Notes on the Front

If what the Sunday Business Post claim is true, the Government has committed a profound breach of trust with the Irish people – a breach which should be urgently investigated by the appropriate Dail Committee. 

The SBP’s front page article on November 17th – ‘Revealed:  Secret Deal to Spin Budget’ (behind a paywall) –  claimed to have had sight of a secret memorandum which

‘ . . . reveals that the coalition agreed a communication strategy with the troika to present different accounts of the budget to different audiences . . . a nine-point communications plan was agreed by both sides which emphasised their agreement  . . .’

Apparently, the plan, which was laid out one week before the budget, was to present the budget to the Irish people as a €2.5 million adjustment while at the same time telling everyone else outside the country that the adjustment was in fact €3.1 billion.   In any other country there would be outrage at a deliberate attempt to mislead – whether it was to a domestic or international audience.  I know this, had a Chief Financial Officer presented different company accounts to creditors and shareholders he or she would be cleaning out their desk by noon if not becoming the subject of a legal investigation.

This explains the fudge over the adjustment in Budget 2014.  I highlighted the potential for this in a post before the budget.  However, the SBP shows that this fudge went beyond providing cover for the Labour Party (who was publicly demanding a lower adjustment figure) or part of a general pattern that started with this Government – where there is considerable evidence that there has been more public spending cuts than the Government has owned up to. 

If the SBP story is true, it reveals a deliberate plan to mislead – a plan carried out with troika participation.

It has been extremely difficult to ascertain the actual level of adjustment in Budget 2014 (an example of this is when the HSE claimed the budget imposed cuts of €1 billion on the health sector, even though the Government claimed it was €666 million).  The Government publicly claimed the adjustment was €2.5 billion but in the Economic and Fiscal Outlook they refer to ‘additional resources and savings’ of €600 million which are not detailed. However, the Fiscal Advisory Council refers to these ‘savings’ as ‘temporary and once-off’ – which means that, in truth, this can’t be sold as part of fiscal consolidation package of €3.1 billion (you don’t consolidate a temporary measure). 

The SBP article claims that the secret memorandum outlines the ‘additional savings’: 

• Special dividends of €250 million
• NTMA savings of €250 million
• Disposal of State Assets:  €150 million
• Central Bank surplus of €20 million
• Live Register savings:  €150 million

The memorandum goes on to state a further €80 million in measures need to be found.

A question arises as to what ‘savings’ are permanent and what are temporary.  A temporary savings (e.g. sale of a state asset) will not be repeated in subsequent years; you can only sell the family silver once.  This is a crucial issue when it comes to potential creditors:  Selling a message that you’re cleaning up your balance sheet when in fact you’re just giving it a temporary varnish, is clearly an attempt to deceive. 

Why is this important?  If you suspect that someone is rigging the books or presenting alternative versions of them, trust is broken and you are less likely to lend.  If international creditors have no confidence in the national accountancy then there is plenty of other sovereign debt they can invest in. 

Therefore, whether it is a breach of trust with the domestic audience or reputational damage to the international markets, the appropriate Dail Committee should investigate immediately.   It should demand and publish all documents, memos, circulars and communications relevant not only to the presentation of the budget, but the actual accountancy itself.  How much consolidation was there?  How much above the line and how much below?  How was it decided to present the different versions of the budget?  Who decided and with whom?  On the way, the Committee could extend its investigation to past budgets where the Government claimed it was cutting less than what the budget documents indicated. 

If the Dail and its committees are to be relevant, then holding the Executive to account, ensuring that people have the full information is certainly a primary task.  In addition, the Irish Fiscal Advisory Council may also wish to investigate this matter for they should be concerned at both the integrity and the reputation of our budgetary accounts.

Hopefully honesty, integrity and accountability haven’t gone so far out of fashion that this will just be shrugged off as the ‘way things are done’.