The EU and IMF are ‘deeply unimpressed’ with Irish public sector pay levels

The EU and the IMF are reported to be ‘deeply unimpressed’ at the disparity with counterparts elsewhere.

The salary structures at NTMA remained a deep and profound secret since it was established 21 years ago until details were disclosed to the Public Accounts Committee on 7 January 2011 - after exhaustive probing. No less than six secretaries-general of the Department of Finance tolerated this secrecy despite it conflicting with their own Code of Practice for the Governance of State Bodies.

These revealed that:

1. The chief executive of NTMA is paid a basic salary €490,000, with provision for a bonus of up to 80% of salary, bringing potential annual remuneration to €882,000 (51 times the Irish minimum wage). The incumbent and his predecessor is the beneficiary of non-standard enhanced pension arrangements.
   
2. The chief executive of NAMA is paid €430,000 with provision for a bonus of up to 60% of salary bringing potential annual remuneration to €688,000 – (40 times the Irish minimum wage).
   
3. The chief executive of NDFA is paid €330,000 with provision for a bonus of up to 60% of salary bringing potential annual remuneration to €528,000 (30 times the Irish minimum wage).
   
4. No less than 16 individuals are being paid more than the Taoiseach now earns - €200,000+
   
5. 103 of the 305 staff in NTMA and its offshoots are paid salaries over €100,000 so, from the perspective of the economically disadvantaged, NTMA is a goldmine that can function with clandestine opacity, immune to overall Government policy on public sector remuneration and completely insulated from trends endured by the majority of citizens.

The grading and pay rates of the  Civil Service Regulations Act 1956 may not apply to NTMA but the National Treasury Management Act 1990 does not confer any privileges with respect to secrecy or derogations from the norms of public accountability.

The salaries of chief executives of counterpart major national debt agencies in 2009, who were trawling for funding from the same sources as Ireland when our authorities raised €35 billion, were as follows:

• The Chief Executive of the Australian Office of Financial Management was paid €250,000 and no bonus to raise debt amounting to €39 billion in 2009 – (remuneration 11 times the minimum wage in Canberra).
• The Commissioner of Public Debt in the United States Bureau of Debt oversees of staff of almost 2,000 people and a departmental budget of €125 million. He was paid less than €120,000 in 2009.
  The Commissioner’s remuneration was 9 times the annualised minimum wage in Washington DC. No US Federal employee earns more than President Obama - €290,000 per annum.
• The Chief Executive of the UK Debt Management Office raised debt of €267 billion in 2009 – over 7 times the debt level raised for Ireland that year. He was paid €188,000, equivalent to 38% of the basic salary of his Irish counterpart. He did not receive a bonus. The Chief Executives remuneration was 14 times the British minimum wage.

The salaries of the chief officers of those institutions providing the resources to bailout Ireland are: President of the IMF €320,275; President of the EU Commission €293,064; President of the ECB €367,863; Permanent Secretary of HM Treasury €207,000.

Is it any wonder they are ‘deeply unimpressed’?

Irish financial regulation–two contrasting perspectives

Two contrasting perspectives have been offered on Irish banking regulation in the past week. A Blueprint for Ireland’s Recovery was the culmination of several months dialogue among 17 ‘Influential Persons’ that included several former board members of AIB and Bank of Ireland prior to the onset of the September 2008 financial crisis and the massive commitment of resources to bailout these banks. They argue that what Ireland needs is ‘an appropriate and proportionate regulatory environment’ but ‘we’ must ensure that ‘over regulation is not a deterrent to foreign direct investment’.

The Moriarty Tribunal Report published on 22 March makes recommendations with respect to banking regulation. It states that most of the information upon which the Central Bank, as regulator, should have acted was available to the Bank, or ought, on reasonable enquiry, to have been available to it when it supervised Guinness & Mahon.

The Moriarty Tribunal investigated  Guinness & Mahon in connection with off-shore subsidiaries in the Cayman Islands and the Channel Islands from 1976 to 1982. It was concerned with Central Bank’s concern that Guinness & Mahon was operating a tax avoidance scheme that was tantamount to facilitating tax evasion. Following special investigation by the Revenue Commissioners, prompted by the Tribunal investigation, the Ansbacher scandal subsequently yielded a cumulative €107.3 million in tax and penalty payments from 139 taxpayers by the end of 2009.

Moriarty states that the reason the Central Bank did not act was a culture ‘characterised by a marked degree of unwarranted institutional and regulatory timidity on its part and by a high degree of unacceptable commercial defiance’, on the part of those subject to regulation. Allied to these considerations and underlying these attitudes and approaches was the conviction and culture of all concerned that the attachment of publicity to improper banking behaviour , or the generation of controversy in respect of banking practices and banking standards in Ireland, might lead to the undermining of the Irish banking system. It was not that the Central Bank at the time lacked any requisite power to enable it to suppress the shamelessly improper operation of the Ansbacher accounts, but rather that it failed to use its ample regulatory powers.

The function of the regulator is the ‘regulate’ and the balance had swung toward under rather than over regulation. Strong action, not amounting to over regulation, on the part of the regulators, should be valued as a key element rather than a retardant, in the promotion of a healthy financial sector. It is extremely difficult to frame recommendations where what is proposed is a change of attitudes on the part of the relevant authorities and indeed in the overall commercial culture in which those authorities are bound to act. As recent events have shown, regulation if the key to the survival of the banking sector, so vital to the national economy

A culture where forthright regulation is valued, not merely at a time of financial stringency, but at a time when it might be thought to be an unnecessary brake on commercial activity.  Such a change can of attitude can best be encouraged by increased vigilance on the part of elected representatives.  These issues were addressed in the Tribunals first report published in December 2006 – but without apparent consequence, according to Moriarty.

The Messiah’s Message from the political orphans

So 17 self-righteous messiahs, many of whom clung with a vice-like grip to the skirt hems of the Haughey, Ahern and Cowen administrations, have formed themselves into a rump to ‘advise’ the new Government on creating jobs, reforming the public sector, rebuilding international confidence and re-engineering the banking system. Economic salvation can be achieved, they argue in A Blueprint for Ireland’s Recovery, through manufacturing, tourism, agriculture, life sciences and ICT.

No vested interest, apart from their own, is ignored to flatter their dreams and aspirations. Is it not inspiring to observe individuals’, some of quite moderate ability, but who were cute and wily enough in taking care of their personal interests, to earn humongous sums, from the public purse in many instances, to focus their ‘advice’ on the mutilation of the public sector and the ‘reform’ of the welfare system?  Does this blueprint also mean that tax exiles are now purporting to advise on economic recovery?

‘To restore confidence and Ireland’s reputation, an investor relations strategy should be developed to attract overseas investment. Among the targets suggested, is that 20% of FDI should be sourced in South East Asia by 2015’. Are they aware of Horizon 2020, of did they see no reference in it when they regularly read the The Beano, The Dandy and The Hotspur?

Personal banking trends in Ireland

The amount of consumer credit outstanding in Ireland at the end of January 2011 was €18,609 million which has declined from €23,711 million a year earlier. Of this €2,722 million (15%) is attributable to personal credit cards held by 2,068,000 personal credit card holders.

Among those with current credit card/store card debts the amount owed varies considerably. One-fifth of households with such debt owe less than €571, a further fifth owe between €571 and €1,400, while 10% of these households owe more than €5,700 on their credit card. Approximately 56% of Irish households had a credit card in 2008 compared to 26.1% in 1995.

According to a recently published by the ESRI study ‘Financial Exclusion and Over-indebtedness in Irish Households’, 20% of Irish households in 2008 did not have a bank current account – that is over 290,000 households. 31% of households do not have any form of credit so the €18,609 million is actually spread among 1,008,000 households the average debt burden with an average burden per household of €18,440 (excluding mortgage debt)

This number without a bank account includes 36% of those ‘at risk of poverty’ and 60% of those ‘living in consistently poor households’. The preference for dealing exclusively in cash is most prevalent among those in the older age group, those with no educational qualifications and those in the bottom income quartile.

The survey also found in the case of households did not have any form of credit. 63% of these did not need to borrow; 22% did not have credit because they could not repay debt; 7% borrowed from family or friends and did not need commercial debt and a further 7% believed that they would not be granted a loan.

Deposits held by Irish households in January 2011 amounted to €93,957 million representing 56% of total Irish private sector deposits.

Public Outrage at Bank of Ireland extravagant bonuses

Last Saturday I spent a pleasant few hours with fellow hill walkers strolling along the 14KM stretch along the banks of the River Dodder. The controversial topic of Bank of Ireland bonus payments got an airing. These men and women of the world walking with me were aghast at what emerged in a Department of Finance Report on the matter as this Bank gave the Irish public the V sign.

A parliamentary question sought information in November 2010 on bonus payments to staff made by banks since the commencement of the Irish Government guarantee in September 2008. The Bank of Ireland advised the Department of Finance that “no performance-related bonuses were paid with respect to the financial year to March 2009 and December 2009”.

The statement added “a small number of people at middle management level received payments which reflected either guarantees which were agreed on their joining the Group or deferred payments where the historic performance criteria had been achieved and the payment was deferred over several years. For commercial reasons Bank of Ireland do not disclose the amount of such payments. The Bank advises that it had not legal discretion in these matters”

The loss at Bank of Ireland for the 9 months ended 31 December 2009 had risen to €1,813 million compared to €23 million for the year ended 31 March 2008. Impairment charges in this period reached €4,055 million compared to €1,435 in the year ended 31 March 2009. The Irish Government was forced to invest €3.5 billion in preference stock so as to bolster its capital base.

It transpired that the information provided by Bank of Ireland was incorrect and that bonus and quasi bonus payments from September 2008 to December 2010 amounted to a staggering €66.37 million – all linked to performance.

A patina of legal legitimacy is not an indication that any transaction is ethical, moral or affordable.

The hill walkers are utterly mesmerised that Bank of Ireland could be so utterly undermined in the Bank by duplicity, betrayal, self-serving slovenliness and skulduggery. These characteristics are evident not just in grotesque scale of bonus payments, which the Bank (and the public) cannot afford and untruthful answers to parliamentary questions, but there is now also evidence of incomplete and misleading information in the due diligence process prior to the public subscription for shares, in the attempted enhancement of the Group Chief Executives pension terms last year and the tardiness by the Bank in relation to the subsequent impeded and delayed investigation into the November 2010 misrepresentations to Dáil Éireann.

1. These bonuses, especially in the prevailing circumstances, amount to the barefaced looting of society – on a scale commonly seen in Russia, Africa and Asia.
   
2. The explanation that bonuses are ‘open to different interpretations’ and the comment by Arthur Cox that Bank of Ireland “used a restrictive and uncommon interpretation of what constituted a performance bonus” describes a crazy mentality of a type not untypical of occupants of padded cells in a lunatic asylum, whose capacity to communicate in vernacular English is very limited; who have ‘no intention to mislead’ and are likely to recognise this in lucid moments to avoid personal embarrassment.
3. The implication that the Irish people, who have been fleeced of €3.5 billion by Bank of Ireland, can now be bought for €2 million paid by Bank of Ireland to the Exchequer ‘to recognise the difficulties cased by the way the Bank handled the matter’  will simply  create a veneer of indulgence and camouflage to enable them to be further fleeced of, not just €66.37 million, but an additional €21 million in respect of bonuses and commissions in 2011 and other amounts in 2012 is outrageous and abominable.
4. The suggestion that any future parliamentary questions in relation to personnel or other important matters be authorised by the Group Chief Executive beggars belief on grounds of credibility. The Report indicates that overall payments totalling €1.2 million were not disclosed in the due diligence process prior to the public bailout.
5. The Sunday Tribune on 30 January 2011 that the Group Chief Executive of Bank of Ireland directly intervened with the planning authorities in October 2007 in connection with the proposed Sean Dunne development that would have cloned Jurys/Berkeley Court Ballsbridge hotel sites with Calcutta, had it been heeded?

The text of the letter from Richie Boucher to Dublin City Council planning authorities read:

“Dear Sir

Re Jurys / Berkeley Court Site

I refer to the above and write to confirm my strong support for this landmark proposal which I believe will significantly benefit the City of Dublin and its citizens through helping enhance the concept of a living city and providing buildings of significant architectural merit befitting Ireland of the 21^st century. Yours faithfully, Richie Boucher, Chief Executive Retail Financial Services Ireland.”

Dublin City Council granted partial permission for the Ballsbridge development but it disallowed Dunne’s application to build a 37-floor skyscraper.

Irish Department of Finance shortcomings highlighted

When Ireland became enveloped in an unprecedented financial crisis in 2008 it became clear that it had failed the test of prudent financial management,, which in turn, can provide a greater capacity to manage unanticipated outcomes.

Budgetary processes lacked coherence and ministerial accountability to the Oireachtas was weak throughout the previous decade. A lack of transparency was characterised by the absence of adequate information and analysis from the Department of Finance for the purpose of public debate and consultation.

An independent Review, published on 1 March, of the effectiveness of the 542-person Department of Finance is highly critical and portrays a Department as buckling under the reckless dominance and feckless political incompetence of Finance Ministers’ McCreevy and Cowen and Bertie Ahern Government. The Review also cites the invasiveness of political agendas including the PD-FF coalition Programmes for Government and the diabolical social partnerships which allowed lobbyists and their chaplain run riot with their unsustainable wage demands.

The Review covers the period this Department was in the charge of Secretaries-General , Hurley (March 2000 to March 2002 who subsequently became Governor of the Central Bank ), Considine (March 2002 to June 2006, now a public interest director of Bank of Ireland) and Doyle (June 2006 to January 2010), who ought to have demonstrated stronger leadership and done more to avoid the collapse of the Irish economy.

The currency devaluation of 1992 and the emergence of the Single European Market enabled Ireland surge ahead economically; experience strong investment and export growth until 2000. Thereafter a property boom took hold powered by low interest rates and cheap credit, much of it sourced outside Ireland. When the property bubble inflated in 2003 in some years more than 80% of annual incremental credit growth went to fund house purchase, construction and property speculation.

The property bubble collapsed in mid 2007 and Government revenue fell by 21% by 2009 but spending on social welfare soared as unemployment grew rapidly. In 2009 the deficit was 14.4% of GDP and last year this rose to 32% of GDP after taking account of emergency assistance to Irish banks.

The Review focused on:

The Department’s advice on the risk of pro-cyclical policy

Their repose to the overheating of the property sector

The nature of the Department’s advice on the vulnerability of the Irish tax system to an economic downturn.

The Review states that the Department of Finance

• Does not have the critical mass in areas where technical economic skills are required. There are 39 economists in the Department of Finance, less than 10% of the total staff complement. Approximately 60% of the Canadian counterpart to the Department of Finance are economists while 40% of the staff in the core areas of the Dutch counterpart are trained to a Masters, or higher level.
  
• Has too many generalists in positions requiring technical economic and other skills
  
• It is more number-driven than strategic as evidenced by its failure to set out options to moderate activity in the construction sector, including the introduction of 100% residential mortgages.
  
• Does not have sufficient engagement with the wider economic community in Ireland
  
• Operates in silos with limited information sharing
  
• Is poorly structured in a number of areas, including senior management and there is insufficient attention given to performance management, skill shortages and reporting structures at senior and middle-management levels. The Review comments ‘that as in any organisation there are some who conspicuously underperform causing serious morale issues.
  
• Is poor on human resources. Assistant Secretaries do not report to the Secretary-General reporting instead to a Second Secretary General. The review recommends that Second Secretaries-General do not manage large divisions and provide more strategic support.

While officials provided oral advice to the Government on Budgetary Policy in June of each year on the risks of a pro-cyclical fiscal stance the advice was not heeded and spending provisions in the subsequent December Budget in 2001, 2006, 2006 and 2007 was especially higher. This poor budgetary process obscured ministerial and Government accountability to the Oireachtas. Spending marched to the beat of a political drum and the sabre rattling of the so-called social partners.

The review recommends

1. The creation of a meaningful consultation period seeking broad feedback
2. Releasing Departmental analysis to the public debate
3. Providing for third party validation of Department of Finance analysis through an independent Fiscal Council
4. Greater emphasis on a formal written record rather than oral briefings to Ministers for Finance

The Department of Finance must now remake itself through changes in structure, professional capacity and internal working methods. There has also to be a more outward-looking attitude.