened with the guarantee was the Irish taxpayer took sole responsibility for the debts of the banks when, in fact, in my view, the effort to save the banks should have been concentrated on the high street banks, the banks with which ordinary business, commercial, depositor life in Ireland is dependent.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. I feel I must bring in Deputy Rabbitte. And I want to just raise one issue with Deputy Rabbitte and that is the use of the platform that an Opposition party has through all the various mechanisms in the Oireachtas - the Private Members', Leader's Questions, ministerial questions. And I have examined the record of Fine Gael and Labour during a number of years in Opposition - 2005, 2006, 2007. And during that period, for example, 2005, '06, '07, Labour had 24 Private Members' motions and they dealt with a range of issues, all important, from bin charges to class sizes a number of times, civil union legislation, public transport in Dublin, Coroners Bill, health spending, etc., and I ... the Leader's Questions are similar and more. Why is it that the key issues, when we look back now, of the regulation of the banking system, the growth in lending to construction and property, for example, and pro-cyclical fiscal policy didn't feature strongly enough during that period? And does it go back to what you said in your witness statement, "In our adversarial system of parliamentary democracy, governments always want to do good things and oppositions always want government to do more good things"? Does that characterise the Labour Party's approach in Opposition?
Pat Rabbitte (Dublin South West, Labour)
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I think it characterises the nature of adversarial politics. That's the normal democratic impulse. The implication, I think, behind your question, Deputy, is that before 7 o'clock on the fateful morning that the Labour Party somehow had known that this was going to happen.
Michael McGrath (Cork South Central, Fianna Fail)
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No, it's not.
Pat Rabbitte (Dublin South West, Labour)
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We didn't know. We didn't know. You know, questioning my colleague about whether we had a refined alternative is ridiculous. The thing was sprung on us.
Michael McGrath (Cork South Central, Fianna Fail)
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That's even now, Deputy.
Pat Rabbitte (Dublin South West, Labour)
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The thing was sprung on us, shock and awe. It was the most extraordinary story in my lifetime that I woke up to that morning. So, no, we didn't have a refined alternative. We had to, there and then, react to the proposals being brought forward and all I can say to you is that I think - and it's very easy be wise in hindsight - I think that if I had been walking through the streets of Dublin and we had Irish citizens on the streets trying to withdraw their money from Northern Rock, I think I would have gone back to the Department and said, "What in the name of God is going on here? Shouldn't we have a look under the bonnet of the other banks?" And that was 11 months, almost 12 months, earlier. So we might have had a refined alternative because I heard Mr. Cardiff say to you that there were prominent figures in the financial sector making representations about a guarantee and so on. So I think you know very well, whether it's a good practice or not, Deputy McGrath, that Leader's Questions tend to be prompted by the issue of the day. However, on construction, we did raise it, and we did raise it consistently in all of the particular instruments that were open to us from the Private Members' Bill in terms of trying to cap the price of development land-----
Michael McGrath (Cork South Central, Fianna Fail)
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It's 2003, yes.
Pat Rabbitte (Dublin South West, Labour)
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Yes, that's right. Right up to ... and you will ... I think we're agreed, the rot had started by 2003 and, you know, price of houses had risen by three times that time. So from thereon in, we pursued the property issue consistently and by all methods open to us.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you. Thank you, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Deputy ... Senator Michael D'Arcy.
Michael D'Arcy (Fine Gael)
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Thank you, Chairman. Tánaiste and Mr. Rabbitte, you're welcome. It's a question for both and I'm going to start with yourself, Tánaiste, please. During the period of '02 to '07, what concerns did you have about the rate of growth of the domestic Irish banks? In evidence we've received to date, AIB, Bank of Ireland and Anglo from '01 to '08, the period in question, grew in the region of 30% compound per annum.
Joan Burton (Dublin West, Labour)
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Sorry, I thought you were continuing. I would say that I became the finance spokesperson for the Labour Party in late-2003, just before ... in late-2002, just before the budget for 2003 - I think the week before the budget of 2003, which was in early December 2003 - and between then and 2007, I used my opportunities as finance spokesperson for the Labour Party to lay out a series of issues that I had around, in particular, the bubble that was developing in relation to land speculation and in relation to construction in Ireland. Now, in any kind of examination of banking, one thing that bankers and those that regulate banks should always be on the lookout for, because it happens in banking all the time, is the development of bubbles. I represent the constituency of Dublin West. I had, like Deputy Rabbitte, and, indeed, Deputy Gilmore, who was, subsequently, leader of the Labour Party, been a member of the old Dublin County Council-----
Ciarán Lynch (Cork South Central, Labour)
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Sorry, just one intervention. I'm trying to, kind of, balance the time and the questions with the time to the responses-----
Ciarán Lynch (Cork South Central, Labour)
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-----so that members can come in-----
Ciarán Lynch (Cork South Central, Labour)
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------and try to equalise the engagement.
Ciarán Lynch (Cork South Central, Labour)
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So I would ask you to be conscious from here on out in terms of that balance please, okay.
Joan Burton (Dublin West, Labour)
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So I became very concerned about the speculation in building land and the speculation ... the development of very speculative rezoning, because in the old Dublin County Council it was an area where tens of thousands of homes were going to be built for families and individuals and that was right and proper, but the level of zoning and, subsequently then, the level of lending by banks in competition with each other to lend money to developers for rezoned land became a major concern of mine, which I reflected in parliamentary questions and contributions in the Dáil. Secondly, then, as I've referenced in my statement, I became very concerned, as time went on, at the build-up of the bubble in relation to stamp duty where companies could rest contracts and not actually pay the stamp duty. The one that I drew attention to particularly was a particular development at the Irish Glass Bottle site and the tax break incentives which underpinned the development of the bubble.
There were ... in successive budgets in those years, both Minister McCreevy and Minister Cowen brought forward a whole series of tax breaks for private hospitals, for private nursing homes, for a whole series of different activities, sports injury clinics. There's a long list of them and that again certainly caused extreme apprehension to me that what was happening was a bit of a runaway train and I advocated that that should be brought to an end.
Ciarán Lynch (Cork South Central, Labour)
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Senator.
Michael D'Arcy (Fine Gael)
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Deputy Rabbitte, to follow on from that question can I ask if you or the Tánaiste had any knowledge of the commercial real estate sector? Putting it into context, on the night of the bank guarantee in question, Anglo Irish Bank, purely a monoline bank, 82% commercial real estate, 1% residential and while all the conversation to date has been upon residential, and then the remaining 17% was corporate lending attached to commercial real estate. Mr. Rabbitte, had you knowledge of the commercial real estate sector and where it had gone to? Try and exclude the portion that the Tánaiste has discussed to date. Had you information about the over-exuberance of the commercial real estate sector?
Pat Rabbitte (Dublin South West, Labour)
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I knew broadly the type of client that Anglo Irish had. I didn't know it was as clustered as the figures subsequently bore out but I knew the type of client it had, I knew of the complaints of other banks that some of their high net worth individuals and corporates were complaining that they weren't getting a similar yield to what Anglo Irish was providing. But I didn't know it was concentrated to the extent that we now know.
Joan Burton (Dublin West, Labour)
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I became aware that for instance-----
Michael D'Arcy (Fine Gael)
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Try and be concise if you could please, my time is running out.
Joan Burton (Dublin West, Labour)
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Yes. I became aware that for instance, developments like, say, multi-storey car parks were becoming vehicles not simply for development but they were becoming vehicles for tax avoidance by high net worth individuals and in this, there was just a very significant build-up of what I felt was activity, not for the purposes of the genuine development which the country needed, but development of activity for acquiring tax breaks and, therefore, shielding wealth from taxation. And that contrasted, you know, very sharply with say, small businesses, or, indeed, individuals who couldn't have utilised those kind of breaks. And in every budget there was a series of additional tax breaks built in, which were essentially designed to stimulate activity but became even more so a tax avoidance mechanism. I actually campaigned around tax justice, that allowing somebody with a €1 million income to pay tax of 0% to 5% was actually wrong and economically not proper. And as time went by in the period 2002-2007, partly because, for instance, of ads in the paper, you saw that high net worth individuals were invited by various organisations to participate and invest into opportunities that were available. And, Deputy, almost all of those opportunities were construction-related. And, you know, that was my concern.
Michael D'Arcy (Fine Gael)
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Okay. If I could move on, please. The '07 Labour manifesto proposed a 2% cut in the basic rate of income tax. One of the criticisms here had been the narrowing of the tax base. Would the 2% on the basic rate ... would have cost a lot of money, I don't have a figure, but the fact that it was on the basic rate, it would have been billions. Would this commitment not have further eroded the tax base? And what policy did Labour Party have to broaden the tax base to provide more stable revenues for Government? And that's for both please, I'll start with Mr. Rabbitte.
Pat Rabbitte (Dublin South West, Labour)
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Well, with respect, Deputy ... with respect, Senator, I don't think that that was a narrowing of the tax base issue. I mean, the narrowing of the tax base issue in Irish politics has been a question of to whom the tax law applies and the fact that it was very narrowly focused on PAYE workers and income that could be cut-----
Michael D'Arcy (Fine Gael)
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Sorry, could I ... If I could just come in now-----
Pat Rabbitte (Dublin South West, Labour)
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It was a reduction of the tax rate, not a narrowing of the tax base.
Michael D'Arcy (Fine Gael)
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But, sorry, those ... If I could just very quickly. I'll just clarify. From '97 to '07 the higher rate reduced from 48% back to 41%. The basic rate reduced in a similar amount as well. What I'm saying is, those moneys lost, foregone to the Exchequer, were replaced with the transactional taxes.
Pat Rabbitte (Dublin South West, Labour)
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Yes.
Michael D'Arcy (Fine Gael)
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And that's the issue. The Labour manifesto in '07 subsequently was to reduce the rates at '07 by a further 2%. So that was a continuation of the same policy of the previous Government.
Pat Rabbitte (Dublin South West, Labour)
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Well, I mean, I don't think that you can draw the conclusion from a single modest proposal that was designed to address people on modest incomes getting some kind of a break prompted by the fact that very high earners had all of the reliefs that we have just been speaking about since we started. They could minimise their tax liability or mitigate it. The small person trapped in PAYE and so on could not. So, you know, it was a measure that, I think, in terms of trying to analyse what caused the banking crash, it might not, in your view, have been good fiscal policy but it was of piddling insignificance in terms of what caused the crash.
Michael D'Arcy (Fine Gael)
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The point I'm making, Mr. Rabbitte, and perhaps, Tánaiste, if you could take it up, is that to reduce the tax base of the basic rate by 2% would cost the Exchequer billions. It had to be replaced with something else. And the question is: did the Labour Party have plans in place to broaden the tax base or, subsequent to what Deputy Rabbitte has said, would that plan have had to be ignored if you had gone into government at that stage?
Joan Burton (Dublin West, Labour)
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Well, what I proposed in many of the debates and discussions ... and, in fact, ultimately, Brian Lenihan actually adopted an element of my proposals because we had many conversation, particularly when things went wrong for the country and, you know, he was concerned to try and do his best to salvage the wreckage. First of all, I spoke at length about the notion of a minimum effective tax rate. In other words, no matter how many allowances are available to an individual, particularly a high-income individual, we would ensure, or the State would ensure, that that person had to pay a minimum effective rate of tax. The second proposal was that some of the allowances I've spoken about should be capped and that in some cases they should be discontinued. I also proposed, Deputy, that there would be a standing committee on taxation, having previously proposed a study, which ultimately Deputy Cowen did actually carry out but didn't implement the recommendations, a study of the actual cost of tax expenditures. And I proposed that there be a standing commission committee on taxation which would continuously look at the costs of tax arrangements which had built up in the system because I believed that if there was more information available that it would have been possible to make better judgments and better decisions about how to manage the national finances responsibly.
In relation to the proposal about reducing-----
Ciarán Lynch (Cork South Central, Labour)
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Tánaiste, quickly please.
Joan Burton (Dublin West, Labour)
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Yes. In relation to the proposal about reducing the lower rate of tax, remember, as you've just said, the upper rate of tax had come down by some seven points over the period and we were concerned that ordinary, you know, working families, people on modest incomes, particularly young people going into employment, that they, for instance, would enter the tax situation at a lower point. Now it was a very modest proposal and all of our proposals were subject, obviously, to the budgetary process of when the resources would be available to do that. But it was in the ... you see, there was the comparison that, I think, was in, particularly in Deputy Rabbitte's mind, was there had been this enormous reduction in taxes for people who had been very, very well ... who were very well ... who were very wealthy-----
Ciarán Lynch (Cork South Central, Labour)
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It's past time and I do need to bring the Senator in, please.
Joan Burton (Dublin West, Labour)
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-----compared to people on modest incomes facing a 20% rate as their starter rate, and that was very-----
Michael D'Arcy (Fine Gael)
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But you could have increased the band.
Michael D'Arcy (Fine Gael)
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You could have increased the band and left the rate at the same amount.
Joan Burton (Dublin West, Labour)
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And the other alternative was to increase the bands and to increase the credits, and they were alternatives to doing it, but, effectively, the Labour Party was interested in seeing ... and, you know, again, the situation of people going into work, of work paying and tax not being excessive.
Michael D'Arcy (Fine Gael)
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Could I put it to you, and I'm going to ask you your view upon it ... of the statement that I make, and I'm not trying to lead the witness, Chairman, was it just auction politics?
Joan Burton (Dublin West, Labour)
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No, because we had a very detailed analysis of where the tax system strongly favoured very wealthy people who ended up paying nought to 5% of income tax, whereas a young man or woman just commencing work on a modest salary could actually enter into the tax net at an initial rate of 20%, where as those who entered into the higher rate had, in the proceeding years, actually gained a reduction of seven percentage points.
Michael D'Arcy (Fine Gael)
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Mr. Rabbitte, was it auction politics?
Pat Rabbitte (Dublin South West, Labour)
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No, I think it was a question of equity, as has been said, I mean ... high earners had enjoyed considerable benefits over the period of the boom, and yet people on very modest incomes were subject to tax without a similar level of alleviation. I mean, it is true that the environment for that election was immensely competitive. You'll recall the address that the then Taoiseach gave to his ard fheis, where he spelled out a range of issues, I have the list, but I don't want to put it on the record if it provokes anyone to unreasonable response. But it included the measure that you're talking about as well as cutting 1% off the marginal rate, and halving PRSI.
Michael D'Arcy (Fine Gael)
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Can I ask, Mr. Rabbitte, during your time in opposition did you actively seek views and opinions from banks, property developers, or their trade bodies in order to develop your policy strategy?
Pat Rabbitte (Dublin South West, Labour)
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Well, I certainly had some engagement with them, I don't know did I actively seek it, as often as not they actively sought us. Yes, we had engagement with them and, you know, we would take into account whatever they said, but what weight we would give to it was a matter of judgment of the people deciding the policy platform.
Michael D'Arcy (Fine Gael)
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And how did you ensure that those policies that were developed, were developed in a way that balanced the needs between all stakeholders?
Pat Rabbitte (Dublin South West, Labour)
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Well, I mean you can only bring your political compass to bear on that in terms of in terms of the circumstances at the time. I mean , you know, it wasn't any secret, every party was in possession of information about the property issue at that time and you know it got to such a stage ... I recall making a speech to the Association of European Journalists - I made a number of them at the time. That was on 11 January 2007, or it's reported in The Irish Timeson 11 January 2007, where I drew attention to the fact that our exports were beginning to dim in circumstances where more and more of our revenues were dependent on transactions related to the construction sector. And it was attacked at the time, as I have it here, "Rabbitte talks down the economy" and, you know, some of the usual criticism. The climate was not very receptive. That was on 11 January 2007. I gave a few interviews at the time to that affect. Arguably, I should have the courage of my convictions and stayed with it, but it was not a winner.
Ciarán Lynch (Cork South Central, Labour)
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On the issue of winner, that's going to be the key point. Deputy Rabbitte, as was referred to by Senator D'Arcy, the issue of the 2% cut to the basic rate of income tax was announced by you at the party conference just prior to the general election in 2007 when you announced it during the leader's speech that night. Can I put it to you, that would ... I put the proposition to you that this was a tactical and deliberate decision to brand the Labour Party as a low income tax party in order to curry electoral support, and was a clear example of populist politics.
Pat Rabbitte (Dublin South West, Labour)
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I don't accept that, Chairman, if you mean that I ought to have gone to the last conference before a general election and announced things that would be manifestly unpopular with the electorate. I wasn't minded to do that. But in this particular one, as the speech shows I said very clearly, that if resources permitted, this is what we propose to do. And we proposed to do it because we felt there was an inequity in terms of the cohort of people who got benefit each year, over the best part of ten years, from the tax system, disproportionately so, because they were high earners, and people on modest incomes didn't. And, you know, it was designed to be a small contribution to alleviate the burden on people on modest incomes.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Tánaiste, the ... as the finance spokesperson for the Labour Party, I would assume that you would have met with Department of Finance officials on an ongoing basis and you would have access to the general secretary of that Department, as would other opposition TDs with the line general secretary. That would be the case, yes?
Joan Burton (Dublin West, Labour)
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No. I wasn't ever invited-----
Ciarán Lynch (Cork South Central, Labour)
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But would you have sought access?
Joan Burton (Dublin West, Labour)
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-----to have an audience with the secretary of the Department of Finance, but I did meet with the chief executive officer of the NTMA from time to time. In fact, myself and Deputy Rabbitte did, but not with the secretary of the Department of Finance, other than when the crisis was upon the country. I met on one occasion with Mr. Cardiff; I never met with his predecessor.
Ciarán Lynch (Cork South Central, Labour)
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Did you seek meetings with the general secretary of the Department of Finance during your time as finance spokesperson in opposition .. Labour Party?
Joan Burton (Dublin West, Labour)
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I was available to meet but they were not inclined to meet-----
Ciarán Lynch (Cork South Central, Labour)
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Did you request-----
Joan Burton (Dublin West, Labour)
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-----lowly opposition people. Our research person in the Labour Party met with Finance officials and the arrangements they made was that they gave answers to specific questions that we put in a budgetary context.
Ciarán Lynch (Cork South Central, Labour)
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A general assumption that could be made of that period of time was the soft landing theory. And the soft landing theory has ... seemed to have influenced a lot of political strategy, a lot of political thinking, a lot of political manifestos and so forth. This committee has asked previous finance Ministers and Taoiseachs and general secretaries ... sorry ... the senior civil servants in the Department of Finance and so forth, as to ... was there an internal document in the Department of Finance that was evidentially designed and put together by them to support that. Now, that will continue to be a work in progress. Did you at any time ever contact the Department of Finance to seek documentation, or were you ever provided with information that was belonging to the Department of Finance that actually supported a soft landing theory.
Joan Burton (Dublin West, Labour)
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The Department of Finance published documentation. They didn't make any specific documentation available to the Labour Party other than through the head of research who was himself an economist but I did actually, from time to time, meet with officials from the NTMA and from the Central Bank and they gave opinions. And in relation to the Central Bank, I raised specifically with the then Governor of the Central Bank - and did request to meet him - my concerns about subprime lending over a number of years.
Ciarán Lynch (Cork South Central, Labour)
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I can get into the issue of the NTMA and the other issues, and I just want to go for a break after this, I just need to answered, so I can. Was there at any time an engagement by you or representatives of your office to ... operating on your behalf, as finance spokesperson of the Labour Party, to seek evidence that there was a soft landing, that ... in the Department of Finance, not in any other Departments, Central Bank or anywhere else, but in the Department of Finance?
Joan Burton (Dublin West, Labour)
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There were contacts between the head of the Labour Party's research and principal adviser to the then party leader, with the Department of Finance on occasion and where we wanted figures verified, on occasion the Department of Finance was willing to do that, but the second-----
Ciarán Lynch (Cork South Central, Labour)
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Tánaiste, I am going to push the question. I'm asking specifically with regard to the soft landing theory, not to talk about kind of macro-forecasts and all the rest of it. Can you give us documentation that shows us that there is something supporting a soft landing?
Joan Burton (Dublin West, Labour)
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I can't give you that documentation but when ... as a member of the committee, the senior officials of the Department of Finance attended various committees and were questioned by members of the committee, including myself, as were senior officials of the other key publically ... public financial institutions like the Central Bank. My contact with the Department of Finance was in those interactions.
Ciarán Lynch (Cork South Central, Labour)
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I just need to very simply ask Tánaiste is ... was there a deliberate and strategic position taken that we need to examine this soft landing theory? The Department of Finance are actually saying it. Do they have something in there that actually supports it? I just need to get that answer, and I don't believe in "Yes" and "No", but I just need to get that pinned down.
Joan Burton (Dublin West, Labour)
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No, we did ... and I think everybody fervently hoped there might be a soft landing, but we were very sceptical and I certainly went, in particular, to the Central Bank and to the NTMA. But the Department of Finance, if I may say, made their presence available to Members of the Oireachtas via committees. They were not, to my knowledge, available on other occasions, other than when they came in and they briefed the Opposition in relation to legislation - for example, annually on the Finance Bill.
Ciarán Lynch (Cork South Central, Labour)
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Okay. I'm just going to propose ... there's a request for a very short comfort break for five minutes. I propose that we will adjourn temporarily and to return and 14.35. Just to let the witnesses know that they are still under oath during that time and they-----
Joan Burton (Dublin West, Labour)
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Three minutes?
Ciarán Lynch (Cork South Central, Labour)
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A five-minute break.
Ciarán Lynch (Cork South Central, Labour)
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We are back in public session, with a full house. In doing so, I now wish to resume questioning. Is that agreed? Agreed. In doing so, I now invite Senator Susan O'Keeffe. Senator Susan O'Keeffe.
Susan O'Keeffe (Labour)
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Thanks, Chair. Mr. Rabbitte, in your opening statement you say you were:
bound to say ... [you] did not make the connection between our alarm at what was happening in the housing market and the risk to the banking system. I must admit ... it never occurred to me that our banks might fail.
Why do you think it never occurred to ... and I think you mean "you" meaning all of you, or do you mean you yourself?
Pat Rabbitte (Dublin South West, Labour)
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No, I'm only speaking for myself.
Susan O'Keeffe (Labour)
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Well, and given that Northern Rock had had the difficulties, and various other, you know, the American banks were beginning to really struggle, and Bear Stearns and so on, was it ... what gave rise to you not making the connection, do you think?
Pat Rabbitte (Dublin South West, Labour)
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Well, the statement doesn't relate to what happened during the course of 2008. I'm talking about the property bubble, as it emerged and when it emerged and as it "growed and growed", like Topsy, and I'm saying that, no, frankly, I didn't, I regret, make the connection between the property bubble and the risk to the banking system. I suppose partly because we were getting all these bouquets about the quality of our banks. Anglo Irish won a competition somewhere, in Davos, as the best bank in the world, I think. Bank of Ireland Private similarly, had some award, from memory, and we were being assured by the authorities, whose task it was to regulate the banks and make decisions about credit expansion and so on, that we had a very sound and robust banking system, and I bought it.
Susan O'Keeffe (Labour)
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Tánaiste, we've heard in evidence that since November 2007, you know, we've heard all about scoping documents and crisis simulation exercises and contingency and secret teams and documents briefing Department of Finance, Department of Taoiseach, all kinds of documents, talking about problems with liquidity, talking about the banks' share prices falling, talking about the decreasing situation in relation to the economy. Were any of those documents, was any of that information, made available to you in your capacity as spokesperson or, indeed, perhaps, to Mr. Rabbitte, as leader ... or had you ...yes, or, indeed, to Mr. Gilmore as leader as it ... so would either of you ever have had access to those kind of documents?
Joan Burton (Dublin West, Labour)
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No, Senator, they weren't made available. In fact, any reference I've seen to those indicate that they were carried out in considerable secrecy because there was also a desire at the time, and, in fact, people often talked, particularly from the Government parties, talked about people wearing green jerseys. There was also as there is now, but more so then, a great deal of inhibition in terms of Oireachtas rules of specific institutions being named. There was one initiative which was undertaken by the Finance Committee partly at my suggestion. The Finance Committee in those days made a visit to the United States every two years or so and it was due to be in the autumn of 2008, and I suggested to the Chair and to the members that with what was evolving, that perhaps we should try and go to the United States and see could we get some level of briefing and so on. We did that, if I recall, in the week after Easter of 2008, and I have to say, I came back from that visit full of a certain amount of foreboding. But, I want to reiterate again, my fears were very concentrated around the way Anglo Irish had developed, and Irish Nationwide, as a small building society. There was an awful lot more information and commentary, and Deputy Rabbitte has referenced one significant piece of commentary, the Morgan Kelly articles in The Irish Times, which were suggesting increasingly that the Irish situation was fragile and at risk. But as against that, I mean, the Department of Finance was very remote from mere Opposition Deputies, was very, it was entirely, if you like, related to in my experience, to the Government and the Government parties.
Susan O'Keeffe (Labour)
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Can I interrupt, Tánaiste, because, in fact, when Mr. Cowen was giving evidence here he said - this is on page 92 - when he left ... he meant when he left his job as Minister for Finance to move on to being the Taoiseach, he said: "There wasn't a crisis at that point." That would have been late April, early May.
Joan Burton (Dublin West, Labour)
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I have to say I was very, very concerned. There was a lot of, if you like, commentary of a brief kind in the media. There was a lot of conversations, journalists were asking questions. I was also using my position as an Opposition spokesperson to, as I said, talk about, for instance, reining in the tax-driven speculation in land because ... people often talk about the huge rise in construction prices but, Deputy Rabbitte referred to it earlier, the real rise in costs was actually in land costs. Construction prices did rise, but it was the land values that rose, so that, say someone on a modest income who might have bought a house for €250,000 or €300,000, that kind of house was becoming priced at €450,000 to €500,000, and it was going out of the reach even of people who had employment in the public service. It was all of those kind of happenings that were very concerning to anybody who was following what was happening in finance.
Susan O'Keeffe (Labour)
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Can I say, finally, when the financial stability report of 2007 was being discussed at the finance committee in January '08, you said: "The economic clouds are gathering but Ireland can ride out this storm if the Government takes action without delay." What were you thinking that action should or could be, given that we didn't see, if you like, any action until 30 September in a way and that was an emergency or a crisis driven action? What were you suggesting, do you think, there?
Joan Burton (Dublin West, Labour)
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My biggest concern at that time was in relation to Anglo Irish Bank because this ... I can't just stress ... this was a small specialist bank for developers who are a certain percentage of the activity in a country. There were other customers of the bank-----
Susan O'Keeffe (Labour)
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Well, others have given evidence that, in fact-----
Joan Burton (Dublin West, Labour)
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-----and it had become-----
Susan O'Keeffe (Labour)
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------it was a systemic bank.
Joan Burton (Dublin West, Labour)
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Historically, it had become-----
Ciarán Lynch (Cork South Central, Labour)
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I'll just bring Senator O'Keeffe in. I'll just bring Senator O'Keeffe in, please.
Joan Burton (Dublin West, Labour)
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Historically, it had become in the stats bigger than either the Bank of Ireland or the Allied Irish Bank.
Ciarán Lynch (Cork South Central, Labour)
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We've had that testimony already from you. Senator.
Susan O'Keeffe (Labour)
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Yes, I was just saying, others have said that actually Anglo became ... it may not have been, on the face of it, a monoline or a developers' bank but it became systemic and, therefore, that was the reason. But, I was asking you specifically, what were you thinking the Government ought to do when you said it should take action without delay. That was January 2008, long before action was taken.
Joan Burton (Dublin West, Labour)
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And I had said that as well in the previous September when the Northern Rock crisis broke in the United Kingdom-----
Susan O'Keeffe (Labour)
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What did you want the Government to do?
Joan Burton (Dublin West, Labour)
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I wanted the Government to have a much stronger system of regulation and oversight and I wanted the tax breaks and so on that I referred to, which I believed were driving the bubble in credit and lending to the commercial sector. I wanted that addressed and I felt that if they were taken down, well then, there was a better possibility of what was described as the soft landing. Also, from 2007-----
Ciarán Lynch (Cork South Central, Labour)
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The question-----
Susan O'Keeffe (Labour)
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The question is made. I mean, finally, I wanted to ask whether or not in those final months whether any bankers, developers, individuals came to ask either you, Mr. Gilmore, Mr. Rabbitte, you know, for help, for advice, whether they could ... you could lobby or intercede on their part. Because we've heard of lots of meetings going on, or not.
Joan Burton (Dublin West, Labour)
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The only person who really asked for my advice was Brian Lenihan, the late Brian Lenihan, who was a constituency colleague of mine.
Susan O'Keeffe (Labour)
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Just before you talk about him, though, I'm asking about developers or bankers, particularly, outside.
Susan O'Keeffe (Labour)
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They never came to talk to you.
Joan Burton (Dublin West, Labour)
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Because they basically had an approach that anyone who was, in any way, critical of what was happening, even in broad general terms ... there was this language around the green jersey and supporting the narrative. And also, I have to say on my own part, I was extremely cautious about any statements which, in any way, would cause more damage. So, I think on the part of almost everybody in the Oireachtas at the time, there was a great deal of concern and caution but that was interleaved with the various witnesses who came into the committees and like Mr. Neary, the chief executive of the regulator, who repeatedly said the fundamentals are sound, the banks are well-capitalised. So, why-----
Ciarán Lynch (Cork South Central, Labour)
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Senator, I need you to ask one supplementary because I need to move on, thank you.
Susan O'Keeffe (Labour)
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Why would Mr. Lenihan in that case, given what you said about the green jersey agenda ... why would Mr. Lenihan, above all people, if you like, as the Minister for Finance in the Government, ask for your advice?
Joan Burton (Dublin West, Labour)
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I think Mr. Lenihan spoke to many Members of the Dáil and Seanad on a frequent basis. We were also constituency colleagues and we attended quite a number of functions where, in fact, we spent time together.
Susan O'Keeffe (Labour)
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What did you say to him when he asked?
Joan Burton (Dublin West, Labour)
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I said he needed to get very good advice and expertise and I advised him strongly to look for expert advice in relation to the difficulties that seemed to be, if you like ... you know, it was a period of considerable financial uncertainty and more and more information was coming out in relation to specific problems in Ireland and I felt that if he had more expert advice, he might, in fact, be able to respond more rapidly. I was very disappointed when that Government went off in June or July of 2008 and then did not come back until September, when, obviously, the crisis literally exploded.
Ciarán Lynch (Cork South Central, Labour)
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Senator Marc MacSharry.
Pat Rabbitte (Dublin South West, Labour)
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May I-----
Ciarán Lynch (Cork South Central, Labour)
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Sorry, just a second.
Pat Rabbitte (Dublin South West, Labour)
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-----just say, Chairman, I think the question was addressed to me as well. May I just say that I get the impression that the inquiry, as a result of hearing testimony to the fact that there were some big players in the financial sector advocating a guarantee and there were some senior officials considering the options and so on, I think it's important to say that the political system didn't know this at the time. You know, we didn't go to bed on the night of 28 September knowing that the world would have changed on 29 September. We didn't know. I mean, this information in terms of did bankers approach us, did developers approach us ... I mean ... this information was being kept under wraps prior to 28 September and after 28 September, the bankers felt they had got an insurance policy that insulated them. So ... and in terms of the question about making the connection between the property bubble and the risk to the financial system, I think the record of the House will show for that night that two Deputies, Deputy Michael Noonan and myself, raised the question of solvency. And as Deputy Burton has said, there was a great deal of caution around. Banks weren't named by name and all the rest. But we put in separate interventions, whether we were dealing purely with a liquidity crisis. Now, the Minister for Finance of the day, the late Brian Lenihan, did not answer. I wouldn't have expected him to answer. I don't think the Minister for Finance could stand up and say, "Yes, I'm afraid, Deputy, it's wider than liquidity. There is a solvency issue." I don't think the Minister for Finance could say that. But that's the first time and the record of the House will show it that question was raised.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Thank you. Senator Marc MacSharry.
Marc MacSharry (Fianna Fail)
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Thanks very much, Chairman, and welcome Tánaiste and Deputy. Tánaiste, I've no questions for you until the end. So I just have very brief ones at the end for you. So they'll all be for Deputy Rabbitte. Deputy, you have a reputation for calling it like it is, if I might say. And can I ask you to identify-----
Pat Rabbitte (Dublin South West, Labour)
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Well, I certainly got the Connacht final right anyway, Deputy.
Marc MacSharry (Fianna Fail)
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Indeed. You might have underestimated it, maybe. The ... so as somebody who calls it like it is, could you say to me and just identify which pre-budget or post-budget ... sorry, pre-budget proposals the Labour Party proposed gross reductions in expenditure and net increases in taxation? Or were there any?
Pat Rabbitte (Dublin South West, Labour)
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Well, I think the substance of the budget is reflected in the Finance Bill and it is in the amendments travelled to the Finance Bill that is the evidence of that and our main evidence in that regard would be attempting to take on the incentives and the reliefs that were there.
Marc MacSharry (Fianna Fail)
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Okay. Is the short answer, "None"?
Pat Rabbitte (Dublin South West, Labour)
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No, it's not at all. There is a book of amendments travelled in those years to the Finance Bill.
Marc MacSharry (Fianna Fail)
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No. I just want to be specific and time is very short and I we don't want to do the Tánaiste on it.
Pat Rabbitte (Dublin South West, Labour)
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But I am being specific.
Marc MacSharry (Fianna Fail)
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Can you tell us was there ever a pre-budget proposal from the Labour Party which all lumped in together, so all the voted and non-voted expenditure and capital-----
Marc MacSharry (Fianna Fail)
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-----which ... sorry, I was ... Tánaiste, if I wanted to ask you, I'd have asked you. I'm asking Deputy Rabbitte, who was the leader at the time. Can you say was there any set of proposals when added together which said, "We are looking for gross reductions in expenditure and net increases in taxation."? "Yes" or "No"?
Pat Rabbitte (Dublin South West, Labour)
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Yes. We fought a number of the spending decisions of that time. For example, I was very prominent myself, almost alone in the Dáil, in terms of the Bertie bowl-----
Marc MacSharry (Fianna Fail)
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Yes, so, that's one issue now.
Pat Rabbitte (Dublin South West, Labour)
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------which was a huge expenditure issue.
Marc MacSharry (Fianna Fail)
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Chairman ... just ... you know where I'm coming from on this.
Ciarán Lynch (Cork South Central, Labour)
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I'll afford you a bit time, Senator, I'll afford you a bit of time.
Marc MacSharry (Fianna Fail)
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It's the overall thing-----
Ciarán Lynch (Cork South Central, Labour)
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I'll afford you a bit of time.
Marc MacSharry (Fianna Fail)
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-----as opposed to the individual calamities.
Pat Rabbitte (Dublin South West, Labour)
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Sorry?
Marc MacSharry (Fianna Fail)
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Apart from the Bertie bowl, could you tell me was it budget '05, '04,'03, '06, where the Labour Party were proposing X net reduction in expenditure and Y net increases in taxation?
Pat Rabbitte (Dublin South West, Labour)
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Well, an enormous amount-----
Marc MacSharry (Fianna Fail)
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What year was that? Could you tell us?
Pat Rabbitte (Dublin South West, Labour)
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I don't remember the years, Senator.
Marc MacSharry (Fianna Fail)
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So, is there a year, if that was the case?
Pat Rabbitte (Dublin South West, Labour)
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There were several years successively-----
Pat Rabbitte (Dublin South West, Labour)
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And a very ... from about 2001, in particular.
Marc MacSharry (Fianna Fail)
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From about 2001. I mean, which specific ones because the only ones-----
Ciarán Lynch (Cork South Central, Labour)
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I need to be-----
Marc MacSharry (Fianna Fail)
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-----having done an analysis of it ... that I can see ... are ones that look for increases in expenditure and decreases in taxation-----
Pat Rabbitte (Dublin South West, Labour)
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From about 2001 to-----
Marc MacSharry (Fianna Fail)
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-----from a gross and net perspective.
Pat Rabbitte (Dublin South West, Labour)
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From about 2001-----
Ciarán Lynch (Cork South Central, Labour)
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I need to allow some time for Deputy Rabbitte to respond now please.
Pat Rabbitte (Dublin South West, Labour)
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From about 2001 to 2007, we would have argued for constraints in terms of the moneys lost to the Exchequer in respect of the various tax incentives and tax shelters and tax reliefs that were there. We would have opposed some of the vanity projects like e-voting and the Bertie bowl and PPARS and those ... and you know, we were careful in terms of the budget proposals that we advanced that they were costed by the Department of Finance and that they were in sync. And earlier questions about us providing for twice the growth rate in spending is, of course, not true. I mean the figures were compiled on the basis-----
Marc MacSharry (Fianna Fail)
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Sorry, I didn't ask that question now. That's somebody else's question from earlier-----
Ciarán Lynch (Cork South Central, Labour)
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I will afford a bit of time-----
Marc MacSharry (Fianna Fail)
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That's a question-----
Ciarán Lynch (Cork South Central, Labour)
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No, I'll afford you plenty of time----
Pat Rabbitte (Dublin South West, Labour)
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It's very relevant to this question. The five-year construction of our plan was based on 4.5% growth per annum, which from memory, would have produced additional revenues to the Exchequer of in excess of €11 billion. So if you take the growth rate, provide for inflation, take the add on of what, 2%, it would be at least half that again. So they were the revenues that we thought, based on the expert advice from agencies like the ESRI and the Department of Finance that were available to us. There's always a reason to spend money. I think we would have tried to spend it more wisely than what actually happened.
Marc MacSharry (Fianna Fail)
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Yes, I need to move on.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
In some cases.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes. I'm going to move on because I've asked it three times, I'm still not getting the answer, okay.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
But you did get the answer.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
No, I didn't.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
You mightn't have got the answer you wanted but-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I didn't get the answer-----
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
-----don't confuse that with not getting the answer.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I am not confusing the answer at all.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Okay-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm not confusing the answer at all. I mean-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Next question, Senator.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Do you feel ... you had commented in a more modern era but about the practice, so I'm going to put the question about in pre-election periods that in terms of promising, you said on "Prime Time", ''Well, that's what one tends to do" I think was the precise quote. Can I ask, in your preparation for the 2007 general election, did the Labour Party cow down to the lower tax, high expenditure policies of Fine Gael in order to win that general election or were you happy to go with low taxation, high expenditure all by your own?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Well firstly, Deputy, that's a misrepresentation of what I said and what some of my colleagues take great pleasure in misrepresenting. That was an exchange with-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I suppose the important part of the question - did the Labour Party cow down-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The question has two parts to it-----
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
No, you've-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----and two parts of it to be answered.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
No, you've put it on the record here now-----
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
-----please permit me to answer it. That was an exchange with Sean O'Rourke about a particular advertisement. I was seeking to explain the issue of child benefit and why we pledged to hold it at what it was and why, in the circumstances, we had to make a modest cut in it. And he said, ''You didn't explain any of that at the time, you just kept it simple'', and I said, ''Yes, isn't that what you tend to do at election time?''. Especially if it's an ad, you have to keep it simple. So, that's the first bit.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So the main part of the question then.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, now. I have allowed loads of time you, Senator. I won't cut your time short.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Okay, thanks.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, Senator, or Deputy Rabbitte.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
No, it was not our approach to go for the cut taxes and cut public spending. I mean, the revenues on the basis of the expert advice available to us suggested that we would have a cake that was large enough to do certain things that we wanted to do. And we didn't resile, in any way, in the discussions with Fine Gael in respect of the things that we wanted to do, for example, in relation to pensions and property and other reliefs that were available. We didn't resile from any of that.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes. Can I ask, do you think it's credible for you to say to the people of Ireland that the previous Government overspent and under-taxed when the sum of the Fine Gael and Labour manifestos, if implemented, would have made the landing even harder than it was?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, first of all, I don't believe that's the case and, secondly, you are putting words in my mouth that I never said.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm only asking a question.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
My-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I only asked a question-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
He's just been asked-----
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Yes but I'm telling you that the premise of your question is wrong.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
What I have said-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It's not about the premise; it's about answering the question-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
You know, we are not having a political debate. I'm asking a question, you answer it.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Please, okay-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It's not about your judgmental attitude towards the premise of my question.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, I need to take-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is it correct or is it not to say that if your policies-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Senator, I just need to make an intervention here-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----were implemented that you would have led to a-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Senator-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----harder landing in the economy? That's the question.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I need to make an intervention here. The member is entitled to answer the question and can structure it up in the legal framework of this inquiry and whatever it is such ... the witness before the inquiry can shape the question as to how they wish to respond, within the terms of reference of the inquiry as well. Deputy Rabbitte.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Thanks, Chairman. What I said, Chairman, in the ... in my opening remarks ... what I said is that, in my view, the main cause of the disaster that befell our country was the out of control property bubble based ... spurred on by tax incentives and expansion real estate. That was the cause of it and that was the specific thing I put in my statement. Mr. ... Senator MacSharry is putting a different point to me and I am explaining to him why I don't agree with his characterisation of what I said.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Senator MacSharry.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes, you didn't answer the question. You made a statement.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
It's the Senator-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So I am going to move on, time is short-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The question is answered and I can't have people commenting-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
An answer was given to the question-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----or commentary on the evidence that's given here. The commentary-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Can I ask, I still have three-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Senator, I-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I still have three questions. I need to get on with it-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Yes, I'm going to give you as much time as you like-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Thanks a million-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
But it is not just standard practice, but it is a requirement of this inquiry that evidence given before it over its entire duration is not to be commented upon publicly by members of this inquiry, either in media engagements they may have later today or at other times, or even in real time.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What's that got to do with it?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I'm just explaining this to all members now. The judgment upon evidence provided to this inquiry will be dealt with when we move on to the committee ... onto the report design stage of this. I'm just saying that.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
So commentary upon anybody's evidence today-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----publicly out loud is actually difficult, because it could be a breach of the terms of reference.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
And what's that got to do with what I'm doing now?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Well, I ... the issue I am just putting it out there as a warning with regard to-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----and a response to-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
For everybody?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Yes. For any answers-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
But can you keep the warnings 'til I'm finished asking my questions because it's nothing to do with what I am doing?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, I'm-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Do you share Enda Kenny's criticisms of benchmarking?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
No, I would be more nuanced in my reaction to it. If it were an appropriate benchmarking, I think it had a role to play at the time. But, unfortunately, it became as so many things at that time a vehicle to dish out substantial amounts of money without discernment or discrimination. But the notion of benchmarking in the public service or in the public sector is not a bad one at all. It's the methodology and its implementation and all the rest, that matters.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Finally two questions and I'll put them both at once and they are ... the first one is to both of you and the last one is just for the Tánaiste. Were either of you any of the beneficiaries of hospitality from developers, including, as per questioning earlier, transportation or lifts or flights or helicopters or anything like that? And if it emerged that other Opposition leaders, for example, were, would that concern you? That's the first question. So, have you been a beneficiary and would it concern you if others were?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Second question, please.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The second question then is, Tánaiste, had you a hand in altering the configuration of this committee? Did you support it and why was it so important for the Government to have a majority on this inquiry? Thank you.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Quickly, please, Deputy Rabbitte.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
The hospitality issue is an issue of transport, is it? I mean if I got a pint at some stage from a developer, is that included in the rubric of your question?
Marc MacSharry (Fianna Fail)
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But you must judge these things. I can only ask the question. Are you ... were you a recipient of hospitality from the developers in all its known guises, including transportation, because we specifically honed in on that with other witnesses, and it's a matter for your judgment as to how you answer that?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Not my-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm not going to put words in your mouth.
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Not that I recall, Senator. I recall travelling to view a business park in Bristol when I was chairman of the county council, or when I was a member of Dublin County Council when we were designing what has now become Citywest Business Park, probably the most prestigious park in the country, and I presume it wasn't Dublin County Council who paid for us to travel. I presume it were the developers who brought over six or eight or ten of us to view the park that we replicated at Citywest. But I would regard that as part of my job and part of my duty rather than hospitality. Yes, I've travelled to matches. One friend of mine, in particular, is a small builder or maybe more appropriately, to be truthful, I don't know how good he is at it, his father was the small builder, and I notice sometimes, Senator, that talent skips a generation.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That's good actually, that's good. So your opinion then of anybody else who might have been recipients of hospitality? Are you going to tell me?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Am I going to tell you?
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
-----your opinion of the leader of Fianna Fáil or the leader of Fine Gael or the leader of Sinn Féin or whoever?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, I don't think I'm here to pass judgment on my colleagues in other parties. I mean, I don't know, I don't know.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Do you think it would be appropriate?
Pat Rabbitte (Dublin South West, Labour)
Link to this: Individually | In context | Oireachtas source
I don't think it would be appropriate for me to do that, and I don't intend to comment on-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
And the legal advice I have in my ear is telling me that the Deputy has answered the question as best as he can.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Oh, yes, okay. Now, Tánaiste, over to yourself.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Could I ask ... just, sorry, Senator-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Do you think talent skips a generation as well, by the way, just so we can have that on the record?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, didn't somebody say a long-legged thing called a son?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
You know.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So now we've all got it out of our systems, can we get down to the answering of the questions?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Sorry, Deputy, could I ... or Chairperson?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Yes?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Could I ask the Deputy to repeat which part of which question he's asking me to answer? I've got a bit lost ... Deputy.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, all right. Senator MacSharry?
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Have you, first of all, been the recipient of any hospitality, in all its guises, including transportation to and from matches with good or bad builders or where talent skips a generation or not, as Deputy Rabbitte so eloquently put it?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
No, not to my knowledge.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
And to the best of - I got the answer, yes - so to the best of your knowledge then, can you tell us if other party leaders were involved in this kind of thing? What is your view of that? Would that concern you? Do you think it's appropriate? If it was a coalition partner, for example, would that concern you at all?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We could be speculating on something here now that you haven't-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm speculating on nothing.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
No, I'm saying the witness-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm speculating on nothing.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
No, I said the witness may be speculating.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
No, I've asked for a view.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Yes, go ahead.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
If this were the case, what's the situation?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, I came here in the context of the banking inquiry.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
And it might be helpful to me, Deputy, if you could just explain-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
As I said-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----how I can assist you in the context-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes, as I said to previous-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----of the banking inquiry?
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
As I said to previous witnesses, we've been consistent for over a year now in asking the full range of questions to all people, regardless of background, whether they were in politics, banking, anything else, and you're no exception. So we're asking you the same questions. So can I ask you if you think it's appropriate if a political colleague, party leader, coalition partner or anybody else was a recipient of corporate hospitality in all its guises, including transportation, from a developer, do you think that's appropriate?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, I'm not in a position, Deputy, to be aware of what you may be implying?
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm not implying anything.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Because I think if you-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I'm not implying anything.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Without interruption, please.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Chairman, you have to direct the witness here.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, if you have a specific example-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----that I might be aware of?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
But I'm not aware of.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I don't, but it's in the context-----
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
I'm not in a-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The witness has answered the question as best she can.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
No, she answered the question.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Yes, I'll answer the-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Now, in fairness, a lot of these things are to do with Galway tents and all that stuff that's very important to this inquiry, and ought to be brought up and discussed. So you're no exception. Everybody got asked about it, so I'm asking you.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Yes, but the witness can only account-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What is your view of this?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The witness can only account for themselves.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
In public-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
In public, yes.
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----on many occasions I disapproved of the Galway tent, and I advocated strongly for the reform of disclosure requirements by people involved in politics at all levels in relation to contributions, donations of any kind, and in that so did the Labour Party-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Transportation? Would that be included?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
-----as a party.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Would transportation be included in that, would it?
Joan Burton (Dublin West, Labour)
Link to this: Individually | In context | Oireachtas source
Well, we now have a reformed system where receipts of benefits-in-kind, or, indeed, of funding had to be disclosed-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Yes, no, but in the period up to 2007 it was different, I think.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Senator, I've really, really accommodated this, but we're out of time and-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
But the very last one, because I did ask it. She wants to know ... she asked me to explain the two questions. The other one is: did you have a hand in altering the make-up of this inquiry? Did you agree with the altering of it? Why, if you did? And why was it so important for the Government to have a majority on this inquiry?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Now that is outside the terms of reference of this inquiry.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Now I asked it of the Taoiseach-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
It was asked, I-----
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I asked it of the Taoiseach and it was allowed and answered.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Yes.
Marc MacSharry (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So I think it's only fair to his coalition partner to afford-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
And the witness can choose to answer that or not.
Marc MacSharry (Fianna Fail)
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-----the same opportunity.
Joan Burton (Dublin West, Labour)
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I wasn't the leader of the Labour Party at the time when the committee was being established, Deputy, as you possibly are aware.
Marc MacSharry (Fianna Fail)
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Okay, so I'm asking your political opinion?
Joan Burton (Dublin West, Labour)
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So I, therefore-----
Ciarán Lynch (Cork South Central, Labour)
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Please, Senator.
Joan Burton (Dublin West, Labour)
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----- wasn't involved in discussion-----
Marc MacSharry (Fianna Fail)
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So as your-----
Ciarán Lynch (Cork South Central, Labour)
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Without interruption, please, Senator.
Joan Burton (Dublin West, Labour)
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-----in relation to the make-up of the committee. I'm just very pleased that all of the parties are represented-----
Marc MacSharry (Fianna Fail)
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Yes, can I ask for your view, please?
Joan Burton (Dublin West, Labour)
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-----and that people like yourself are working so hard-----
Marc MacSharry (Fianna Fail)
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Do you think that was appropriate?
Joan Burton (Dublin West, Labour)
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-----and working themselves up so hard on the matter.
Marc MacSharry (Fianna Fail)
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Do you think it was appropriate?
Ciarán Lynch (Cork South Central, Labour)
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The witness is being-----
Marc MacSharry (Fianna Fail)
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It's "Yes" or "No". I mean, is it appropriate?
Ciarán Lynch (Cork South Central, Labour)
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No, no, no, no, please, please.
Eoghan Murphy (Dublin South East, Fine Gael)
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Chair, we've treated no other witnesses like this.
Ciarán Lynch (Cork South Central, Labour)
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Indeed.
Eoghan Murphy (Dublin South East, Fine Gael)
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We have not.
Eoghan Murphy (Dublin South East, Fine Gael)
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We haven't had this lack of discipline in questioning or timing.
Marc MacSharry (Fianna Fail)
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Do you think that's appropriate? "Yes" or "No"?
Ciarán Lynch (Cork South Central, Labour)
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Can I please make an intervention please, Mr. MacSharry?
Marc MacSharry (Fianna Fail)
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Was it appropriate to alter the-----
Ciarán Lynch (Cork South Central, Labour)
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Senator MacSharry, if the witness-----
Marc MacSharry (Fianna Fail)
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-----the committee?
Ciarán Lynch (Cork South Central, Labour)
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Senator MacSharry, please.
Marc MacSharry (Fianna Fail)
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But sure she doesn't want to answer it, clearly.
Ciarán Lynch (Cork South Central, Labour)
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Senator MacSharry, please-----
Marc MacSharry (Fianna Fail)
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You know what I mean, she doesn't want to answer it.
Ciarán Lynch (Cork South Central, Labour)
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-----because I don't want to be in a situation where somebody is in breach.
Marc MacSharry (Fianna Fail)
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I mean, I don't know. I don't know, I mean-----
Ciarán Lynch (Cork South Central, Labour)
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The ... Senator MacSharry-----
Marc MacSharry (Fianna Fail)
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Make it up as we go along?
Ciarán Lynch (Cork South Central, Labour)
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Please. The witness, if they feel satisfied that they have answered the question, the question is answered, because it's very much outside the terms of reference. Are you satisfied you have answered the question, Tánaiste? Yes, yes?
Joan Burton (Dublin West, Labour)
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My answer is ... and I wasn't involved in any discussions in relation to this committee. I wasn't the leader of the Labour Party at that time. You'd have to ask my predecessor about that.
Marc MacSharry (Fianna Fail)
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And, Chairman, as you know, the question was in three parts. The first one was: were you involved? She says "No" to that. The second one is: do you support it?
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Marc MacSharry (Fianna Fail)
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And the third one was: why do you think the Government felt it necessary to have a majority on this inquiry? It's a very reasonable question.
Ciarán Lynch (Cork South Central, Labour)
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Are you satisfied you've just answered-----
Marc MacSharry (Fianna Fail)
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You're the second most powerful political person in the country.
Ciarán Lynch (Cork South Central, Labour)
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Are you satisfied she's answered the question or do want any more time? Do you want-----
Marc MacSharry (Fianna Fail)
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I'm sure I could answer ... you could answer the question if you wanted to.
Ciarán Lynch (Cork South Central, Labour)
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Do you want to add any more to it, Tánaiste?
Joan Burton (Dublin West, Labour)
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No, I've given my answers.
Ciarán Lynch (Cork South Central, Labour)
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Okay, all right now, all right, thank you. Deputy Pearse ... or sorry, Deputy Eoghan Murphy.
Eoghan Murphy (Dublin South East, Fine Gael)
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Thank you, Chair, and thank you to both witnesses. I want to address, if I may, the role of Opposition and the ability, more actually, the ability of Opposition to hold the Government to account when it comes to big decisions like the guarantee. So, Tánaiste, when the guarantee was put on the table and put before the Dáil, did you consult with Richard Bruton as to whether or not the Labour Party or Labour and Fine Gael would support the guarantee decision?
Joan Burton (Dublin West, Labour)
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There were not inter-party discussions, Deputy, about the decisions to be made by the different parties, for the reason that the guarantee happened overnight and during the night. And I think people woke up to hear it being announced on RTE on the morning and there was considerable astonishment, shock, dismay. I think all of the parties, and certainly in the Labour Party, we were invited to meet representatives of the Department of Finance, who were going to brief us, and that happened at intervals immediately after the guarantee on the day, and in several days afterwards. I have to say, Deputy, that in the briefings that I received I asked a couple of questions in relation to two institutions, Anglo Irish-----
Eoghan Murphy (Dublin South East, Fine Gael)
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I just-----
Eoghan Murphy (Dublin South East, Fine Gael)
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I beg your pardon, Tánaiste, it's just that question about whether or not you consulted with Richard Bruton in those following days-----
Joan Burton (Dublin West, Labour)
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Not, not formally-----
Eoghan Murphy (Dublin South East, Fine Gael)
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-----as to what position the Opposition would take?
Joan Burton (Dublin West, Labour)
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-----not formally. But there were very long periods in the House when there were conversations between Deputies from all sides of the House, because people were, obviously, extremely worried and exercised by what had befallen the country. Now, at that time in terms of Fianna Fáil and in terms of the Government's presentation, it was to be the cheapest bank guarantee in the world.
Eoghan Murphy (Dublin South East, Fine Gael)
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Tánaiste, again I am just trying to look at the mechanics of opposition and how the Opposition might hold the Government to account. So Deputy Rabbitte, if I may, did you ever attempt to approach Enda Kenny and Fine Gael to see if the Opposition would take a united position on whether or not to support or vote against the guarantee decision?
Pat Rabbitte (Dublin South West, Labour)
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Again, I think the actual context in which this happened is important. I happened purely by accident to meet my colleague Eamon Gilmore very early that morning and, you know, my mouth was open at the news I had just heard. And I briefly discussed it with him. Somebody had already been on to him about dated subordinated debt and he said that he had already decided that we should oppose it because he felt we were mortgaging the deeds of the country and there was no time to discuss with anybody else. I mean, he got a phone call from Brian Lenihan at whatever time that morning and really everything happened very quickly.
Eoghan Murphy (Dublin South East, Fine Gael)
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Were you surprised then at the position that they took and did you seek to change that?
Pat Rabbitte (Dublin South West, Labour)
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I could see the circumstances where - if you get a phone call at half-six in the morning from the Minister for Finance, who has been struggling most of the night with an issue as big as this one where the financial system was at risk, I could see that a party like Fine Gael, whose core existence would be supporting the institutions of the State would say "well if the financial system is at risk and you are telling me that we will take your word on it and let's see how the legislation evolves."
Eoghan Murphy (Dublin South East, Fine Gael)
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But did you know something that Fine Gael or the Government didn't, that enabled you to take the position that you took? You mentioned that Eamon Gilmore had already gotten phone calls about subordinated debt, so what did you know that others didn't that allowed you to vote against the guarantee decision?
Pat Rabbitte (Dublin South West, Labour)
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I wouldn't like to claim knowledge that we didn't have. This was just such an enormous insurance bet that we were wagering - literally the deeds of the country - on it never being called in and that was a pretty scary place to be. Now I had advocated personally the nationalisation of Anglo privately and ... a date around this time, it's on the record of the House, an intervention I made to that effect, following which the late Brian Lenihan came to me to say that I had a letter that morning published in The Irish Timesconcerning nationalisation of Anglo and concerning the fact that I read into what the Minister told the House that he too is in favour of nationalising Anglo. He came to me to say that they had a two-hour meeting in the Department about replying to the letter that they decided in the event not to do so and that nationalising Anglo was not the way out that I might have thought it was.
Eoghan Murphy (Dublin South East, Fine Gael)
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But given the fears that you had about the future of the country, which, you know, transpired to be, you know, appropriate fears, why not try and get the senior Opposition party in line with your thinking to try and oppose this so that the Dáil could hold the Government to account responsibly in that regard?
Pat Rabbitte (Dublin South West, Labour)
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Well, I wasn't the leader of the party. I had stepped down a few months earlier as leader of the party. Somebody in those circumstances does not intrude. I mean, I never opened my mouth at a meeting of the parliamentary party for a year and a half. I was not going to intrude onto the territory of the new leadership.
Eoghan Murphy (Dublin South East, Fine Gael)
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Okay. Well, if I might just take you back in a final question to when you were leader. You spoke about it earlier, at the beginning of January 2007, prior to the election, talking about going out with some warning signs about the economy and you said you weren't onto a winner. So did you deliberately decide not to campaign on fiscal ... prudent fiscal responsibility or to sound those warnings during the campaign in 2007?
Pat Rabbitte (Dublin South West, Labour)
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I think I was influenced by a number of people who brought the weight of official reports to bear on my argument and said these are the authorities that matter and they say the system is robust. In the environment in which we function, political party making its own forecasts has unfortunately little credibility. You tend to fall back on the agencies, national and international, and they were all saying that the system was sound and the system was robust.
Eoghan Murphy (Dublin South East, Fine Gael)
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How do you go from a position where in January 2007, you have these concerns, that you air them publicly, to a manifesto for the election which is not raising any warning bells about the banking sector or about financial regulation, on which almost every page is a commitment to increase spending? How do you make that transition?
Pat Rabbitte (Dublin South West, Labour)
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I think the main thrust of what I was saying related to the property bubble and the construction sector and we didn't, as I said to Senator MacSharry, we didn't resile from our position on the measures that needed to be taken to rein in the property bubble. We didn't resile from that in any way.
Eoghan Murphy (Dublin South East, Fine Gael)
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And did you ever think that you were not putting enough resources into the area of financial stability when you were leader of the Labour Party or using the resources of the Oireachtas in that way, to have a proper understanding of the stability issues?
Ciarán Lynch (Cork South Central, Labour)
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We need to wrap up now shortly Deputy please.
Pat Rabbitte (Dublin South West, Labour)
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I have to truthfully ... I have to honestly say that no, I didn't think that way Deputy. In hindsight I probably should have but it just did not occur to me that in the context of almost 15 years of growth, an economy that wasn't shaken off course for very long by the dotcom bubble, that had bounced back that had a huge deficit in infrastructure and that was now able to access cheap money to build up that infrastructure, it didn't occur to me that it posed a risk to the financial system itself and maybe it should.
Ciarán Lynch (Cork South Central, Labour)
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Okay thank you. Deputy Pearse Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat a Chathaoirligh agus fáilte roimh an Tánaiste agus an Teachta chuig an coiste. Mr. Rabbitte can I start with yourself? From the Opposition viewpoint, how open to scrutiny was the Government decision-making process in your view?
Pat Rabbitte (Dublin South West, Labour)
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In this particular respect?
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes. I am not just talking about the guarantee, we know that the guarantee was one night, but in relation to issues around finances and the banking crisis.
Pat Rabbitte (Dublin South West, Labour)
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Well, I don't think that the theatre of the Dáil Chamber is particularly effective in terms of Opposition holding Government to account. If you take the Leaders' Questions moment, which was introduced only latterly, you know, the Opposition take up the issue of the day, whatever party is in opposition, they take up ... whatever is the issue du jouris the issue that they run with, with an eye to the six o'clock news and the Government does its best to bat it back. I don't think that is very effective in terms of accountability. I think the evolution of the network of parliamentary committees offers an opportunity for the kind of minute accountability that you are referring to that is not provided for in the Dáil Chamber so I think the answer to your question is, "not very good".
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. And in your view in relation to, again this period and the financial crisis, do you believe that the Oireachtas ... was the Oireachtas sufficiently aware of the stakeholders with whom Government Ministers consulted in the pre-legislative stage of legislation around this period and how was that information made available, if it was?
Pat Rabbitte (Dublin South West, Labour)
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Well, I think it is very important. I would disagree with the Chairman if his question to Deputy Burton implies that he believes there would have been close contact between the leadership of an Opposition party and, say, the senior officials in the Department of Finance. That did not happen in my experience. Yes, I personally had interaction with senior officials in the Department of Finance after the crash but I mean, the system operates on the basis that the senior officials serve Government and they are very wary and overly secretive about the Opposition and I think as well that this democracy business was never intended for the same people to be in government for 14 years. When you look at it, it is not just the same party, it is almost the same people and I think that there is a danger in those circumstances, that there are some senior civil servants, if they don't become leveraged onto the side of what seems to be the permanent political Government, they at least are not as robust as they might be in advising Government that they have qualms about the direction of policy.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. It takes me on to the next question. In your opinion, were the Opposition parties, including your own party, adequately consulted, in particular, on issues that ... which may have been deemed ... as national importance? And I'm not looking to------
Pat Rabbitte (Dublin South West, Labour)
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I ... the only area-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----refer to civil servants here, or officials. I'm talking about Government Ministers.
Pat Rabbitte (Dublin South West, Labour)
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Yes. The only area that I think it operated on very carefully, and in a structured way and in a careful way, was in ... with respect to Northern Ireland. There certainly was regular contact there. And on particular pieces of legislation, there would be that kind of contact. But, in terms of ... you know, Government - whatever Government - tends to keep its cards very close to its chest and it doesn't say in the House, you know, "There's a weak link here, and let's hope that Pearse Doherty doesn't hear about it". You know, I mean, there is a ... there is a very clear-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Is that ever going to change? Like, given the fact, you know, we know from this inquiry ... we've found evidence that guarantee legislation was being discussed at a very early stage in the spring of that year, we know that the nationalisation of banks were being discussed, we know that the ... Minister Lenihan himself went to the Attorney General and circumvented Cabinet because he was concerned about leaks. If these issues, in terms of issues of national importance, can't be entrusted by a Minister to Cabinet, how could they be trusted to the Opposition where, more than likely, would be on their way out to RTE to try and get the slot on "Morning Ireland" the next morning to brief the public, you know. Will this ever change, or have you-----
Pat Rabbitte (Dublin South West, Labour)
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I'm ... I'm not so sure that in terms of the particular issue that we're talking about ... I wouldn't be that critical of the Minister of the day in terms of him not sharing the information that there were deep concerns in his Department about the future of the banking system and that options were being examined and being prepared. I mean, if that information had come out it would have precipitated the day and would have rushed us into a situation where, you know, the situation could be worse. Now, I would be critical of the Minister of the day in that I'm not sure, you know, what he was doing driving around south Dublin and eating garlic late after midnight shortly before the collapse. I would have thought that, ever since Northern Rock, there was time there to sit down and say, "What's going on in our own banks and what measures can we take?" And I presume he was being told that everything is hunky-dory. And as far as I can see, there are some people - I don't think they were dishonest - I think there are some people at the top of the banks themselves who were behaving recklessly but who didn't even know the depth of the crisis themselves. And I think to ask a Member of Dáil Éireann whether he or she should have been able to divine what was going on ... I don't think is the way the real world operates.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Can I ask, Ms Burton, you refer on your opening statement, on page 17, to the 1974 Kenny report. Could you explain to the committee the reasons why the rainbow coalition did not implement the findings of the Kenny report?
Joan Burton (Dublin West, Labour)
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The Kenny report was a proposal to cap the ... to cap the price of building land. And I was a member of Dublin County Council where most of the development in the country was taking place. The rainbow Government took over ... sorry, when Labour went into government in 1992, there ... the economy was in a very, very difficult place and there was not an agreement with either Fianna Fáil - or, indeed, subsequently, with Fine Gael - to introduce legislation in relation to, in effect, capping the value of development land. In coalition negotiations, there are some items that are subject of agreement-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay.
Joan Burton (Dublin West, Labour)
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-----between the parties.
Pearse Doherty (Donegal South West, Sinn Fein)
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So it was because you couldn't get agreement but Labour pushed it at the time?
Joan Burton (Dublin West, Labour)
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Well, I wasn't a negotiator in that particular set of negotiations for either of those Governments but that was my general understanding. It was a Labour point of view, which the Labour Party returned to and brought forward legislation in the House in 2003. Deputy Gilmore did that.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes-----
Joan Burton (Dublin West, Labour)
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So it was a-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----we got that-----
Joan Burton (Dublin West, Labour)
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-----widely held belief by the------
Pearse Doherty (Donegal South West, Sinn Fein)
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No, that's fine, that's fine. No, that's clear. Mr. Rabbitte, and finally on this here, you were a member of the DIRT inquiry committee. And one of the findings was the undue close relationship between the State apparatus - in the form of the Department of Finance and the Central Bank - and the Irish financial institutions. We have it from the DIRT report, it's on page 52, but I quote from it, just it says:
There was a particularly close and inappropriate relationship between banking and the State and its Agencies. The evidence suggests that the State and its Agencies were perhaps too mindful of the concerns of the banks, and too attentive to their pleas and lobbying.
Now, I put that out there ... as a former member of the DIRT inquiry, which did, to a lot of people's minds, a lot of good work ... we're sitting here in another inquiry, the findings of the inquiry that you were at seems to be some of the things that we're investigating into just a number of years later. So, in your opinion, did the establishment of the Financial Regulator's office in 2003 address the concerns raised by the DIRT inquiry in their recommendations and, if not, why do you think they were ignored?
Pat Rabbitte (Dublin South West, Labour)
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Well, I think that particular conclusion related to the concern that was there at the time that the consumer dimension was virtually ignored by the Central Bank; that the Central Bank saw its job as the prudential supervision of the banking sector and it was not concerned with consumer issues and there were a number of conflagrations about consumers being done down and it not having been policed and them not having redress. So I think it was in that particular context. Did 2003 resolve that? I mean, a lot of messing went on with that right from the publication of the DIRT report until the Bill was brought into the House. I think maybe three, four years might have elapsed, and a lot of messing went on in a row between the two parties in government - the PDs wanted a green field regulator, Fianna Fáil, generally, wanted to retain it with the Central Bank. And the compromise was a hybrid which, I think you know, was unfortunate because, you know, I have watched snatches of your extraordinary work on this committee when the opportunity has presented - and I don't have much else to do nowadays so I get my kicks watching you guys and so on - and I think, you know, you bring in one person responsibility ... who's responsible, you think, for regulation and he passes the buck to the Central Bank, you bring in the Central Bank and he says, "No, no, the legislation says that's the job of the regulator", and they sling the ball out the wing. I think the substantial conclusion that I would like to see this inquiry draw, if I may suggest, is that we have classic case here of regulatory capture. I think we set up a regulator and I think, before you could say "Jack Robinson", he was doing the biddings of the banks rather than the other way around. And I think that's the tragedy ... that's the genesis of the tragedy that has befallen us.
Ciarán Lynch (Cork South Central, Labour)
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Thank you, Deputy. Deputy Joe Higgins.
Joe Higgins (Dublin West, Socialist Party)
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Yes. Thanks, Chair. I'm gratified that we can see that as well as the insomniacs and alcoholics, we can now add a new cohort of viewers - demoted Ministers. Chair, Tánaiste - Deputy Burton - just very briefly, you both touched on the issue of Oireachtas oversight but, for evidential reasons, I just want another detail. You don't need to repeat the points. But, in your opinion, to what extent was the oversight during the bubble period limited, if it was, by lack of specialist knowledge among TDs and Senators ... that's, presumably, of banking and finance, etc.?
Joan Burton (Dublin West, Labour)
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Well, it was a situation where if ... when, on joining the Oireachtas, somebody had previous experience in that area, for instance, some, perhaps, some college education in relation to economics and so on, or had other, say, work experience in relation to different fields.
After that, to be honest, Deputy Higgins, in ... certainly, in 2002, although I was the spokesperson for the Labour Party on finance, the Labour Party had one economic adviser - of a very high calibre, I have to say - who acted both in relation to economics, but in relation to a whole load of other issues.
Joe Higgins (Dublin West, Socialist Party)
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So, expertise was available, you're saying?
Joan Burton (Dublin West, Labour)
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There ... we had one person for the whole of the Labour Party.
Joe Higgins (Dublin West, Socialist Party)
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Okay.
Joan Burton (Dublin West, Labour)
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I didn't have any specific person-----
Joe Higgins (Dublin West, Socialist Party)
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Right.
Joan Burton (Dublin West, Labour)
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-----assigned to me. I think it was about 2005, 2006 when Members of the Dáil got a parliamentary assistant-----
Joe Higgins (Dublin West, Socialist Party)
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Right.
Joan Burton (Dublin West, Labour)
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-----and I actually sought qualified people who would help me in relation to the brief I had.
Joe Higgins (Dublin West, Socialist Party)
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Okay, let me ask you a broader question then, Tánaiste. When we take the prevailing ethos of the period 2000 up to 2007, when some would say, the entire establishment - from the financial markets to the media to the established political parties, or the majority of the Oireachtas, say - were saturated with an ethos that provided for maximisation of profit, maximisation of deregulation and privatisation, what I think The New York Timesin 2005 referred to Ireland as "the Wild West" of finance, would it have made a difference, really, no matter how skilled the Oireachtas ... or the Opposition was at the time?
Joan Burton (Dublin West, Labour)
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Well, The New York Timesarticle, which I always regarded as a bit of a wake-up call, because I was finance spokesperson then, basically related to the lack of regulation and oversight, particularly in relation to the IFSC because, as regulation developed in Ireland and after the Act that Deputy Rabbitte has referred to ... I think the McDowell report was 1999, it was discussed in the period up to 2002, and then the legislation began to be brought in after the 2002 general election. But actually, Deputy, The New York Timescomment was about the fact that the IFSC and certain types of insurance companies by then were not, as I understand it, regulated at all. So, there was a move to regulation generally, but the development of regulation in Ireland was very slow and the publication of information and questioning of regulators, which is now, obviously, much more common, just ... it was in its absolute, bare infancy at that point in time.
Joe Higgins (Dublin West, Socialist Party)
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Okay. That ... I understand that. Let me return to 2003 and the Bill that Deputy Gilmore introduced into the Dáil called the Planning and Development (Acquisition of Development Land) (Assessment of Compensation) Bill 2003 and it related to concern at the speculation and profiteering, perhaps, some would say, that was manifest in the area of building land. Why didn't you introduce legislation since you went into government this time to control the type of abuses that were pointed up by the Labour Party at that stage?
Joan Burton (Dublin West, Labour)
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In relation to this specific Government? Well, at that time, and I should have said this to Deputy Doherty, there was a very strong set of legal opinion, and we were given to understand right up to the Attorneys General, and, in fact, you will recall even on the old Dublin County Council, of which you and I were members, Deputy, that the advice was that, if this approach were followed, that it could result in very significant compensation claims. And, if you like, that had a chilling effect on the support for such legislation, so the Labour Party put it forward but it didn't get any widespread support. What Fianna Fáil did - well, I think it was led by Fianna Fáil but they were in coalition Governments at the time - was, later, they introduced the part V where developers would have to make certain contributions in relation to the supply of social housing, or make contributions, but I have to say, Deputy, that never worked particularly well either. So, there has been a continuous debate around both the desirability, which I would think is highly desirable in order to prevent the build-up of bubbles, and the legal opinion that such a development would give rise to significant compensation costs-----
Ciarán Lynch (Cork South Central, Labour)
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Deputy Higgins?
Joan Burton (Dublin West, Labour)
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-----claims.
Joe Higgins (Dublin West, Socialist Party)
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And, Tánaiste, to quote from your statement on a separate issue: "The property bubble was squeezing the living standards of ordinary people and loading them with an unsustainable debt burden while simultaneously enriching wealthy individuals and companies who availed of a huge range of property based tax shelters." One of the tax shelters, or lessening of tax was introduced by the Fianna Fáil-PD Government in the 1997 December budget, reducing capital gains tax from 40% to 20%, which was enormously helpful to those who were speculating on building land and, as was seen in the media, making large amounts of money. But, in 2007, why did your manifesto say specifically that you would remain with the low rate, rather than going back to 40%, or even 60%, which you had looked for?
Joan Burton (Dublin West, Labour)
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Well, because, Deputy, I have long held the view, and I'm aware you probably have a contrary view, that the critical issue in relation to taxation is that the real rate of tax that people bear is the important thing, not the nominal rate. You can have a nominal rate of tax, as happened in Ireland in income tax in the '80s, the '60s, '70s and '80s, but, in fact, if you have very, very high nominal rates, what happens is wealthy people can afford to employ tax advisers or put much of their activity offshore and, thus, end up avoiding all of the ... almost all of the taxation. I would prefer to have a situation where you have real rates of tax, you have minimum effective rates of tax, which is what I proposed, Deputy. And, therefore, everybody is a contributor and those contributions are progressive, but I'm not in favour of capital gains tax rates, for example, like you've suggested, of 60%. That has never been my position. I'm in favour-----
Ciarán Lynch (Cork South Central, Labour)
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Final question there, Deputy.
Joan Burton (Dublin West, Labour)
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-----of effective rates.
Joe Higgins (Dublin West, Socialist Party)
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Tánaiste, we had a witness here, Mr. Derek Quinlan, who put together syndicates of wealthy individuals and, among other things, bought land, kept it for a while, got planning permission and then sold it on at massive profit. One instance was a €53 million profit for a syndicate. The effect of that capital gains reduction was, in round figures, a tax of €20 million on those individuals to €10 million. Would you not consider it socially beneficial that, in relation to building land particularly, speculation, profiteering, some might say, in relation to that, that you should have stood, in 2007, for a much higher rate of tax on gains in speculation?
Joan Burton (Dublin West, Labour)
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No, what I was strongly in favour of was an overall approach to the market which would have actually taken the tax incentives ... my understanding of the people who ran high net worth businesses, and I don't want to, under the Chairman's instructions, refer to any one particular person. The people who ran those businesses, Deputy, based the appeal for funds on the fact that the investors who invested into those funds would find, through the use of appropriate tax mechanisms, that they would, in effect, be shielded from almost all taxation, the kind of tax breaks I referred to. So, in literally hundreds of Dáil questions and comments, I urge the then Government to significantly reduce those either by capping them, by the use of minimum effective tax rates, and by ending them because some of them, in my view, were entirely inappropriate. There is a role of tax incentives but it has to be targeted, it has to be, in my view, temporary, and it has to be costed and that was my continuous position.
Ciarán Lynch (Cork South Central, Labour)
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Thank you. Senator Sean Barrett?
Sean Barrett (Independent)
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Thank you, Chairman, and welcome to our visitors this afternoon. As Deputy Rabbitte is, you know, one of the most distinguished parliamentarians around here over the years and ... should the whole light-touch regulation just be kicked away down to the far field, in that we've never brought in legislation - I'm only here one term - that has no penalty and there's no legislation that says no penalty, you know, more than 5p shall be imposed on this particular legislation.
I mean, what we do is regulate and impose penalties and it's kind of an insult to a parliament, to say that it was practicing light-touch regulation. And I think that's ... that's not what parliaments do.
Pat Rabbitte (Dublin South West, Labour)
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I still don't know enough about it, Senator, it's a complex issue. We're operating nowadays in a global financial market and we can't afford not to have regard to that fact. I mean, light touch ... light-touch regulation is ... or principles-based regulation is one thing but derelict regulation is a different thing and it seems to me that we've had derelict regulation. You know, if you borrow from some of the countries whose banks didn't fail, you know, apply their system and enforce it, then it seems to me that in an international capitalist economy, that's probably as good as you're going to get. You know, we're neighbours of the City of London, if we were to take dramatic radical decisions on our own, you know, what would be the implications, for example, for the IFSC? You know, there's a lot of people employed there and, you know, it's of value to Ireland and so on. So, I mean, I don't know enough about the question you ask me to give you a ... it's clear that under Governor Honohan, it is clear that he has tightened the situation up immensely. Additional people, additional expertise, expertise from outside has been brought on board, and it's clear from some of the decisions that he has taken, that he has taken them irrespective of the political temperature of the day or irrespective of who's lobbying him and, you know, I would like to hope that that system can be made work.
Sean Barrett (Independent)
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Could I ask the Tánaiste, in relation to her own profession, don't we need a far sharper approach to accountancy? It mystifies me how much accountants missed, coming in here saying a bank was solvent in June 2008 and they were all in to Brian-----
Ciarán Lynch (Cork South Central, Labour)
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Be careful now without ... don't be leaning one way or another but I know the proposition you're putting forward, Senator.
Sean Barrett (Independent)
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So, should accountants be reformed, particularly based on your knowledge of that profession, Tánaiste?
Joan Burton (Dublin West, Labour)
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Well, first of all, I think the fact is that nowadays, the accounting profession, legal firms, there tend to be a very small number of very large firms. That obviously has certain advantages but I think it also has disadvantages in the fact that one firm may be providing a whole range of services, and while firms have Chinese walls, whether in accounting or legal, that they don't share information, I certainly think that more diversity in terms of the functions that are carried out, perhaps by a bigger number of firms, would lead to perhaps more questioning. But standard audits, Deputy, are designed to elicit certain information, whereas our banks faced a liquidity crisis. And, of course, in the long run, and often in the very short run, a liquidity crisis turns into a solvency crisis. Now, the audits of the banks and, you know, auditors, can ... there were internal auditors, but, you know, we have heard that internal auditors in certain circumstances did raise questions but they were contrarian views, very often were treated in that way, so they weren't well regarded. I think the critical issue is that we have a more open society in terms of information, so that legitimate questions can be put. I often found myself in a very contrarian position because I was questioning the orthodox explanation in relation to how the bubble was building up. What surprises me, as I look back in the context for preparing for this, that in the history of commerce and banking and so on, bubbles are a constant problem. And I'm just surprised that none of the institutions, as I look back, ever really seem to have queried or questioned the bubble. The explanation then was a liquidity crisis and no one, as Deputy Rabbitte said earlier, seems to have then said, "But if a liquidity crisis is serious enough, it's actually going to bring the whole institution down." And, unfortunately, that's what happened. But auditors and people like that have their role to play.
Ciarán Lynch (Cork South Central, Labour)
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I'll get the Senator towards to his final question, Tánaiste. Senator.
Sean Barrett (Independent)
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I thank the Tánaiste for her important input on that. Just a final one, thank you, Chairman. If this committee, Deputy, was chosen from 650 people, would it be any better than what you've heard this afternoon? That's a question you raise on page 3, I think.
Pat Rabbitte (Dublin South West, Labour)
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Yes. But it's not with regard to a particular committee, Senator. It is my conviction that the network of committees that we have established are too onerous for a small House to bear. I'm not talking about the quality or the membership of a particular committee, but if you have 650 members in a parliament, as does the neighbouring Parliament, it tends to develop specialisation. It tends to bring people through as chairman of the foreign affairs committee, who is expert on foreign affairs, who has no expectation of being a Minister or who doesn't want to become a Minister, or whatever. In our circumstances, in a very small House, if you strip out 30 Ministers and 30 Opposition Deputies to shadow them, it's a very small House. I mean, our system is impeccably democratic. Nobody can say that there's a point of view in the country that isn't represented here. Some of them are strangers to legislating but they perform other very important roles. And I think if you have too many committees or if you have circumstances where, for example, somebody has to rush down to room No. 3 to get in three or four people to vote here, or people has to run off ... have to run off from this committee to another committee because there's a more important issue, their membership of ... they've dual membership of two committees, I don't think ... I don't think that that can work. I mean, Deputies, virtually all Deputies, there was one or two Deputies behind me earlier on that this doesn't apply to, but pretty much all Deputies have an extraordinary constituency workload. And they have to do that as well. And I think we need to be careful in a small House that we don't grow too many committees.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you.
Sean Barrett (Independent)
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Thank you very much.
Ciarán Lynch (Cork South Central, Labour)
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Deputy John Paul Phelan.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you, Chairman. Good afternoon. Firstly, Deputy Rabbitte, in relation to your opening statement on page 2, you said "On the basis of evidence heard to date by this Inquiry it appears that a small number of influential individuals in the Financial Sector had more influence with government than did Dáil Eireann". Briefly, can you point to what evidence you're referring to and, indeed, to the individuals or the types of individuals?
Pat Rabbitte (Dublin South West, Labour)
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Well, I'm referring, if my memory serves, in particular to the evidence we heard from Mr. Cardiff, when he named certain individuals that he believed were or might have been in contact, to press a particular point of view. You know, and its a matter for the inquiry to establish whether that was purely a patriotic compulsion based on the fact that the people concerned have specialist knowledge that perhaps the rest of us wouldn't have or otherwise. That's a matter for the committee. I mean, personally I would like to know who were the owners of the subordinated debt. I think that might be of some interest, that if we knew that, but that was the reference.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay, thank you. I want to turn to the Tánaiste now, I only have about four minutes remaining.
Tánaiste, in your witness statement, under the heading of "The policy failures that propagated the crisis", you were referring to the period following the adoption of the euro and up to mid-2007 and you stated that, "A more proactive regulator would have responded to these developments by taking action to slow [the] growth in credit and to prevent banks from lending beyond safe limits." Did you, in your time as Labour finance spokesperson, request that any specific actions be taken along those lines?
Joan Burton (Dublin West, Labour)
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Well, I certainly was mindful of what had happened in countries like Canada and Spain and, indeed, in Sweden and Finland. Sweden and Finland had both had bank collapses but they responded in a different way to our blanket guarantee. It still cost them a lot of money and it cost a lot of pain but it was a lot cheaper than the blanket bank guarantee in Ireland. Essentially, they took out the bad banks, and they then sought to shore up the other banks so as to keep the domestic banking situation functioning. So, you know, in terms of-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I'm talking about actions by the regulator though before the guarantee. Like, did ... can you point to-----
Joan Burton (Dublin West, Labour)
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The particular actions I raised in terms of amendments to the Bill and subsequently was ... and I raised this, by the way, with the Central Bank as well I was so concerned about it. In my own constituency, Deputy, there were people going door to door to local authority estates and they were landing outside a local authority house and saying to the householder "Well, I reckon this house is now worth €150,000. Do you have a mortgage on it? Are you buying it? What's the mortgage?" "It's €50,000." "Well, we're willing, because of the equity in your property maybe to give you a loan of €120,000", and that person often had the loan-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Joan Burton (Dublin West, Labour)
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-----with the local authority structure and, in fact, I ended up in a number of situations-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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You brought those concerns to the Central Bank-the regulator.
Joan Burton (Dublin West, Labour)
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I brought them to the Central bank because-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was any action-----
Joan Burton (Dublin West, Labour)
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And I think I was probably the first person in the Dáil to mention sub-prime lending and what was happening in the states.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Was there any action forthcoming though? I'm not trying to put you-----
Joan Burton (Dublin West, Labour)
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Not that I'm aware of, because it was not deemed to be a problem, but it was a problem because people took out big loans and you were told "Sure, you can buy a car", "You could do up your kitchen," and you ... and I think most Deputies here with large local authority areas in their constituencies would have been familiar. And I have to say, I was terrified for people who came to me, and on many occasions I asked people to think about it. I asked them to get advice, because I was so concerned. But the response from the ... to be honest, was very cold.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Well, did you follow it up? I mean, the fact-----
Joan Burton (Dublin West, Labour)
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I followed it up-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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-----that you weren't getting a response-----
Joan Burton (Dublin West, Labour)
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I spoke-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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-----that you had raised alarm bells.
Joan Burton (Dublin West, Labour)
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I spoke at various times about the dangers to Ireland of sub-prime lending, but I was particularly concerned about the human cost, that people were being offered what seemed like-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Joan Burton (Dublin West, Labour)
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-----a fabulous deal in which they could do some things but, in fact, they were going to get themselves now, having almost bought out their local authority house, into a very big debt that was going to last for a long time. I know I wasn't the only Deputy subsequently who raised this. As I say, I'd 3,500 local authority houses in my constituency. I was very aware of it.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. That's fair enough. I want to turn to the guarantee, before I finish. Several commentators - and I want to reference in particular a column by Vincent Browne in The Irish Timeson 24 October 2012 - have stated that the Labour Party opposed the bank guarantee because it gave too much power to the Minister for Finance. That was what he mentioned in that particular column, and because it did not include a cap on bankers' pay. What do you say to that view expressed by him and, indeed, some others?
Joan Burton (Dublin West, Labour)
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Well, I can say that the Labour Party sought to ... as I think probably all of the different parties did, as the shock of the bank guarantee settled on that awful morning ... to do the right thing as far as was possible by the country, by the people, by the State and having been a consistent critic of various elements of finance in Ireland and of the banks in Ireland, it was my honest judgment, as it was the leader of the Labour Party then, Deputy Eamon Gilmore, that this bank guarantee was wrong and, in particular, I was aware of what had previously happened in Sweden where Mr. Nyberg, who subsequently, I think, came and visited committees in this House and said how the Swedes had approached it ... and it was never going to be possible to exit the problems cost free but we could have done it in a more effective way and we might have been in a position to have rescued the two big mainstream banks, high street banks, AIB and Bank of Ireland, in a less costly way. Now, mind you, we will now recover most of what we lent to them through-----
Ciarán Lynch (Cork South Central, Labour)
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A final brief supplementary, Deputy.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Yes, a brief supplementary. I've gone through the record of the Dáil from the debates that took place around the legislation surrounding the guarantee and you've referred earlier on to burning bondholders and insolvency issues. I haven't - now, it was me trying to ... after the first question that was asked, I think, by Deputy McGrath - been able to find any reference of you commenting on that during those debates, but I've one particular quote that I just want to put to you. "In the context of the Minister's failure to meet, in any way, legitimate requirements of the Opposition to protect the taxpayer [I think you were referencing the fact that he hadn't taken amendments on board] we are supporting him in bailing out some banks in order to protect the Irish financial system". Now, that ... you have referenced in your previous response that some banks had to be bailed out but earlier you did infer, I think, in some of your evidence that you had concerns when you were ... when the guarantee issue arose about insolvency-----
Ciarán Lynch (Cork South Central, Labour)
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Make the question, Deputy, please.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Yes ... about insolvency of certain institutions and the burning of bondholders and yet when this debate was taking place you didn't actually raise those concerns at all.
Joan Burton (Dublin West, Labour)
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Well, first of all, I was extremely concerned and I expressed those concerns in the private briefing with the Department of Finance in relation to the two institutions, Anglo and Irish Nationwide. But a comment was offered that they had a particular model, which I didn't appear to understand. I have to say, that was a fairly seminal moment because my understanding of the position of those two banks was that they were, in fact, a serious contagion in the financial system in Ireland. I was very anxious to see the main street banks in Ireland, particularly AIB and Bank of Ireland, actually salvaged as far as possible because they're just essential to doing business. And the Labour Party didn't, in any way, approach, other than with a sense of deep tragedy and upset and concern, what had happened, because my fear was around what was going to happen to ordinary people in the fallout.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Kieran O'Donnell. And then I'll bring in the leads for the wrap-up.
Kieran O'Donnell (Limerick City, Fine Gael)
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Deputy Rabbitte, in page 3 of your statement, you conclude that by saying, "In the narrow area of effective scrutiny of the banking sector, if the structures had existed and if the opposition had known the pertinent questions to ask, the government wouldn’t have been able to answer them because the government didn’t know there was a crisis until it was too late." To what extent do you believe ... you might just elaborate on that. And then to what extent do you believe the new structures implemented since 2010 have corrected the deficiencies which existed and what further measures do you believe need to be taken? You might do that in the round, that you're departing an illustrious career as a Member of the Dáil for many years of standing and ministerial and going off to pastures-----
Ciarán Lynch (Cork South Central, Labour)
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The question, Deputy.
Kieran O'Donnell (Limerick City, Fine Gael)
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I'm putting that, Chairman, okay. Thank you.
Pat Rabbitte (Dublin South West, Labour)
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Well, I think the decision by the former finance ... the late Brian Lenihan, to put in somebody of Patrick Honohan's acknowledged international standing in terms of regulation I think was major decision. It broke this automatic entitlement that was there for Secretaries General of the Department of Finance to pass on to automatically ... it seems to me, automatically becoming Governors of the Central Bank. I think that didn't help in terms of the incestuousness and so on. I think the structural changes that he has made are far more effective than was the situation at the time of the crash. I think the changes that have taken place in this House, for example, if you look at how the ... as you know, as a member of the committee, I'm struck even by coming back now to see how the present day finance committee structures its business and discharges its role as compared to what was there in the past and, of course, it's not long ago since there was not a finance committee in place at all.
I think in terms of the report referred to earlier that I prepared for the public accounts committee, you know, there may be an argument for further structural reform within the finance committee to put in place a specific budget committee, provided it were properly resourced. It would have to be resourced because you can only ask Members of the House to do so much. I mean, the variety of pressures that come on them and responses that they must make to their constituency is such that there is only so much they can ... and the expertise needs to be there. So I think, you know, we've all learned, I hope, a great deal from this crash and one suspects that academia will be still writing books about it in 25 years' time. So hopefully the fact that we all ... I shouldn't say all but if there are people who, unlike myself, knew that the financial system was at risk, we didn't hear from them at the time. They kept it a well-guarded secret.
Kieran O'Donnell (Limerick City, Fine Gael)
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Do you think people knew? Do you think people knew that the banks were insolvent? Within the system.
Pat Rabbitte (Dublin South West, Labour)
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I think there is a distinction, probably, to be drawn between what are now called the pillar banks and Anglo Irish.
Kieran O'Donnell (Limerick City, Fine Gael)
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Right. The monoline banks, do you believe people within institutions, within Government were aware on the night of the guarantee that Anglo was insolvent?
Ciarán Lynch (Cork South Central, Labour)
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That's a certain opinion, I suppose.
Kieran O'Donnell (Limerick City, Fine Gael)
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Or do you think they should have been ... Should they have been aware?
Pat Rabbitte (Dublin South West, Labour)
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My opinion is that their opinion was that it was indeed insolvent. That's my belief and they couldn't have believed otherwise, given what had happened over the previous months. Not just the St. Patrick's Day massacre but generally what was the word on the street. And I've always thought and I, you know-----
Kieran O'Donnell (Limerick City, Fine Gael)
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But when-----
Pat Rabbitte (Dublin South West, Labour)
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May I just say this, Deputy-----
Ciarán Lynch (Cork South Central, Labour)
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To clarify where you're saying where the belief was owned, that people thought that the institutions were solvent, was that in the Central Bank, on the boards of the banks, where? In terms of the location of that opinion.
Pat Rabbitte (Dublin South West, Labour)
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Well, the question was relating to the Department of Finance. And I think that in the case of the Department of Finance, I think they had to have that suspicion or conviction, I don't know which. I mean, I always thought in watching the former Taoiseach, Brian Cowen, before the committee, I always thought that the question that the committee should have asked him that they didn't asking him was that, if he didn't ask Mr. FitzPatrick when he was playing golf with him, why didn't he? I mean, it seems to me that the whole purpose of the encounter was to ask FitzPatrick "What the hell is going on in your institution?" And, you know, I say that without in any way imputing any dishonesty to the former Taoiseach because I believe he is an honest man and I believe that, you know, when the crash happened, he did his best by his lights to do right by the country. But I can't for the life of me believe why there was a mediator running between himself and Anglo Irish Bank and he was playing golf with Anglo Irish Bank executives, that he didn't ask them what was going on.
Ciarán Lynch (Cork South Central, Labour)
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Okay, final question, Deputy.
Kieran O'Donnell (Limerick City, Fine Gael)
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Tánaiste, do you believe ... what specifically would you have done differently in terms of when ... after June 2007, in dealing with the banks and in terms of a guarantee? Specifically. I don't want the general, I just want specifics. And would it have saved the taxpayer money?
Joan Burton (Dublin West, Labour)
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Well, as I said earlier, Northern Rock in autumn of 2007 was a warning shot for Ireland. From the evidence I've heard, I think the Department of Finance, perhaps the politicians in government then, the people in Finance were perhaps aware of it or alerted to a potential very serious risk. Regulation which would have addressed some of the consumer protection issues, a bigger guarantee on deposits to prevent a run on the banks, that actually did happen. I recommended that at that time.
Kieran O'Donnell (Limerick City, Fine Gael)
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So would you have gone for higher than the €100,000? Earlier?
Joan Burton (Dublin West, Labour)
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No, I recommended, in September 2007, I recommended €50,000 and people gasped, believe it or not, because it was considered so radical. I subsequently suggested that it would be €75,000 and, in fact, Deputy, former Minister Brian Lenihan, the late Brian Lenihan ultimately raised it to €100,000 and we supported that very strongly. The second really big thing that was missing that would have been helpful was resolution, you know, in other words, it was almost impossible in the Irish legal structure to in fact have a bankruptcy or an insolvency in a bank. We didn't have the legal mechanisms. That's been subsequently addressed, it's a resolution mechanism that should have been there. I certainly read Professor Honohan's articles around banking crisis as part of the background reading and that gave a lot of advice and presumably, subsequently that was why Deputy Lenihan actually appointed Patrick Honohan as the Governor of the Central Bank.
I've made my point about the contracts for difference, and can I just say this: the Dublin Stock Exchange is a small stock exchange. Bank shares were one of the key elements of that Stock Exchange, and yet the Stock Exchange was allowed to become a kind of casino for contracts for difference. The share by investors, the build-up of a stake in Anglo Irish Bank, which was ultimately potentially going to take over that bank, was key to the collapse of the bank subsequently. Had that 1% ... had Brian Cowen implemented what he said he would do, the 1% stamp share tax on the CFDs, I believe ... again, it wouldn't have stopped everything that happened subsequently but I think it would have been ... it might have woken up the investors who were taking over their stake in Anglo through CFDs. If those ... if they had to be recorded and paid tax, it might have just made some of the people who were gambling pause for thought. Would it have prevented it? I think it would have mitigated it.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Tánaiste. I'm moving to the wrap-up please. If I can invite Deputy Michael McGrath. Deputy, three minutes please.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you, Chair. Just if I can clear up one issue, Deputy Rabbitte. You said that yourself and Deputy Noonan raised a question about solvency of the banks when the guarantee Bill was being discussed at the end of September 2008 and you went on to say you wouldn't expect the Minister of the day, Brian Lenihan, to come in and say that he believed the banks were insolvent. I would just ask you to clarify, are you suggesting that the Minister had a belief that the banks were insolvent, if you could clarify that? And secondly, you said a moment ago, and it's related, that the Department of Finance must have had a suspicion about solvency with Anglo Irish Bank and I would just put it to you, we've have many of those former officials in who've given testimony under oath and certainly there hasn't been any suggestion from any senior Department official that they had a suspicion, when the guarantee decision was being made, that the bank was actually insolvent. And as you know, the Governor, Financial Regulator, gave advice at the time that the bank was solvent. So can you just clarify, and just give me the opportunity to do so in relation to Brian Lenihan, are you making any inference or suggestion that he did actually believe there was a solvency issue with Anglo at that time?
Pat Rabbitte (Dublin South West, Labour)
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I think, Deputy McGrath, we knew enough about banking to know the difference between liquidity and solvency. And I can't speak for the present Finance Minister but I know what I was trying to find out was, well is it true that it's only a liquidity crisis? And, quite honestly, I thought it was no more than just a liquidity crisis until immediately around that period when I began to have concerns. Secondly, I think there was a distinction in the areas where this issue was being discussed at the time as between the two old banks and Anglo Irish.
You know, I mean, it was an open secret that people were puzzling with, "How is it that to banks that were, in one guise or another, older than the State itself could have got into such a reckless lending splurge?". But, a distinction was drawn between that and Anglo Irish and, I must say, I had a doubt in my mind about Anglo Irish - I think that was widely shared. I think the Minister for Finance - I had been opposite him for a year and a month, I think it was, in justice - and I think you could see the learning curve that he was on. And I think ... let me put it this way, he was at least, at that stage, asking himself the same question. Now, I would not have expected him to get up in the House and make a ... a statement because that would have obvious repercussions. But I think he had reached the stage ... not, I think, in respect of what are now called the pillar banks but in terms of Anglo Irish, I think that he had reached the stage ... and I say that from ... in addition ... I say that from some discussions that I had with him before, during and after ... I think he himself was asking himself questions about whether Anglo was in fact rotten.
Michael McGrath (Cork South Central, Fianna Fail)
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And are you suggesting that he had come to a view on that question at that time? I think it's important because he's not here to answer for himself and you're ... you're ascribing a possible view that he might have held about the solvency of Anglo at the end of September '08, which we haven't heard from anybody else.
Pat Rabbitte (Dublin South West, Labour)
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No, no, no. I don't mean ... I don't mean to do that and I haven't asserted any definitive statement. I'm only guessing, you asked me to guess at the frame of mind of the man when the questions were put him.
Michael McGrath (Cork South Central, Fianna Fail)
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You said he was asking himself the question.
Pat Rabbitte (Dublin South West, Labour)
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I think that he was asking himself the questions and I think the fact that there was legislation in the Department, ready to go, for the nationalisation of Anglo Irish ... I think is, you know, kind of circumstantial ... evidence that there were concerns within the Department too that was wider than the Minister.
Ciarán Lynch (Cork South Central, Labour)
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Okay, Deputy McGrath, final question.
Michael McGrath (Cork South Central, Fianna Fail)
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Final question, Chair, thank you. And, Tánaiste, it relates to the, the issue of stamp duty and the debate that was raging around stamp duty in 2007. And, again, going into that election, all of the main parties competed on how they were going to help first-time buyers deal with the stamp duty issue. And, as you know, up until then there was a threshold of €317,500 and any purchase by a first-time buyer of a home up to that level was exempt and any purchase above that, stamp duty kicked in. And the Labour Party proposed to extend that exemption up to I think it was €450,000, so ... effectively exempting the vast majority of first-time buyers from stamp duty. Like, what was the thinking at that time, given that prices had probably peaked in late 2006 and prices were beginning to fall in the early part of 2007? Had you any concern that creating that incentive might actually push prices back up and put houses further out of reach for first-time buyers?
Ciarán Lynch (Cork South Central, Labour)
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Tánaiste.
Joan Burton (Dublin West, Labour)
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Yes, I mean, the purpose behind the Labour Party proposal - and, in fact, it was joined to Fine Gael ... it was a discussion which was held between both of the parties - was that the first time ... it was to try and tilt the regime in relation to stamp duty in favour of first-time buyers because the cost of a house, particularly in urban areas, had actually risen, from the figures you quoted, somewhere in the three hundred thousands up to over €450,000. And in more expensive parts of cities like Galway and Cork and Dublin, even far higher than that. So, for instance, two civil servants on something like ... a HEO's salary or a nurse or someone like that, a teacher ... two teachers married to each other, were finding themselves priced out of being able to afford a house. So the objective was to try and ensure that people on reasonable incomes could actually take part in home ownership, which, I think, had been agreed as being a desirable social policy by practically all parties in the House. Now, what happened then was, as well, you had, in relation to second-hand properties, which had been traditionally somewhat cheaper, you know, particularly in less expensive areas, you had competition which the Bacon reports attempted to address. You had competition from investors who got favourable tax treatment and again there was a disadvantage to the traditional buyer who was providing a residential home for themselves as they sought to establish a family for themselves and their ... their partner. And there was a step ... there was a step system where once the value went over a certain amount, you jumped up into a much higher rate of stamp duty. And the proposals by the Labour Party and Fine Gael were to try and iron out the anomalies, which were arising at that point, which were putting home ownership out of the reach of people who traditionally ... I think everybody - all parties - wanted to be involved. Now, Fianna Fáil, of course, subsequently abolished stamp duty for first-time buyers.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you.
Joan Burton (Dublin West, Labour)
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So that answered the question.
Ciarán Lynch (Cork South Central, Labour)
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Senator D'Arcy.
Michael D'Arcy (Fine Gael)
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Tánaiste, you were the ... Deputy Rabbitte's finance spokesperson from '02 onwards to '07. And you had cited the FSR reports in your own opening statement. You itemise about, on page 3, the ... loading of citizens with "unsustainable debt".
Michael D'Arcy (Fine Gael)
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The loading of citizens with "unsustainable debt".
Michael D'Arcy (Fine Gael)
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Did you ever go to the then, or whoever was acting, Central Bank Governor to ask the Governor to take action in relation to the sustainable debt that was being clearly stated in the FSR reports, about household debt in particular?
Joan Burton (Dublin West, Labour)
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Yes, I ... I have actually I think about 20 pages of quotes from different contributions and questions at different times-----
Ciarán Lynch (Cork South Central, Labour)
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Can you read them all there for us, please, Tánaiste?
Joan Burton (Dublin West, Labour)
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I ... I can offer you a copy of them but those who wish to read them can have a copy.
Michael D'Arcy (Fine Gael)
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Can I ask ... can I ask, did you go to the Governor? Not quotes that you put out there, did you seek a meeting ... did you correspond with the Governor, requesting the Governor to use the tools that were available to him, as the Governor of the Central Bank, in relation to financial stability?
Joan Burton (Dublin West, Labour)
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I ... I ... I met with the Governor at intervals and I raised my concern with the Governor. But when the Bank of Scotland (Ireland)-----
Michael D'Arcy (Fine Gael)
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But the question, Chairman, the question I asked was, if I could, please, did you request the Governor to use the tools available to him in relation to the financial stability-----
Ciarán Lynch (Cork South Central, Labour)
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We can discuss other actions afterwards but that's a very, very specific question.
Joan Burton (Dublin West, Labour)
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I expressed my concerns to the Governor and when Bank of Scotland (Ireland) arrived in Ireland - because this is pertinent to the answer - I expressed, and they're on the public record, reservations about the model that they were bringing into the Irish financial market. And I also expressed reservations about the development of the 100% mortgage and the apparently cheaper mortgage product that they were bringing in. They were kind of coming in as the Ryanair of financial products and, I have to say, it made me deeply uneasy and I questioned that when Mr. Duffy, I think, was there chief executive, came in and made a presentation to the finance committee.
Michael D'Arcy (Fine Gael)
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No, I didn't ask that.
Ciarán Lynch (Cork South Central, Labour)
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Just reframe the question again, right.
Michael D'Arcy (Fine Gael)
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Did you ask the then Governor of the Central Bank to use the tools that were available to him in relation to financial stability because the level of personal indebtedness?
Joan Burton (Dublin West, Labour)
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What exact date, Deputy, are you referring to there?
Ciarán Lynch (Cork South Central, Labour)
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Can I just come in on that question there? The ... the Central Bank had powers in the overall macro stability of the country to make particular actions available through their own legislative framework. The Senator's question is that concerns were known to you, Tánaiste, in sharing those concerns with the Central Bank - and further to the sharing those concerns - did you discuss with them that they might invoke this part of the Central Bank Act or this part of the Central Bank Act? Is that fair enough? Okay, thank you.
Joan Burton (Dublin West, Labour)
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I had a general conversation, in which I raised issues in relation to matters which were developing in the Irish banking structure. I didn't have, if you like, a question-and-answer dialogue with the Central Bank Act in my hand because, bear in mind, Deputy, as we were constantly reminded - and still are - that the Central Bank is independent. So it was a conversation and a discussion in which, on behalf of my own political party, I put forward my concerns.
But the Central Bank Governor did not respond as though that Governor was accountable to me because the legal position was that Governor was independent, and I could certainly raise issues with the Governor, which I did.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Are you concluding, Senator?
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Okay. With that said, I'm going to bring matters to a conclusion now. It's 4.30 p.m. I'm proposing to resume in one hour because members will need a more substantial break at this time. In doing so, I would like to excuse both Deputy Rabbitte and Tánaiste, Joan Burton. In doing so and excusing you, I would like to thank you for your participation with the inquiry today and for your engagement with it and to now formally excuse the witnesses.
I propose that if we could say maybe 5.25 p.m. to get back for a 5.30 p.m start. In that regard, the meeting is now suspended. Is that agreed? Agreed.
Ciarán Lynch (Cork South Central, Labour)
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Before commencing public session, I would like to ask those in the public Gallery and other members to make sure that their mobile devices are switched off. So the Committee of the Inquiry into the Banking Crisis is now resuming in public session. At our next session we will hear from Joe O'Reilly, a founder of Castlethorn Construction and Chartered Land Group. This is one of several sessions in which the inquiry is focusing upon the relationships between property developers, companies and their principal financial institutions. From the outset, Mr. O'Reilly, I know you've been waiting for a while this afternoon to come in and, on behalf of the committee, I'd like to apologise for any delay and discomfort that that may have caused you today.
Joe O'Reilly has been involved in property development in Ireland for the last 25 years. He founded his company Castlethorn Construction in 1991. He is also the founder ... the executive chairman of the Chartered Land Group, which focuses on the development, management and operation of shopping centres and commercial office buildings in the greater Dublin area. Among their projects were the Dundrum Shopping Centre, the Pavilions Centre in Swords, the ILAC Centre in Dublin city centre, the Grand Canal Theatre and adjoining office blocks in Dublin Docks and the creation of a brand new town at Adamstown. Mr. O'Reilly, you're very welcome before the inquiry this evening.
Before hearing from the witness, I wish to advise the witness that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect to their evidence to this committee. You are directed by the Chairman to cease giving evidence in relation to ... if you are directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to do so, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given. I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist with the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right. Members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.
The witness has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have submitted a witness statement. This is before the committee, will be relied upon in questioning and will form part of the evidence of the inquiry. So with that said, if I can now ask the clerk to administer the oath to Mr. O'Reilly please.
Ciarán Lynch (Cork South Central, Labour)
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Okay, Mr. O'Reilly, thank you very much. And in ... if I can now invite you to make your opening remarks to the committee please.
Mr. Joe O'Reilly:
Thank you, Chairman. Mr. Chairman and members of the committee, thank you for the invitation to appear here today before the committee of inquiry into the banking crisis. I have furnished the committee with a statement, which sets out of responses to the specific areas on which the committee has asked me to focus. I won't repeat the detail of the statement in my opening submission but will confine myself instead to some specific points. I'll concentrate on the time period of which the committee has asked me to address - the years between 2001 and 2008.
As my statement indicates, I've been involved in property and in property investment and development for the past 30 years. I've a professional background in construction surveying but in the later years, my studies were in the area of project management. Having worked with some of Ireland's leading property companies, I went on to form ... I went on to found Castlethorn Construction with my partners in 1989. Over the time, the company gained a reputation for developing quality homes in areas that were connected and serviced by quality infrastructure. These homes were built in locations where housing development was endorsed by local and national policy. In the period between 2001 and 2008, Castlethorn Construction built approximately 3,000 homes. Part V social and affordable housing was included in these schemes.
In 2005, I formally established Chartered Land, which is the retail and office property division of the group. This organisation owns and manages some of the most valuable and prestigious retail investments in Dublin, including Dundrum Town Centre. The company has a 50% share in both the ILAC Shopping Centre off Henry Street and the Pavilion Shopping Centre in Swords. With more than 500 tenants under management, these three centres support in excess of 11,000 retail and related jobs in the local economy. The commercial office portfolio of Chartered Land includes 150,000 sq. ft. of modern office space in Dundrum and 400,000 sq. ft. of offices at Grand Canal Square in the so-called silicon docks. Grand Canal Square, which has now been sold, is home to Facebook's European headquarters with a thousand employees and a host of other fast-growing and demanding large spaces users.
In addition to these investments, Chartered Land has secured planning permission to develop three co-located sites beside each of the retail investments. While these proposed developments didn't proceed due to the recession, we're confident that they will be delivered at a point in the future. In time, Dublin city centre proposal will make a significant contribution to the regeneration of the north inner city area. Some of our other developments include the Bord Gáis Energy Theatre and a retail-led, mixed use, commercial scheme of Grafton Street in Dublin.
It might be helpful to the committee if I outline our approach to property opportunities as a group. Firstly, it's important to recognise that large-scale property investment and development is a complex business. Our approach to investment was driven by a clear long-term strategy to develop, or acquire, internationally attractive premium real estate in the retail, commercial and residential sectors. These properties have to satisfy certain criteria. For example, they had to be close to major transport nodes and had to appeal to the target catchment population.
Secondly, our focus was on prime areas in dense population in the greater Dublin area. We didn't undertake development outside the greater area or outside of ... outside the greater Dublin area or outside of Ireland.
Thirdly, our approach to development was very much guided by national, regional and local policy, whether in relation to housing, commercial or retail development.
Fourthly, our approach reflected detailed and sound research of possible investment and development opportunities. This was an exhaustive process, addressing both upside and downside risk. It involved input from planning, design, construction, development, property and finance personnel. Following initial appraisals, the assessment of each project moved to detailed in-house financial modelling considering different funding options, profitability and exit routes. We undertook detailed market research, modelled project demand for each investment or development. This involved engaging experienced property agents and international third-party experts. For development, the planning and development framework work relevant to each site was extensively reviewed with the input of our planning consultants.
Finally, our approach to assessing new projects was based on utilising the best advice that we could secure for each relevant discipline. We had, and continue to have, a strong internal team, but we have supplemented this expertise with external advisers and consultants, where necessary. This detailed process was key to the success of both Chartered Land and Castlethorn. Our attention to detail ensured that any decisions we made to proceed with new investments or developments were well-grounded, thoroughly researched and based on sound, objective business assessments.
During the period under review, we had borrowed from a number of banks, including AIB, Anglo Irish Bank, Bank of Ireland, KBC and Ulster Bank. In financing our properties, bank debt was complemented with promoter equity. Our approach to dealing with our lenders was based on formal engagement with each bank. At all times, we followed the normal process that applied for the assessment of any loan application. In my statement to the inquiry, I've outlined the approach that we employed, including our detailed engagement with the lenders to secure support for each proposal. I can say that, at all times, from a corporate perspective, our engagement with lenders was formal, professional and based on the appropriate and documented procedures. Loans were only sanctioned after ... or loans were only sanctioned following extensive engagement with the relevant lender and formal sanction by the bank's credit committee. The type of information typically to be provided with each application included: investment or development rationale; financial appraisals; projected cash flows; external planning reports and risk analysis; an independent asset valuation report; a legal title report; the exit strategy, supported by robust market research. Once a funder engaged, a term sheet was negotiated and solicitors were then appointed to draft the loan and security documents, while legal, technical due diligence was also conducted during the time ... during this time. Preconditions were agreed for loan drawdowns over the term of each facility, while loans ... while loan advances were subject to comprehensive financial and asset management reporting. In 2010, the economic downturn, our loans were acquired by NAMA. We began to work with the agency to maximise the value of the assets. For the past six years, we've enjoyed a professional relationship with NAMA and we worked hard to assist the agency to meet its objectives.
As the committee will be aware, our loans are currently being sold by the agency in a loan sale process called Project Jewel. It's likely that the return to NAMA, when the loans are sold, will be a multiple of the figure that NAMA paid for these loans in 2010, and that the original capital borrowed, both personally and corporately, may be fully repaid.
I understand that the committee will be reaching some conclusions on the cause of the banking crisis, and, in this regard, you've heard from a wide range of witnesses with different views. What seems apparent now is that at the time of the crisis there was too much debt available for borrowers from too many banks. It's of note, for example, that there were 59 land transactions in Ireland in 2001, but this had risen to 260 by 2006. The problem was compounded by lending in respect of poor quality assets, where insufficient equity was invested. While both Chartered Land and Castlethorn did borrow in the period between 2001 and 2008, these loans were advanced following a thorough and full assessment of each proposal. Our debts were secured against prime assets, I believe this will be demonstrated with the Project Jewel, when Project Jewel completes.
In terms of the crash itself, there was a failure to predict and anticipate the sale of the banking and property crises. On the property side, the talk of a soft landing was misplaced, particularly given that investment property values fell by 60%, with land values falling by as much as 90% in certain parts of the country. On the banking side, the capital structure of certain lenders was inappropriate for the nature of their exposure. There was an over-reliance on property based lending by some of our institutions, including some international banks, some who had been operating in Ireland for a relatively short period of time.
From my personal perspective and for the benefit ... and with the benefit of hindsight, I do regret that I did not foresee the extent of the banking crisis and the property crash. The severity of the crash took most property professionals by surprise, as it did the Department of Finance, the Central Bank and many respected international agencies. Looking to the future, we must ensure that the appropriate system of checks and balances is introduced to prevent a repeat of the failures in the period leading up to the crisis. Property investment and development has a significant role to play in the regeneration of our economy. The challenge is to implement policies which recognise the positive contribution that property companies make and which encourages, in a responsible way, the delivery of real estate, which contributes to employment, housing provision and a general economic growth. I'm sure that the report of the committee will help to shape these policies. Thank you, Mr. Chairman, for giving me the opportunity to address the inquiry today.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much, Mr. O'Reilly, for your opening statement. If I can now proceed on to invite Senator Sean Barrett to open questions. Senator Barrett.
Sean Barrett (Independent)
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Thank you, Chairman, and I echo the Chairman's welcome to you here this evening, Mr. O'Reilly.
Sean Barrett (Independent)
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You say in your statement that you made contributions to various political parties. I think page 10 has that you made €74,000 over a six-year period.
Sean Barrett (Independent)
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Was there any relationship between political contributions from the property sector and the regime of property tax incentives and reliefs such as urban renewal in the pre-crisis period?
Sean Barrett (Independent)
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Are those kind of tax breaks which, as you know, have been a large part of the agenda here, are ... did you experience those in any other countries?
Sean Barrett (Independent)
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Okay, yes. Good, thanks.
Sean Barrett (Independent)
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Now, on page 5 you say that there were ... there's clearly too much debt freely available to too many borrowers. This led to a glut of inexperienced developers. Who were they and could you describe how they intruded?
Mr. Joe O'Reilly:
Well, I think ... I think there are a number of developers who have been in the business for a long time with, with, you know, with a lot of experience, with an experienced platform that covered all different disciplines from chartered surveyors, you know, a very strong finance team, asset management expertise, project management expertise. What we seen was that a number of people came into the business ... they weren't necessarily ... they were in other businesses that changed into ... that changed into ... or they suddenly became a property developer overnight. They seemed to be able to get easy lending, which was a surprise to us given the ... given the processes that we've had to go through and so, you know, that, that, I suppose, I think somebody else referred to them as part-time developers. I think that's probably a fair reflection or fair-----
Sean Barrett (Independent)
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But, on the other hand, a lot of very big people went into NAMA. It wasn't just the small fellows.
Mr. Joe O'Reilly:
But all loans, if you had any property loans, they were all transferred into NAMA.
Sean Barrett (Independent)
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On page 4, you're describing the lenders ... and we'll come to the banks presently. The steps taken by a lender when evaluating your proposal and it's quite comprehensive, all the items that you list there, and, you know, you paint them as pretty rigorous. Did those standards drop in a kind of euphoria in the property sector?
Mr. Joe O'Reilly:
No, not from our side, not at all. We didn't see any of that. I mean, we ... our finance team still went through the same process. I think it's important to point out that we ... we ourselves had to ... we ourselves had to be satisfied with our own ... whatever proposal we were putting to the banks, we, first and foremost, had ... we were satisfied that that was ... that stayed within our own business model. The same ... our same strategy applied. We didn't change that just because there was the perception of so-called easier lending. We stuck to our model; we stuck to our strategy. We just ... we were involved in prime assets. We bought sites beside public transport nodes. So, you know, we stuck to that strategy. We didn't change on that.
Sean Barrett (Independent)
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Did the banks change-----
Sean Barrett (Independent)
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Yes. Did the banks change? Because-----
Sean Barrett (Independent)
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Did the banks change? Because they all went broke in a system where there hadn't been any bankruptcies for 170-180 years. Did you see a change in the corporate culture of banks in Ireland?
Mr. Joe O'Reilly:
No. No, again ... again, I can only ... I can only tell you about our experience with them and ... so, again, that was ... you know, our relationships with them were formal and professional and we wouldn't have seen and we didn't see ... the people that we ... the people that we dealt with ... and maybe it was because the scale and the size that we operated with ... operated at, they were very professional and they were well informed, from what we seen.
Sean Barrett (Independent)
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But other people must have had doubts, because their share prices were plummeting for a good while before the crash.
Sean Barrett (Independent)
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And what's your current situation? Since the crisis, what's it like trying to do business in the property sector in Ireland now?
Mr. Joe O'Reilly:
Well, as you know, we're working ... we're working with NAMA and we have worked with NAMA over the last six and a half years. We've worked extremely hard. Our team has worked ... our team that ... our own team has worked extremely hard and, you know, we have ... we have ... our ... we set about ... once NAMA was set up, we set about working with them. Our engagement with NAMA, again, was very professional. NAMA had a good team of people employed and we got on well with them. We put in ... our business plan in place. We went from there and we followed what ... what their ... what they wanted of us. We done that and we've always co-operated 100% with them. And that was with the purpose of trying to recover as much money as we could and bring back as much value to our assets as possible.
Sean Barrett (Independent)
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And you're expecting 100% on that, is that ... that in your concluding remark?
Mr. Joe O'Reilly:
Well, to date, we've paid back NAMA about €600 million. Our loans are for sale at the moment. We expect to pay back the principal. And that's on a personal ... that's on personal borrowings and corporate borrowings. So, Deputy, I'll have to wait and see how that process turns out but we would be confident that we're going to go a long way towards that, yes.
Sean Barrett (Independent)
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In all your experience in the house building, the Castlethorn part, we've watched here data that in the 1990s a house was two and a half times average income and at the peak it went up to 12. How did you see that process going? Were houses going to get more and more outside the reach of average people?
Sean Barrett (Independent)
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We have various evidence supplied to us of €6,000 development levies in some counties and substantial tax levies implicit in the retail price of a house ... Ronan Lyons from TCD, whom you know from the daft.iewebsite. Is there any work going on between the industry and public policy makers to try to make the house price back to a more reasonable multiple of average earning?
Mr. Joe O'Reilly:
Yes. There are a number of groupings. There's the ... Property Industry Ireland and the CIF - and, within the CIF, is the IHBA, which specifically focuses on housing. And one of our senior executives in Castlethorn is actually the chairperson of the IHBA so, he along with a number of other people, are absolutely looking at this and seeing how we can bring back ... and make houses more affordable.
I suppose, a bit like the point that you mentioned there, it was interesting just during ... you know, we've been in business from 1989. I suppose, during ... from the early noughties, you know, there were ... well, first and foremost, back in the late '90s there was the same issues there as we have today. There was a big demand ... or there was a big demand for housing and the supply issue was an issue. We weren't able to build as many houses as was required. That ... the Government at the time ... the Government at the time looked to get some external advice, it brought in Mr. ... Dr. Peter Bacon. He issued various reports and the reports looked at how they could accelerate the housing provision and he made a number of ... he made a number of recommendations, including looking at the provision of infrastructure. He brought in the whole, SDZ ... or SDZs was part of his proposal, which looked at accelerating the whole planning process. I'm trying to think of the third item. But, in any event ... oh, sorry, the other point was increasing densities and looking at a range of different house types and residential types.
But, I suppose, during that period, the other thing that happened was we brought in social and affordable ... Part V was brought in during that period. But instead of the local authorities being able to increase the provision of infrastructure or finance infrastructure - that actually didn't happen - so what they did was they then levied ... there was more and more levies put on to ... they increased the levies during that period, with a view to trying to get that infrastructure and to have the resources to provide that infrastructure. So it was a combination of them trying to collect more money from new homes and then a combination of them asking developers to put that infrastructure in as well. And, you know, just ... there's a lot of issues there in relation to the provision of new homes. Like, new homes covers ... like, the person who buys a new home, they're actually unfairly penalised because they have to pay for ... they contribute to ... to social and affordable housing. The second-hand market, for instance, doesn't provide any income or any finance towards the provision of social and affordable. They also pay, in the levies ... the levies are not ... we'll say, there's section 48, section 49. Section 48 and 49 - section 48 isn't specifically for that development or that site that's being developed, it's for a broader range of finance for the rest of the county.
So, new, new home purchasers are being penalised in a number of different ways. But in any event, we are looking and we are trying to get those issues, coming back to your question, Deputy, we are trying to, to inform and resolve the-----
Sean Barrett (Independent)
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And thank you for that, and particularly for the people watching in, is there a target? Are we going to try to get five times average earnings of a house price or-----
Sean Barrett (Independent)
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Did we build too many shops? I see your shopping centres are very successful but did we build too many?
Mr. Joe O'Reilly:
Well again ... it's a bit like, did we build too many houses? We, we were building 90,000 houses at the peak; it's all a question of where we built our houses. You know, Dublin, Dublin required, sort of, 15,000 to 20,000 houses. We, we got there somewhere close to the, you know, 2005, 2006. The problem was, on the housing side, that a lot of the houses weren't built were they were required and in the same way, it's the exact same thing, it's the, it's the identical situation in relation to shops. So, we have built shops and, and shopping centres where the demand wasn't there, where people didn't do the proper research, the catchment, you have to ... when you're, when you're looking at a shopping centre, you have to understand what the catchment is, you have to understand what the potential spend is in that catchment. And from that then, you analyse and you're able to determine the demand. The demand then in turn helps you to, to identify what the turnover ... that turnover then helps you establish what the business model is and that all feeds back into, that all feeds back into what your business strategy and your proposal is likely to be.
Sean Barrett (Independent)
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A global one on the two sectors we're examining; what measures should be taken to make sure the banking sector never goes through the same crisis again? And what measures, and you've outlined some, should be undertaken to ensure that the building sector never makes the same mistakes again? Can we take the banking one, perhaps, first?
Mr. Joe O'Reilly:
Well I think the banking thing, I think the banking is being dealt with in a number of different ways and it's not for me, and I'm not an expert on this, but there are a number of things. The Central Bank has intervened in relation to the provision of housing and the, the level of mortgages that people can take. And I think that's, I think there, there ... you know, there, I think that's well intentioned. I'm not sure I agree with how they have done it and I'm not sure I agree with all the elements of it but certainly the principle of it is good. The, the banks themselves, in terms of, as I understand it ... and I'm trying to remember the exact term but the, the level of deposits they have is reflected on ... or the basis of, and the level of deposits reflect the amount that they can lend.
Sean Barrett (Independent)
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Indeed. No, you're right.
Sean Barrett (Independent)
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Yes. So, less wholesale funding.
Sean Barrett (Independent)
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Yes, okay. And in relation to the-----
Sean Barrett (Independent)
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Was there too much hype or euphoria in the, in the building sector?
Mr. Joe O'Reilly:
I, I think again ... I think again there was a, there was a perception that building and development was easy and that it was quick, that there was quick money or quick bucks to be made on it and that was ill-founded. So, I think you've asked me there in terms of ... how can the building and how can we ensure that standards and how can we ensure that we have a professional industry? So, again, through what is happening at the moment and, and the Department of the Environment are involved in this, is that there's an organisation or a grouping being set up at the moment, it's called CIRI, it's Construction Industry Register Ireland. And that, that is a group that's been put in place, with an independent board, which every developer, every contractor, every builder will have to be registered with and there'll be certain governance around it.
So I believe that that's well advanced at the moment. I'm not sure that it's totally there but I know that it's ... I know Castlethorn-Chartered Land are actually members of it and I know that it's being rolled out at the moment, so it's well advanced ... I'm not sure it's been officially ... in fact, I know it hasn't been officially adopted by Government but it is being advanced.
Sean Barrett (Independent)
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What's the-----
Ciarán Lynch (Cork South Central, Labour)
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Just one second, Senator, I think there is phone interference, I'm being informed of it, so if I could ask members there in proximity to speakers and so forth to turn off their phones please. Senator.
Sean Barrett (Independent)
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The final one from me. What was the biggest mistake, not you but Ireland, made, Ireland Inc. made in all of this crisis which had such dreadful effects right through the economy?
Mr. Joe O'Reilly:
Yes, again I'm not hold myself out to be an expert but what is obvious is I think we joined the euro, I think, back in ... back prior to the euro we were able to control the level of activity in the market by adjusting our interest rates or whatever. We lost that control in the euro, we didn't put in place ... we didn't place ... we didn't seem to put in place any measures to control the inflation, particularly in the property sector.
Sean Barrett (Independent)
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Thank you very much. Thanks, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Deputy John Paul Phelan.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Thank you, Chairman, and good afternoon, Mr. O'Reilly. You said there in answer to the last question, I think, to Senator Barrett, that we didn't seek to put in place any controls as regards inflation. You're talking "we" in terms of the Government or who is the "we"?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay, do you think ... I was interested in your comments again to an earlier question that he asked where you said that you ... he posed the question "Were you concerned about the huge increase in house prices from two and a half times income to 12 times?", and you said that that "was our concern". We've had evidence from other people who were involved in development that they may have had similar concerns. I'm just interested to know did you ever express those concerns or is that something that you're just looking at with hindsight now?
Mr. Joe O'Reilly:
I suppose, honestly, yes. You know, what we did about it, I suppose, within the industry we spoke about it but, you know, did we have access to Government, did we have access to the Finance Minister or whatever, Department of Environment and you know, we worked through the CIF or the through the IHBA or whatever and that's probably as far as it ... we went.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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So did you think that the level of house price increase was not sustainable? I suppose it's, kind of, an obvious question.
Mr. Joe O'Reilly:
No, it wasn't but, I mean, there was so much happening at the time you know, we had ... Ireland ... I suppose some of this was being justified by the fact that Ireland had fallen behind or it didn't, for instance, have the same ratio of houses per thousand population as other countries, so we were supposed to be on a catch-up. So I suppose that was one of the justifications. We were ... we had a lot of foreign direct investment in the country, which was creating demand for factories, for offices, etc.; we had a lot of migrants come in so they were looking ... they obviously had to be housed, so there was a big demand for rental accommodation. During the period, salaries were increasing, there was social partnership. There was a lot of issues there where, you know, wages were increasing and people had more disposable income and-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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All right, I'm sorry, I'm not trying to cut you short. You made the point fairly well. I just ... I suppose, as somebody who is a businessman, you have said that you were concerned about the rate of house price increase. Did you believe, like, that that was a sustainable rate to run a business into the future, that you could sustain those prices and that your business could survive long-term on the back of what was a really concentrated house price increase, you know, compared to where we had come from in the previous 20 years?
Mr. Joe O'Reilly:
Yes, well, not trying to avoid your question but some of this all relates back to if house prices .. if people have to pay more houses ... or a higher price for houses, well, they're going to have to have a higher salary and there's a point at which the ... and it did happen, the competitiveness factor of our country becomes into question. So, of course, anybody would have to have concerns about that. And there was quite a debate about that, so you know, we're not in business for making a quick buck and disappearing. We've been in it for the last 30 years. I'm hoping that we'll have an opportunity to be in it for I don't know how many more years but certainly, certainly I'd like to think another ten, 20 years. So, like, this is ... the idea of the market going up and down, and experiencing what we've experienced over the last six and a half years, or experiencing what the country, and the pain and the damage that has been done to the country, that's not what we want. We want to be in a business that the curve is certainly on a gradual basis, not peaking and troughing.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Briefly, then, to maybe draw you out a bit more on another point from Senator Barrett in relation to deposits and the new, the new rules from the Central Bank on deposits: you said that, and I want to quote you correctly, "it was well-intentioned" but you didn't agree with all aspects. Briefly, what do you mean by that?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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The new rules from the Central Bank with regard to deposits-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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You said it was well-intentioned but you didn't agree with all aspects of it. Briefly-----
Mr. Joe O'Reilly:
No, I think that from a Dublin perspective, I think the ... it's a ... a new purchaser is allowed to borrow up to 90% on a home worth up to €220,000 ... I think that figure is just too low for Dublin. It doesn't reflect what the cost of providing a house in Dublin. In fact, it doesn't reflect what it costs to provide a house anywhere in the country.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Again, to reference something that, I think, you said earlier in one of my first questions. You spoke about access to Government. Senator Barrett spoke about the political donations - €74,000, I think, is mentioned in your statement, to the main parties, and some independent politicians, between 2001 and 2008. You said that "we". Is "we", again, your development companies, or "we" being your family, or is it corporate donations you're talking about?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Did you have any level of personal relationship with any Government Ministers, or any of the office holders, we'll say, in the State over the last, over the period which we're inquiring into?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
Mr. Joe O'Reilly:
I'm sorry, just in relation to the political donations, this was, you know ... we were a relatively large company, relative to the Irish situation, so we operated in the four different boroughs within Dublin. And typically, say, for instance, take something like Dundrum, we would be active in the chamber of commerce in Dundrum. We would be active with various voluntary groups, with educational groups, with sporting groups, so, like, the amount of money that we would have given to, on political donations, would be a fraction of what we've given to the community, voluntary groups, charities, etc.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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So your or your companies wouldn't have ... or would you have, been making, we'll say, representations to members of Government over those periods concerning-----
Ciarán Lynch (Cork South Central, Labour)
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I'm still getting reports of telephone interference. Is there any chance, Mr. O'Reilly, that your phone is switched on, even if it's-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Likewise.
Ciarán Lynch (Cork South Central, Labour)
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It's probably the best mode to be in.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Mine is airplane mode, I can assure you, as well.
Ciarán Lynch (Cork South Central, Labour)
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All right, thank you.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Sorry about that, Mr. O'Reilly. Just briefly again, any representations to members of Government on, we'll say, issues, similar to the one with regard to Central Bank deposits, but, you know, other development issues that would have occurred over that 15 ... like the Part V process we've heard details of, representations that were made to Government on that issue, details when Mr. Ahern was here of meetings of fairly high-powered, serious developers. You weren't listed on that list, in Government Buildings.
Mr. Joe O'Reilly:
So, no, any representation we'd have made them through the IHBA, the CIF, subsequently with Property Industry Ireland. Like, say, the finance people, would have, they'd work to their own ... or talk and meet and I presume they would have made representations through their own professional bodies, but it was that type of approach.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. If NAMA hadn't been created, do you believe that you'd still be running the companies, your own companies and owning the property portfolio that you do?
Mr. Joe O'Reilly:
Well, who knows? I mean, that's ... it's a hypothetical question, Deputy. But, like, I believe that the quality of the assets that we had and the fact that these assets have performed during the recession ... so, the value of the assets was obviously impacted by the financial crisis and by the property crash but the actual assets ... the business that ... the business that is the assets and the business that is created around the assets, that actually performed right through the crisis and, in fact, we probably ... the business is actually substantially improved during the process, believe it or not.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Can I ask - I meant to ask it earlier - did you yourself enter into personal guarantees against any of the loans that your businesses would have taken out over those-----
Mr. Joe O'Reilly:
I suppose the first thing ... the first part of it that ... the answer to that question is that that all ... you know, I did have some personal borrowings, I did have corporate borrowings. So, in relation to some of the corporate borrowings, I did have some PGs. Those PGs so ... so, just in terms of the hierarchy of ... the first thing ... the first element of lending and the first element of security is the asset itself and then you go from the asset then to the ... you go from the asset then to ... you know, for instance, in terms of an investment property, the bank would secure the rent roll, they would secure all bank accounts and then, after that, there'd be an element ... or a PG would then ... would then follow.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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You mentioned the sale of some of your loans and assets, indeed, in ... I can't remember the actual name that you put on it, so I'm going at the present-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Yes. After the sale of ... of those and other loans, do you hope to be released from any personal guarantees that ... that you may have?
Mr. Joe O'Reilly:
Well, yes, that's what I said: that I hoped that ... well, sorry, I'm confident that ... and, you know, I'm confident that when Project Jewel is complete, that I will be released that ... you know, as I ... my view is at the moment that all the principal that I owe will be repaid, both personal and corporate.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Do you have the fear that some other people who may be in a similar position to yourself have that some of your loans may be sold to a firm that want to ... to call them in, effectively, and take your business away from you?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Can I ask, in relation to your own overall operations, which aspect of your businesses has proven the costliest, I suppose, the ones that have had the worst return during the period of the crisis?
Mr. Joe O'Reilly:
Well, I suppose, our investment assets ... they have ... they ... like, two things that has happened. When the crisis hit, obviously the ... or not obviously, but what happened was that ... that the level of discount in relation to our assets was quite severe. But what is interesting is that as the Irish economy has got back on its feet and as the Irish economy has recovered, those assets have recovered as well and that's one of the main reasons why we'll be ... why we are in a strong position and will be in a strong position going forward in terms of the repayment of our debt. In terms of just answering your question, where the weaker part of ... where the weaker part of our assets is sites at the moment. So in terms of Chartered Land ... fortunately, Chartered Land is primarily an investment property company with prime assets. The proportion of sites within Chartered Land is about 15% or 15% to 16% which, again, would be for major property companies and looking and comparing those to, sort of, to plc companies, that's probably close to where those plc companies operate. So, the fact that our assets have ... have recovered is testimony to the strength of the assets and to, you know, the fact that the site element of it is a smaller proportion. On the residential sites, the residential sites are recovering but they haven't recovered to the same degree as, say, for instance, investment assets.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Just a quick follow-up. Have any of the ... those loans or those assets recovered value to the value of the original loan or?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. In relation to your opening statement again, and I was trying to remember what page it was on, I was taking a note of it earlier. You said that ... kind of herald as an achievement your expectations that the sale of the loans in NAMA will reach a value well in excess of what NAMA paid for them. As somebody who, I mean, I don't know you from Adam, but you're a businessman, how do you feel about the fact that effectively, taxpayers' money has had to have been invested into your business? Some would argue maybe to keep it afloat, you might argue that it could have stayed afloat anyway but effectively, it has been put into that business to keep it afloat for the last six or seven years. How do you feel about that? Do you have anything to say to the taxpayers of the country who are hard-pressed enough and might have some reservations about that?
Mr. Joe O'Reilly:
Well, I ... there's two ... there's two aspects of that. One is, I suppose, we have worked for the last six and a half years and we have fully co-operated with NAMA in relation to the recovery of the value of those assets. And, I suppose, again, coming back to it, the ... our business strategy and our ... the regime that we put in place and the quality of those assets is testimony to that business strategy and to the fact that we knew ... we knew what our market was, we understood the market. We stuck to that strategy so we ... as of, you know, if you look at Dundrum at the moment, if you look at some of the characteristics in relation to Dundrum. So, for instance, if you look at the rent roll that has produced, if you look at even the consumer spending, so I reckon, give or take over the last ten years - Dundrum was open ten years last March - so I'd say within that ten years and sort of, give or take, it was about ... consumer spending it was about, in that period, it was about €5 billion. So if you take it ... so if you take the VAT that was collected in that period or the VAT that would have been paid out of that €5 billion, probably the Irish Exchequer took about €1 billion out of that in that period, in those ten years. If you take it that there was about six, 5,500 people employed in Dundrum, that equates to about €35 million PAYE, PRSI tax being taken out or arising out of that employment. So over the ten years, that's €350 million.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I'm not trying to interrupt you now, but my time is kind of running out but so you are saying that because you pay tax and because the people-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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-----you employ pay tax-----
Mr. Joe O'Reilly:
-----I'm not saying that at all, Deputy. I'm just saying that, that of course, and I'm just answering your question, of course, NAMA gave us that breathing space to ... and that period to allow us to be able to recover those values.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay, okay, that's fair enough. I think you've answered it. I want to refer to a report which was published in The Sunday Business Poston 15 March 2015, where it showed that you owed Anglo Irish Bank €1.5 billion. In hindsight, do you think - or your businesses I should say - do you think, firstly, was it sensible for a bank to have so much loaned to a particular business?
Mr. Joe O'Reilly:
I think ... I think the level, obviously of debt sounds high there but you have to look at the quality of our assets. You have to look at again, all our assets were prime assets. So Dundrum, you look at ... you look at our commercial asset, you look at Grand Canal Square which was sold, you know, a very large figure recently and achieved one of the highest ... achieved one of the highest sales levels in the country for some considerable period of time. If you look at the quality of our assets, so debt, debt equals the quality of the assets-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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But from a business point of view then, to put it the other way, was it good business practice for your businesses to have their borrowings so concentrated in one individual institution? I know you may have other loans in other institutions, but €1.5 billion in that one, from a business perspective, do you regret that?
Mr. Joe O'Reilly:
Well, I suppose at the time it ... and I think you can go back to what we thought was right at the time, and it's easy in hindsight to look back at it and say we could we have done things differently. At the time, that particular bank offered us the most competitive rates and the best deal that ... the best banking arrangement that we could get in the marketplace.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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So you'd do it again if you had it back again?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Briefly, then, in relation to another point that was raised by Senator Barrett, where you spoke about inexperienced developers. I think ... I can't remember what page it was. You said that there clearly was too much debt, too freely available and too many borrowers that led to a glut of inexperienced developers, many of whom traded in a short-term horizon. You've answered what you thought, I think, inexperienced developers were, but do you believe then that inexperienced developers, if they hadn't been lent this money, that we may not have had the property crash and the banking crash that we've had? Is that the implication of what you're saying? Because we've heard a lot of evidence that really the crash, rather than from the small operators, was from the over-concentration of the big figures, like I've mentioned, in a few individuals and individual businesses?
Mr. Joe O'Reilly:
I think the point is that I think I would feel, and I think a number of people would have felt, that it's really ... what was different about this particular crash was the size and the severity of the crash, so, like again, within the crash ... our normal crashes, our normal property adjustments would be somewhere between up to 20%-25%. But I think there was a view taken that because of the quality of the lending against inferior assets, secondary assets, tertiary assets, etc., and the locations in which some of this lending was done, what I mean is not prime, not lent onto prime assets-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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I understand the point you're making, and then this is my last little follow-up on this, but it would take a lot of those operators to have a borrowing of €1.5 billion, such as your firms had from Anglo?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Some of them may have had, but I'm not ... you spoke about the smaller operators specifically, I think, earlier on, and-----
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Late?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Fair enough, okay. Can I ask ... I've a number of questions that I must put to you. Based on your dealings with the Irish banks in the pre-crisis period, did you get the general impression that maintaining and growing market share was a dominant driver in lending practices? And did you observe increasing competition between them for business with you and your businesses?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Banks were under increasing pressure due to interbank competition to offer incentives such as - and we've mentioned a few of them before - non-recourse loans, interest-only and roll-up ones as well. In your experience, were such practices common among the banks in Ireland? And did the situation differ greatly from practices in banks in other jurisdictions?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Those types of incentives that I mentioned there, non-recourse, interest-only, roll-up, lower interest rate margins, interest holiday periods, those?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. As the profile of your own businesses or business grew, and the size of your portfolio grew, did you observe a relaxation in lending criteria?
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. NAMA applied a discount of 5.25% to the long-term value of acquired properties to cover due diligence, which was 0.25% and enforcement at 5%. In your dealings with the Irish banks, how would you rate the extent to which the banks sought robust legal documentation? And was reliance on solicitors' undertakings commonplace or rare?
Mr. Joe O'Reilly:
I'm ... I'd be pretty sure that in terms of the security that our loans had, they were all ... there was no issue there. There was not ... no imperfections in them. We had a professional internal team, an external team advising us and I'm 99%-100% sure that there wasn't any of those issues in relation to our loans.
John Paul Phelan (Carlow-Kilkenny, Fine Gael)
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Okay. Thank you.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Deputy Pearse Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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Go raibh maith agat agus fáilte an tUasal O'Reilly. Can I ask you, you refer in paragraphs 3 to 5, on page 5 of your statement, to a multi-bank loan agreement for the Dundrum Town Centre involving six banks, with Anglo as the agent for the other five lenders. How did this arrangement come about and, from a developer's viewpoint, what are the particular advantages and downside risks with this type of funding approach?
Mr. Joe O'Reilly:
Yes, Deputy, well that came about by ... at the time Dundrum Town Centre was a major project and the scale and the size of it was just too much for any one bank and their governance wouldn't have allowed that. So it was ... there was a number of banks brought together, as you have mentioned, so that was called a syndicate of banks and it was headed by Anglo Irish Bank. So there was a process there where Anglo would have informed all of the banks in relation to all of the governance issues in relation to the protection of that loan and working within the facility agreement, working within the ... while the loan was being drawn down, ensuring that we ... ensuring that all the milestones or whatever the criteria was and whatever the requirements were within that facility, that they were all adhered to.
Pearse Doherty (Donegal South West, Sinn Fein)
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And is it you that went around to the six banks looking for loans or did some executive in Anglo start phoning up the other five banks saying "Will you give Joe O'Reilly some money for this development in Dundrum?" or how-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes. So there was ... or there was a ... there'd been a senior executive in Anglo Irish Bank approaching other banks to lend to you. Is that ... did that happen in this regard?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. You talk about ... on page 6 of your statement, I think, that your borrowings on 30 September 2008 was €2 billion. Is that your entire borrowings? Does that include ... or is that just one company? That's the only company you have, is it?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. Would there be other companies that would have had borrowings as well in your name?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. So €2 billion of borrowings at 30 September. Did you enter into borrowings from any of the guaranteed institutions after that point? In the months ... I'm not talking up until last week, I'm talking about ... you know, did you enter into borrowings with the institutions after that point?
Pearse Doherty (Donegal South West, Sinn Fein)
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Post the guarantee. You've given us the figure for ... on 30 September 2008. So between then and the end of the year, were you still drawing down more borrowings from the financial institutions that were guaranteed?
Mr. Joe O'Reilly:
No. Again, if I understand the Deputy's question ... so up to... this would have been our borrowings up to the time that NAMA took over our loans.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. You've given ... on your statement, page 6, it says "The total outstanding par debt attributable to my ownership interests was €2bn at 30th of September 2008." So the question I am asking you is: did you enter into additional borrowings from financial institutions that were guaranteed between 30 September 2008-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----not today ... and the end of the year, for example?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. And would you have borrowed from any of the financial institutions between that date and the entry into NAMA?
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, any of the NAMA banks?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. That's fine, from recollection. That's fine. And just to clarify this here, because there's been a lot of talk about what would be paid back and what won't. So, €2 billion is what your outstanding debts were at that point in time. That wouldn't have been all to NAMA banks would it, or would it?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, to NAMA banks. So when we're talking about what will be paid back or not - and you talk about your assets reaching their values - so are we talking that €2 billion is going to paid back? Is that what we're basically saying, or is that you've been basically saying?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, and are you aware of the haircut that was applied to your loans from NAMA?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, that's fine. In relation to Brendan McDonagh ... Brendan McDonagh was before the banking inquiry and he gave evidence in relation to dealing with developers and how NAMA was established. And you talk about the efficiency in terms of NAMA. Mr McDonagh talked about, and I'll quote him, he says, "Probably about €300 million of that additional security, debtors decided that they would transfer them to third parties, friends, relatives, rather than hand them over to banks or NAMA." And then he talked about additional assets that were ... that weren't declared to banks, or NAMA. But in relation to ... and not breaching any confidentiality between yourself and NAMA, what's your view of that statement from ... NAMA developers that they would have transferred €300 million of assets out of the hands of banks or NAMA?
Mr. Joe O'Reilly:
Well, I suppose the NAMA legislation had a specific requirement ... or it had a specific requirement in it that each debtor would do ... would look back on ... for the previous five years to see exactly was there any transfers or any transfers to family members or whatever. So it was within that five-year period prior to NAMA being set up.
Pearse Doherty (Donegal South West, Sinn Fein)
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And were you party to this? Did you ... were you involved in this yourself or was this some other developer?
Mr. Joe O'Reilly:
Well, what I've done is and, again, if the Deputy understand that I'm still in NAMA-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes.
Ciarán Lynch (Cork South Central, Labour)
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I need to ask you to come back a small bit there, Deputy, okay?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. No if you're ... if you're ... well, the question was more in relation to anyway the fact why would developers - as I mentioned earlier on, I'm not asking you to breach your own confidentiality with NAMA - but why would developers transfer €300 million of assets out of the hands of ... away from NAMA's reach or the banks' reach, which had to be unwinded by NAMA, either voluntary with the developers in terms of the requirement that they asked a number of developers to do to fill in the forms and say what assets they put beyond reach, or threaten them with the ... not threaten them but using the powers within the NAMA legislation that could actually unwind them legally?
Pearse Doherty (Donegal South West, Sinn Fein)
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But the question is: why would ... what was the motivation for developers to transfer those assets to friends and family members, as Mr. McDonagh gave evidence to the committee, in your view, speaking generally?
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, okay. Mr. O'Reilly, you said ... you say in your statement, on page 10, that "our business is embedded in the greater Dublin community". Apart from the banks, what other State or city institutions would have dealings with in the course of your business?
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes.
Pearse Doherty (Donegal South West, Sinn Fein)
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How important was that relationship with the local authority in Dublin, where your business was focused, and did you have a relationship with the city manager as part of that relationship, or dealings with the authority?
Mr. Joe O'Reilly:
Well, we were in business for 20-odd years. We have a track record. We have built over 9,000 houses. We're ... you know, I believe we have a good reputation as a developer. All our ... every ... every development we did, we completed it, or up to the crash. See it's ... you know, it's ... some of our developments weren't finished completely, but, you know, we ... we're in business for quite a number of years and we have a good reputation and, you know, that means that I would hope that we had a certain level of respect within the various local authorities.
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. O'Reilly, I'm sure you're aware of commentary that's been-----
Ciarán Lynch (Cork South Central, Labour)
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Deputy, we should move on. This is the last question.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, commentary that's in ... there's just a final one after this, if you indulge me, but commentary in relation to the national monument site in Moore Street-----
Pearse Doherty (Donegal South West, Sinn Fein)
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-----something that is very close to a lot of Irish people's hearts, which was a listed building which was suggested that it was allowed to go into a state of disrepair.
Pearse Doherty (Donegal South West, Sinn Fein)
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And all of the association, as a NAMA developer, what do you say to people who don't like what's happening at this point in time; who ... that it's ... was owned by a NAMA developer that was rescued by the State; that ... what do you say to the families of those who stood up for Irish sovereignty back in 1916 who have issues with that development? And you mentioned that development in your statement and that's why I ask you the question.
Mr. Joe O'Reilly:
Well, I think the contrary is the reality. I mean, first and foremost, in ... I'll remind the Deputy that there was a planning permission in 2000 that actually demolished those four buildings so, when we came along, applied for planning permission, we acknowledged that those four buildings were to be kept. We only actually took possession of those four buildings in ... I think it was approximately, and I'm not ... and this is approximate, Deputy, we took possession of those four buildings in 2008, approximately 2008, right? So, when we took those ... when we took possession of those, the roofs were ... had caved in. We had an enormous amount of money and NAMA supported us in spending money to bring those buildings and to stabilise and maintain those buildings and we've maintained them since. And what is ... as you know, the State is buying, or purchasing those buildings.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes.
Mr. Joe O'Reilly:
And they are ... and the intention is that it will become a commemoration centre so, for instance, the original proposal was that No. 16 would be the commemoration centre. We work with the powers that be and with the local authority, with the Department of Arts, Heritage and the Gaeltacht not just to have 16 as a commemoration centre, but the other four buildings, 14 to 17, so I absolutely believe that we ... our intervention has been positive there. We rescued the buildings. In the buildings, as I say, when we bought them, the roofs were ... they were in a dreadful condition.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. The final question - and I appreciate this - is can you outline to the committee your relationship with ... or if there was a relationship with the former Minister for Finance, Mr. Brian Lenihan, and the Lenihan family, and particularly, if there was a relationship, can you talk about any contacts you had with the individual in the run-up to the guarantee, the establishment of NAMA?
Mr. Joe O'Reilly:
I didn't have a relationship with Mr. Lenihan. I'd no other relationship with him, no more than anybody else, so ... no more than any other Minister. So, we built homes out in his constituency, out in Castleknock. We were involved in the SDZ out in Adamstown. And again I'm standing to be corrected at this ... at this stage, but I've a feeling that Mr. Lenihan was a junior Minister for Children.
And, at that point in time, we did have a meeting with him in relation to education provisions in ... for Adamstown. So, again, I'd say that we had a professional relationship with him, no more than we would have had with any local TD or any Minister, in relation to, you know, any area we operated within.
Pearse Doherty (Donegal South West, Sinn Fein)
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And no contacts in terms of-----
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay, thank you. Appreciate it.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you. Deputy Joe Higgins.
Joe Higgins (Dublin West, Socialist Party)
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Yes. Mr. O'Reilly, you're aware of David McWilliams, broadcaster and economic commentator, I take it?
Joe Higgins (Dublin West, Socialist Party)
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McWilliams, yes. He gave evidence to this inquiry and in the course of the evidence, he played a statement that he had made in October 2003 on RTE "Prime Time". And I'd like to quote it to you and ask you for a comment on it. He said:
The Irish housing market is a scam. It is an enormous financial swindle that could potentially confine an entire generation of young Irish workers to years of bad debt. Far from being a reflection of economic vitality and fundamental demand the housing bubble is, in the main, a vacuous financial confidence trick that has been foisted upon us by an alliance of banks and the landowners.
Today, in Ireland, the price of the average house is close to ten times the average wage. This represents an economic failure on a monumental scale. Behind this nonsense is excessive and irresponsible lending from our financial institutions. The situation would be laughable if it were not so serious.
Would you agree with that statement?
Mr. Joe O'Reilly:
Well, I think Deputy John Paul Phelan asked me a question in relation to ... sorry, asked me a question in relation to, you know, the fact that people's salaries they ... and, as Mr. McWilliams said, ten times. That absolutely was not sustainable, and, from that point of view, I would agree with him. So somebody's salary-----
Joe Higgins (Dublin West, Socialist Party)
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This-----
Joe Higgins (Dublin West, Socialist Party)
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Mr. O'Reilly, this statement was made in 2003. This wasn't made with the benefit of hindsight when many people became wise. So there was still four or five years to go of the property bubble. It wasn't probably just a third of the way up at the time.
Joe Higgins (Dublin West, Socialist Party)
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Did developers like yourself not consider at that stage where things were going? And did it give you pause for thought?
Joe Higgins (Dublin West, Socialist Party)
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Is it a just system or was it, Mr. O'Reilly, that this combination of bankers and developers, between you, would see the price of an ordinary home between 1996 and 2006, on figures given to this inquiry, increase each year by the equivalent of the average industrial wage? That's each year. Is that, apart from the sustainability or lack of sustainability, is it just that young, working people would be under that pressure?
Mr. Joe O'Reilly:
I think the first point is that everybody should be able to afford a home and everybody ... there's no question about that. I think, Deputy, you have to go into a lot of other macro factors in relation to what was driving the price of land, what was driving the price of houses, why banks were doing what they were doing, etc., etc. So I mentioned earlier on, for instance, it was 100% mortgages. That was clearly wrong. We weren't in control of our own fiscal system. You know, we had joined the EU, we didn't seem to have put into any play ... anything in place to put a brake ... or to put some brakes on how our economy was expanding.
So there was ... you know there was 101 pieces, there was 101 different factors, all combining to the market becoming inflated and overheated.
Joe Higgins (Dublin West, Socialist Party)
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And, Mr. O'Reilly, the ... at the end of the day, when the bubble crashed, there are many figures that, in the media, would be said to be dramatic. One was that in March 2009, the top 13 debtors owed Anglo €14 billion and the total bailout cost, €64 billion, by a few hundred people, and you would have been among the top people in that. Is it right that a few private individuals and bankers or banks or companies in search of profit maximisation have that amount of power in society that can literally wreck an economy for millions of people?
Mr. Joe O'Reilly:
Well, first and foremost, again, from a macro point of view, and I don't want this to sound flippant, but we, we didn't borrow from the Irish taxpayer, we borrowed from private or from public banks. So, you know, from that point of view, that's the answer to that question. In relation to ... again, as I said, and I mentioned to ... to the ... a number of ... or to some of the other questions from the Deputies, from the other Deputies, I think from ... I can only speak from my point of view and only speak from our organisation's point of view, is that quality of the assets that we had supported ... the quality of the assets or the ... the ... or that the loans or the lending to ourselves and to our organisation was ... was secured against some of the best assets in the country.
Joe Higgins (Dublin West, Socialist Party)
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But, Mr. O'Reilly, with respect, I mean, you said in your statement "[We are the] most successful residential property developers". With €2.8 billion debts going into NAMA, are you in denial?
Joe Higgins (Dublin West, Socialist Party)
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About the reality of what bankers in association with the developers ... the state they have left this economy and people in. And you refer to yourself-----
Ciarán Lynch (Cork South Central, Labour)
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With that line of questioning now, Deputy, that-----
Joe Higgins (Dublin West, Socialist Party)
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Yes, but I'm-----
Ciarán Lynch (Cork South Central, Labour)
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-----this is not a court of law.
Joe Higgins (Dublin West, Socialist Party)
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-----querying that Mr. O'Reilly describes in page 2 of his statement, "[the] most successful residential property developers."
Joe Higgins (Dublin West, Socialist Party)
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Well, anyway, it's words to that effect. We ... I haven't time, but it's-----
Ciarán Lynch (Cork South Central, Labour)
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If we rely on a quote it better be in front of us if ... Deputy. And the witness needs to be informed of it. What page number are you on there, Deputy?
Joe Higgins (Dublin West, Socialist Party)
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Sorry, I've lost my-----
Ciarán Lynch (Cork South Central, Labour)
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Yes, okay, I'll give you a bit of time.
Joe Higgins (Dublin West, Socialist Party)
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I'll ... I'll ... I'll send it up to you before the end, Chair-----
Ciarán Lynch (Cork South Central, Labour)
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Okay, good man.
Joe Higgins (Dublin West, Socialist Party)
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-----because-----
Ciarán Lynch (Cork South Central, Labour)
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Here we go.
Joe Higgins (Dublin West, Socialist Party)
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-----to ensure that it is there. Yes. Mr. O'Reilly, because of ... time is ... is nearly up, are you ... now, you said you borrowed not from the taxpayer, from private banks.
Joe Higgins (Dublin West, Socialist Party)
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Yes. Why should ... why was the taxpayer then lumbered with picking up the debts that you borrowed from private banks?
Mr. Joe O'Reilly:
Well, again, I didn't have any involvement in that and that was a decision that was made at EU level, where ... or was made at Ireland Inc level-the EU, so that came down to, I suppose, what was considered as ... or, as I understand it, the Irish State wasn't in a position ... or the ... as I say, that wasn't our ... that wasn't my decision or our decision.
Joe Higgins (Dublin West, Socialist Party)
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Do you understand why ordinary people out there, who have suffered massively as a result of the crash, with the austerity, for example, the unemployment, the forced emigration, do you understand why they feel very, very bitter towards developers and bankers who were central to this?
Mr. Joe O'Reilly:
Absolutely. Absolutely. And ... of course, I do. And all I can say is that over the last six and a half years, we have worked extremely hard, as has our ... as has our entire organisation, to try and recover as much of that value as possible and that's what I'm ... that's what ... that's what I'm absolutely saying, that we have recovered, and working closely with NAMA and with NAMA's assistance, we have recovered a substantial amount of that value.
Joe Higgins (Dublin West, Socialist Party)
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Mr. O'Reilly, there was a developer in here yesterday who said that he was a victim - a victim of the whole situation that developed. Do you see yourself as a victim?
Joe Higgins (Dublin West, Socialist Party)
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Okay.
Mr. Joe O'Reilly:
And I don't see myself as a victim simply because, at the end of the day, I think, as you inferred, business ... a person would be very fortunate to go through their business career without having some ups and downs or without having some turbulence and, you know, that's it. We had good periods, bad periods and, hopefully, there'll be some better periods again.
Ciarán Lynch (Cork South Central, Labour)
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Last question, please.
Joe Higgins (Dublin West, Socialist Party)
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Yes. Just to clarify the quote, Chair. Page 2, "Founded in 1989, Castlethorn Construction is one of Ireland's most successful residential property developers". Just for-----
Joe Higgins (Dublin West, Socialist Party)
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Yes. Well, I did. So-----
Joe Higgins (Dublin West, Socialist Party)
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Yes, but would you agree, Mr. O'Reilly, that you mightn't have that level but you're going in that direction, certainly by making a statement like that. Mr. O'Reilly, can I ask you-----
Joe Higgins (Dublin West, Socialist Party)
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Yes. Just two very short questions, I'll put them together because I'm out of-----
Ciarán Lynch (Cork South Central, Labour)
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Please, Deputy, please.
Joe Higgins (Dublin West, Socialist Party)
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Yes. You refer in page 8 of your statement that given the risks involved, lenders sometimes lay down key milestones where finance was issues for site acquisition, performance milestones, etc. Can I just ask you in a general way if that was commonplace for the type of lend that you were involved in and if that was commonplace practice? You've gone into it in some detail but just to elaborate. And the last point I'm ... you were asked about the cost of a home and that and you gave a lot of information but I'm ... could you give us ... you gave cost information of the site, etc. Now I do appreciate there are a lot of different variations but, for example, the houses you were building in Blanchardstown in the mid-2000s, for example, where you had the land from years previously. You said in your statement that in that case, the return would be quite large. Could you give us an indication of, say, if you had an average three-bedroom home, what would the fundamental cost of the site be? Well, let's leave the site out, of the construction be? And then because you had the land from previously, what kind of a profit would you make per house? Is there a typical figure you could give us?
Mr. Joe O'Reilly:
Well, I don't want to get into ... that's sort of commercially sensitive, but what I can tell you is what's relevant today ... is what it costs to build a house today. And to build a house today is somewhere in the region of a three-bedroom semi that you refer to is somewhere up to €280,000 up to €300,000. And I have to say that, and again just to understand, that that's only the cost of building the house. You have to put in the infrastructure and you have to ... people just think about, you know, what they see within the ... just the house and the front garden, the back garden, if there's gardens, or the front area and the back garden. They forget about the roads, they forget about the, you know, the surface water, sewer, the foul sewer. They forget about the water. All of those costs that have to be incurred.
Joe Higgins (Dublin West, Socialist Party)
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Right.
Ciarán Lynch (Cork South Central, Labour)
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Thank you very much. Deputy McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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Thank you very much, Chair. Good evening, Mr. O'Reilly. Can I start by asking you about the valuation process that the banks would've undertaken? The Central Bank in a 2012 report, which I don't expect you to be familiar with, made the point that credit institutions were often negligent and imprudent in the manner in which they requested property valuations. Can I ask you to comment on that, that as part of the loan application process, when valuations of security, for example, had to be undertaken, did you observe any difference in the rigour applied to valuations sought by the Irish banks, and I know you dealt with a number of non-Irish banks, like KBC and Ulster, which is ultimately owned by RBS. Can you comment on that?
Mr. Joe O'Reilly:
No, again I ... again, we would have seen the same level of process and rigorous process. So, from our point of view, we would have valued our own ... we would have put our own business plan together.
We would have then brought out ... we would have then brought in external advisers and, in some cases ... in most cases, in fact, they were valuers. So they vetted what our assumptions were. If the bank was interested in our proposal, they would issue a term sheet. That term sheet then would move to a facility agreement. Going from a term sheet to a facility agreement, usually the banks would have brought in an independent external valuer and that would have been the same with the foreign banks, with KBC or Ulster Bank, the exact same thing-----
Michael McGrath (Cork South Central, Fianna Fail)
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A broadly similar process among all the banks that you dealt with, okay. In the pre-crisis period did you or management colleagues believe at any point that a property bubble was in the making, or did you generally rely on the soft landing theory?
Mr. Joe O'Reilly:
I think, ultimately, we relied on the soft landing theory. We didn't ... I mean we just looked at what was happening and what had happened in previous adjustments. And our view was that there was somewhere ... the adjustment would be somewhere between 20, 25, 30%, perhaps, but not at the scale that-----
Michael McGrath (Cork South Central, Fianna Fail)
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And when did you believe that an adjustment of that order was inevitable or became likely? Like in the second half of '06 when prices probably peaked and begun to turn, did you believe then that there was going to be a contraction in prices?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. Can I ask you about the establishment of NAMA? And, as you know, it was announced first of all by the then Minister, Brian Lenihan, in April 2009, but the legislation was not signed into law until November of that year, so there was a delay because of the legislative process that had to be gone through. So can I ask in the interim phase, can you describe the impact on the relationship that you would have had with your existing banks at that time, the impact on the impending establishment of NAMA, and the prospective transfer of your loans across to NAMA? And did that time lag have any particular effects on your business during that time? And, of course, it came at a time when property values were collapsing.
Mr. Joe O'Reilly:
Well, it was a time of uncertainty and I suppose the reality was that we had ... you know, fortunately, we had ... a majority or a substantial part of our portfolio was income producing. So ... and while there was certainly a lot of strains in the market, we continued to asset manage that portfolio and we continued to ... you know, I suppose that our focus changed from doing anything in terms of continuing on with the development to consolidating. And that consolidating, as I say, in relation to our commercial side, we just continued to asset manage and drive the business from that point of view. And we were very successful. In relation to our residential, we set in track a process of trying to finish off everything we could, bearing in mind that money was tight then, and we wanted to ensure that our developments were left in a state that-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay.
Michael McGrath (Cork South Central, Fianna Fail)
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Can you just clarify the group structure for me? So Chartered Land is 100% owned by yourself, and Castlethorn Construction you share with two co-investors. And then is there a parent company? And are they all sitting in the one group? Can you just explain the group structure, please?
Michael McGrath (Cork South Central, Fianna Fail)
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So no legal relationship between the two entities whatsoever? So there isn't a group structure around either entity?
Michael McGrath (Cork South Central, Fianna Fail)
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Stand-alone company?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, within the Castlethorn Group?
Michael McGrath (Cork South Central, Fianna Fail)
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And would you have formed a new corporate entity for each development, for example?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. And ... and just to clarify the ... the total value of par debt attributable to your ownership interests, as you put it, was €2 billion at the end of September 2008. So is that 100% of the Chartered Land debt and your share of the Castlethorn debt?
Michael McGrath (Cork South Central, Fianna Fail)
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Is that what it is?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, and does it include personal borrowings as well then?
Michael McGrath (Cork South Central, Fianna Fail)
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It does. So the par value of what went across to NAMA which was attributable to you-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, if you included the ... the ... the share of your co-investors in Castlethorn, it would have been somewhat higher then?
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. And when you say that €600 million has been paid back to NAMA, you're not talking about cash flow generated there which NAMA has kept from a rent roll, for example, you're talking about actual paying back of debt. Just to clarify.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, so about €400 million is ... is reducing the actual principal balance of the debt-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----and about 250 is cash flow generated-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----which would then be retained by NAMA by not offset against the loan balance. Okay and the €400 million is going against the €2 billion-----
Michael McGrath (Cork South Central, Fianna Fail)
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-----not the greater amount which includes your co-investors. Just to clarify that. You dealt with a number of different banks. Chartered Land was heavily dependent on Anglo for 65% of its borrowings. Castlethorn to a lesser extent, 25%, I think Ulster, you say, was the lead lender to Castlethorn. What differences were there, in broad terms, between the different banks and their approach to lending? Why would Chartered Land, you know, have been so dependent on Anglo? Two thirds of your borrowings with one bank - albeit a specialist property bank.
Mr. Joe O'Reilly:
Well, I think that's it, it was a specialist property bank. I think ... we had dealt with ...we'd dealt with Anglo from ... I ... and, again, I'm subject to correction on this but in a small scale in the mid-'90s ... on our ... and the business with them would have grown somewhat. But what was ... what was ... the main reason for ... for ... that the level of business that we did with ... with Anglo was just based on the fact that they understood our business model, they understood exactly what we were ... what were about in terms of retail and that came about by ... you know, that didn't happen overnight. It ... it ... it-----
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. And was their loan approval process as rigorous as the other banks?
Michael McGrath (Cork South Central, Fianna Fail)
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And how long typically would it have taken before you'd get approval in principle or ... or a ... a verbal assurance that the bank would be interested in supporting a project?
Mr. Joe O'Reilly:
Well that ... that ... that varied and ... well, for instance, in the case of Dundrum, Anglo weren't ... didn't or wouldn't ... didn't have the capacity to do that on their own. So, certainly, we would have gleaned from them that they were positively disposed towards what we were ... what we were ... what our business strategy was but it was very much dependent on bringing in other banks. So, I mean, at the end of the day the reality of it is, it only became a reality ... or it only became well ... again ... it only became a reality when all of the banks and all of the funding that we required was ... was available.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay, thank you. Thanks, Chair.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you very much. I just want to deal with one final question and then we'll start wrapping up with you, Mr. O'Reilly, and if ... that's if the leads are ... inviting to come back in ... I'll actually close in that case.
Mr. O'Reilly, the ... in the second last paragraph on page 3 of your witness statement you say that in future developers ... and I'll then revert to your quote, it's just a short line so ... it says that "in future [developers must] ask [sorry] act with greater prudence, responding to market demand with product that is economically sustainable." What changes, if any, would you propose to make your business model to make more economically sustainable compared to the model in place during the pre-crisis period?
Ciarán Lynch (Cork South Central, Labour)
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Sorry, I'm just maybe away from the mic. In the second last paragraph, on page 3 of your witness statement, you say that in future developers must ask ... must act with greater prudence, responding to market demand, with product that is economically sustainable. So what changes, if any, would you propose to make your business model to make it more economically sustainable compared to the model in place during the pre-crisis period?
Mr. Joe O'Reilly:
I suppose that what I'm referring to there is a general comment, it's not just specific to ourselves. What I'm referring to there is that any business is only as good as the ... understanding the market, and in order to understand the market, you have to have done your research. And that research then forms the basis of what your business model will be. So I think what I'm referring to there is that there's no point in building shopping centres where the demand isn't required. There's no point in building houses where they're not required. So, you know, I suppose I'm being a little bit arrogant there in the sense of saying, well listen, our business model has always been based in Dublin, it's where we .. where it's the largest population, and it's along that lines, yes.
Ciarán Lynch (Cork South Central, Labour)
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Okay, thank you very much. I'm going to bring matters to a close, Mr. Reilly. In doing so, I just propose that we will suspend for a few moments then just to go into a private session to attend to one single item after this. In that regard, is there anything you'd like to say by means of closing comment or statement, or remarks, Mr. O'Reilly?
Mr. Joe O'Reilly:
No, I think I'm ... thank you for listening today. I think the only comment I would make is that, look it, there is going to be ... there is a requirement for change and I think this particular Government, and certain aspects that they're looking at, will hopefully help ensure that this doesn't happen going forward. I think there is a big demand for housing going forward, there's a big demand for offices going forward. The level of finance that's going to be required for them is enormous given the ... given where we find our banks today. So, for instance, if you look at, if you take it that I think the report at the moment is that we need about 30,000 houses. If you take it just as a general figure, that's ... that requires ... say the building costs of a typical house is €300,000, that's a requirement of €9 billion. And that's only for the financing, there's mortgages required for that, so even at, you know, an 80% LTV against that, it's just a phenomenal figure. So, again, I think the issues surrounding how we resolve the ... where we find the industry today is not going to be easy to resolve.
Ciarán Lynch (Cork South Central, Labour)
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Okay. Thank you very much, Mr. O'Reilly. With that said, I'd like to thank you for your participation this evening, with the inquiry and your engagement with it, and your co-operation as well in regard to our time management of our engagement with you today. With that said, the witness is now excused.
So I'm proposing a five-minute very, very short break.