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The story of the first ‘Bórd Snip’

Seán Cromien*

IntroductionToC

A serious economic and financial crisis has developed in recent years in the Republic of Ireland, leading to declining economic growth and rising unemployment. This has been part of a world-wide recession which has affected many other countries, including those who are Ireland’s trading partners. The crisis has led to much discussion and argument in the Irish media about what should be done with the resulting problems and, in particular, how to get activity going again. Inevitably, contradictory proposals have been made. It is perhaps timely to be reminded of the way in which similar problems of the nineteen eighties were solved in this country. The first step to solve them was taken through the setting up in 1987 of what was called An Bórd Snip. This was established with the objective of reducing drastically the exceptionally high levels of public expenditure and borrowing which had accumulated under successive governments over the years before 1987.

It is difficult for a senior civil servant, even for one who is retired sixteen years, to discuss this without commenting on the policies of these successive governments. My excuse is that it is now a long time ago and that I can perhaps help future historians by recording these views. I should first explain my own position. Like the vast majority of senior civil servants, I am a totally non-political official, with no links to any of the political parties. I have, however, always had the greatest respect and admiration for my Ministers as persons who have done something which I have never had the courage to do, namely to go up for election in the intensely competitive circumstances of Irish politics.

Having noted this, I will turn to the origin of An Bórd Snip. This was the humorous title which emerged in the media for an official group which was formally called ‘The Expenditure Review Group’. That group was set up in May 1987 by the Fianna Fáil Government under Taoiseach Charles Haughey. As background to its setting up, Mr. Haughey sent a letter to the other Ministers about it. He didn’t mince his words in telling them that ‘any Minister who came to the Cabinet with proposals for expenditure should bring his seal of office with him (viz. to resign from office) and any Department Secretary who proposed expenditure would be sacked’. I should say that the Minister for Finance was Ray MacSharry who carried the burden of handling the expenditure cuts in the Cabinet and in Dáil Éireann. In later years he recorded his views on many issues in the The Making of the Celtic Tiger1 which describes inter alia the operations of An Bórd Snip from his point of view.

I was asked by the Taoiseach to chair the group that had three other members. Two were colleagues in the Department of Finance, Kevin Murphy who was in charge of manpower and pay across the public service, and Bob Curran who was in charge of the Division that controlled the expenditure of all departments. Along with these two persons from inside the civil service, we had the very valuable assistance of Colm McCarthy who was then attached to the economic consultancy DKM. I already knew Colm and thought that his outspoken style would be a very useful addition to the team.

The processToC

The arrangement was that each Secretary of a Government Department was to be called to the Department of Finance with his senior colleagues and we were to examine each item in his Vote (i.e. the financial allocations as ‘voted’ to departments by the Dáil). When Mr Haughey was briefing me about what he wanted from the reviews, he authorized me to tell each Secretary that this exercise was different from all previous ones. They were expected to come up with their personal proposals for abolishing schemes and, if their Minister had doubts, their proposals were still to be put to the Cabinet, where the Minister could give his personal views. This was a very valuable weapon, which I used fully in the negotiations with other Departments.

The procedure in which we adopted for the reviews was as follows. The staff in the Public Expenditure Division of the Department of Finance who dealt with a particular Department, say Environment, would draw up a list of areas in that Department’s vote where, in their view, schemes could be ended or funding reduced. The list was sent by Finance to the other Department in good time to allow them to consider the response in which they were going to make at the forthcoming meeting between our group and their Secretary.

I should mention that I took considerable pains to ensure that these meetings were held in a congenial atmosphere. I tried to help the effectiveness of the reviews by phoning each Secretary beforehand. I was concerned to eliminate any unnecessary tension or hostility so that we could concentrate on the actual business of the meeting. I described the way I proposed to handle the meeting and emphasised that it was all low-key and not meant to be confrontational. With one exception, all the meetings followed that pattern. At this one meeting, the visiting Secretary and one of my colleagues became involved in a strong exchange of views. They didn’t come to blows!

I made a point of inspecting the conference room beforehand and looking at the seating arrangements. It was a very large room and I almost invariably found that someone had unimaginatively set the tables in such a way that there was an enormous space between us and the visitors so that we would have to bellow across this space to communicate. I also arranged for coffee and biscuits to be served early in the proceedings. This caused amusement and jokes about the unexpected generosity and indeed self-indulgence of the Department of Finance!

I found that almost all my colleagues tried to respond positively. After these meetings, we in Finance prepared a Memorandum for the Government which set out in Section 1 the proposals which the Secretary of the other Department and myself had agreed on, the amount of money saved and the legislative changes, if any, needed to implement our decision. Section 2 was to list the proposals thatFinance wanted but the other Secretary would not accept. I had instructions from the Taoiseach that the explanations in this Section were not to include the political implications of dropping or curtailing a scheme. These were to be left to their Minister to deal with at the Government meeting. I should say that these Memoranda were submitted exceptionally in the name of the Department of Finance. They would normally be in the name of the Minister for Finance.

The whole success or failure of the expenditure review process depended on what happened at the Government meeting at which the first of these Memoranda was considered. Here Mr. Haughey’s tactical skill and his dominance of his Cabinet colleagues illustrated how a strong-minded politician can achieve dramatic results. I was not present at any of the meetings at which these Memoranda were considered but the proceedings of this first meeting were so remarkable that they became part of civil- service folklore and, indeed, probably part of political folklore. As it happened, the Secretary of the Department involved - it is not necessary for me to name it - had agreed substantial cuts with me in seven or eight headings of his Vote but, on the following day, he phoned me apologetically to say that his Minister had overruled him and he was to show only two small items as having been agreed between us. What happened at the Government meeting, I gathered, was that Mr. Haughey savaged the Minister concerned for intervening in the process and threatened to take his seal of office from him.. He also got the Government to approve almost all the cuts which Finance had proposed, an outcome which delighted us.

ReactionsToC

The upshot was amusing. Next day I was talking to the Secretary of a different Department about the meeting and he told me how his Minister had reacted. He had come rushing back from the Government meeting and said to him in rather crude language: “For Christ’s sake don’t let that list go to Finance yet. The climate has changed completely. He’s serious this time. Bring it in and let me see it again”. When he did, the subdued Minister said to him: “Give Finance that and that and that”. Shortly after this, I met Brian Lenihan, then Tánaiste and Minister for Foreign Affairs, and he began bantering with me, telling me that there was a new word at the Cabinet meeting to describe what I was doing to public expenditure – ‘Cromienisation’. He claimed also that Ray MacSharry and myself resembled each other physically, being tall and lean. He added, using what I assume is a country phrase to denote praise: “Both of you in fact are mean-looking hoors”.

Genesis of financial crisisToC

Perhaps I should pause here to talk about how Ireland’s public expenditure and borrowing problems had arisen.. I think they can be traced to a decision made in good faith by the late George Colley, Minister for Finance, in his Budget of 19722 when the Fianna Fáil Government was in power and Jack Lynch was Taoiseach. The Minister decided that it was acceptable to depart from what had been the practice of every Government since 1922 of balancing the Current Budget, in other words, increasing taxes by the amount by which current expenditure was being increased. The Capital Budget was, of course, financed in the main by borrowing. In 1972 George Colley decided to provide a very small deficit of £28.00 million on current account. This figure was small but, ten years later, it amounted to over £1,000 million.

There was some support in economic theory for the idea of deficit financing because what was deemed significant was the immediate effect on the economy rather than whether the borrowing was for current or capital purposes. What were ignored were the political implications. Once the discipline of having to increase taxes in order to increase current expenditure was breached, later governments of different persuasions were provided with a useful precedent which proved too much of a temptation for them. Besides, the reality which faces all governments is that it is very difficult to reduce current expenditure once it is raised to a new level. Capital costs can be more easily controlled. Particular projects come to an end, and a stop can be put on new building or the phasing of a programme can be altered.. With current expenditure, which by definition is almost always continuous, it is very difficult to make savings because it means reducing public service numbers or pay or reducing or completely terminating schemes. These schemes are frequently the ones on which large sections of the public have come to depend.

The Fianna Fáil Government of 1969-1973 was succeeded by the Fine Gael/Labour Coalition which took office in March 1973. The Ministers of that Government were inexperienced and public expenditure was greatly increased, particularly on social welfare. This was no doubt much needed but in older days would have been funded by taxation instead of borrowing. Government borrowing rose to phenomenal proportions, reaching 16% of GNP at one point. It was only the fact that the Fine Gael Minister for Finance, Richie Ryan, forced the Government in the later years of the Coalition to take action to reduce borrowing that the trend was temporarily reversed. He succeeded in his 1977 Budget in bringing the Exchequer borrowing down to 10.5% of GNP. He announced also that the Government were committed to reducing it further to 8.5% of GNP in 1978.

However that Government were defeated in the subsequent general election of June 1977 and Jack Lynch came into office on the basis of the famous 1977 manifesto3. This was very attractive to voters because it proposed the removal of motor tax and local authority rates. It went on to assure voters that, on the grounds of sound economic theory, it was legitimate to increase Government borrowing greatly to 13% of GNP because this would stimulate the economy. In turn it would put more people to work and thereby bring in more tax revenue, which would lead eventually to a significant reduction in Government borrowing. This comforting message was based on a misunderstanding of the Irish economy which was small and open and, if the Government gave people money to spend to stimulate activity, they were likely to spend it on buying foreign cars or television sets made abroad or to go on foreign holidays. These activities gave little stimulus to the Irish economy as such.

I have already mentioned Ray MacSharry’s contributions to The Making of the Celtic Tiger’. He is critical of the 1977 manifesto which he describes as ‘ill-fated’. He explains: “One of the problems …was that all the benefits were front-loaded, and the pay-back never came. Tax cuts were delivered in anticipation of pay moderation rather than in response to it”4. Later he says: “In politics, as in life, Murphy’s Law - where the unexpected always happens - tends to prevail. And, unfortunately, the flaw in the 1977 Manifesto was that the economic blueprint erred on the side of optimism and provided for no such economic contingencies”.

In the general election of June1981, Garret FitzGerald, Leader of Fine Gael, emphasised the dangers implicit in the size of the Government borrowing and the need to take unpalatable action to deal with it. I recall a newspaper report of a Fianna Fáil candidate seeking re-election who said - as he described it in words not quite politically correct - that he was going to doors and finding ‘ould wans’ asking everywhere about the Government Borrowing Requirement”. ‘Fiscal rectitude’ had almost become a popular slogan.

There followed a confused period in which the Fine Gael/Labour Coalition which came into office in July 1981 lasted only until March 1982. They were replaced by Fianna Fáil whose administration lasted only until December 1982 when the Coalition returned to power, remaining in office until March 1987. Progress was made in reducing excessive borrowing, especially in the early years of the Coalition but, because of a reluctance to accept cuts in expenditure, the emphasis was put on increases in taxation. The resultant heavy burden of taxation on individuals and companies became itself part of the problem.

Reversing the trendToC

In 1987 Charles Haughey came into office again in a very unstable minority government. Fianna Fáil in opposition had opposed any attempts to reduce expenditure. In the general election, they had campaigned under the slogan “Expenditure Cuts Hurt the Sick, the Poor and the Elderly”. They seemed to rely on the discredited policy put forward in the 1977 Manifesto of improving Government finances by stimulating economic activity. In 1986 a large flight of capital out of the country had taken place because Irish and foreign investors believed that the Government in office had become unpopular because of their policy of high taxation and it seemed improbable that the alternative Government of Fianna Fáil would face up to taking the required unpleasant action to deal with the problems which the country faced.. In addition to the flight of capital, interest rates were high – they had risen differentially compared with those of our fellow members of the European Community. There was talk of calling in the International Monetary Fund.

The new Government under Mr. Haughey surprised everyone by doing a U-turn, probably one of the most famous in Irish political history. He decided to face the problems of excessive public expenditure and borrowing head on, a policy reflected in the Budget of 19875. My understanding is that he took advice from the very successful businessman, Dermot Desmond, just before the election about how the economy could be got on its feet again and business confidence restored. Desmond bluntly recommended that, if he wanted to restore confidence and bring interest rates down, he should cut public expenditure dramatically by £1,000 million..

Mr. Haughey, as I have said, was head of a minority Government in the Dáil. He required the support, or at least the abstention, of another party to obtain legislative approval for the often unpalatable measures he had to propose. On the Opposition benches Garret FitzGerald had resigned as leader of Fine Gael and had been succeeded by Alan Dukes. Dukes had been Minister for Finance in the preceding Government for almost four years and was very much aware of the Exchequer’s problems. He rose to the occasion. He realised that, with the Fianna Fáil Government proposing expenditure cuts which Fine Gael had already put forward, an unprecedented opportunity had presented itself for a bipartisan approach by the two biggest parties in the Dáil, an approach which would allow the country’s very serious problems to be tackled effectively. He introduced what was called the ‘Tallaght Strategy’. This was enunciated in an address which he gave to the Tallaght Chamber of Commerce in County Dublin on 2 September 19876. I should add that, speaking on RTE on the night of the general election, Garret FitzGerald had pledged that Fine Gael would support the incoming Government if it were to pursue policies similar to those in the Fine Gael election manifesto.

Alan Dukes, along with Charles Haughey and Ray MacSharry, shares in the credit for the remarkable improvement in the public finances which resulted. It is a personal tragedy for him that the Tallaght Strategy, which he persuaded his party to support as being necessary in the public interest, did not pay dividends for him as party leader. Indeed the reverse happened. His party won a few extra seats in the subsequent general election of June1989 and he was replaced by John Bruton as party leader.

ConclusionToC

Returning to An Bórd Snip, I should say that the reaction of the other Ministers to Mr. Haughey’s clear indication of what he wanted from the expenditure reviews greatly helped my task. And, by the end of the reviews, we had got approval for the most dramatic cuts in public expenditure which any Government had ever undertaken. They amounted to almost £500.00 million. They continued in 1988 and, between 1986 and 1989, public expenditure as a percentage of GNP in Ireland fell by 11%, from 48% to 37%. With the closing down or amalgamation of state agencies, many persons became redundant and 10,000 persons took advantage of a voluntary redundancy scheme at a cost to the state of £130.00 million.. The improvement in the public finances prepared the ground for the emergence of the Celtic Tiger which could not have happened if the Exchequer problems had persisted.

ReferencesToC

    References
  1. Ray MacSharry and Padraic White, The Making of the Celtic Tiger, The Inside Story of Ireland’s Boom Economy, Cork: Mercier Press, 2000.
  2. Financial Statement, Budget 1972, Dáil Debates, vol. 260, cols. 545-580, 19 April 1972 Manifesto 1977, Action Plan for National Reconstruction. p.49.
  3. 5Financial Statement, Budget 1987, Dáil Debates, vol.371, cols.777-802, 31 March 1987. Irish Times, 3 September 1987.