Bertie

by Colm Keena

  With regard to the country’s economic management, Ahern’s biggest decision in 1997—perhaps in his whole political career—was the appointment of Charlie McCreevy as Minister for Finance. There was a political logic to the move, in that McCreevy was close to the PDs, with whom Ahern was going into coalition, both personally and in terms of political philosophy. Moreover, Ahern appears to have come to the conclusion that the country was in the mood for centre-right politics. McCreevy was an idiosyncratic individual with strong libertarian views and, amazingly, had almost free rein for the implementation of fiscal policy. According to Pat Leahy’s book Showtime: The Inside Story of Fianna Fáil in Power (2009), which is based on extensive interviews with members of that Government and its senior advisers, Ahern was just about consulted by his Minister for Finance, while the rest of the Government was ignored. Ahern was not given to strong views on policies anyway, and the tax-cutting measures that McCreevy implemented over the following period went down well with the public and created unprecedented popularity ratings for Ahern. The boom that was taking off as Ahern came to power continued and gathered pace through his first Government. He marshalled his considerable political skills towards being given the credit, creating the impression that it was he and his Government that had brought about the transformation of Ireland.

  The taxation and spending policies McCreevy implemented were the defining elements of the first Ahern Government. Ruairí Quinn, who handed over the reins in Finance to McCreevy, had very negative views on the appropriateness of his successor’s policies and believed that McCreevy paid little heed to Ahern’s views on the matter. For Quinn, Ahern was ‘intellectually intimidated’ by McCreevy. Ahern was over-impressed by the fact that McCreevy had attended Gormanston College, a fee-paying boarding school, had gone to university (he was in the same class as Joan Burton) and was ‘a bright qualified accountant’. Ahern had gone to his local school and then went straight into the work-place after his Leaving Certificate. For Quinn, Ahern’s falsification of his CV, to say he had studied at the LSE, was evidence of ‘a big inferiority complex’ and was in sharp contrast with the attitude of Ray MacSharry, who gave the impression that he was proud of what he had achieved, given that he had finished his formal education when he left secondary school.

  McCreevy was a ‘very maverick sort of character’, Quinn said. He did what he wanted and at times didn’t even inform Ahern about what he was planning. And Ahern didn’t feel strong enough to challenge him.

  McCreevy was a Eurosceptic. He didn’t want Ireland to go into the currency union, but it was party policy and he had to go along with it. The holy grail of the single currency for me was that you get into a low-interest, low-inflation, stable currency that didn’t devalue and fluctuate. So money had to earn its keep. It was no longer profitable to put money on deposit at 10 per cent. So there was enough money coming into the economy. The banks were lending as they hadn’t done before. Interest rates dropped even before we joined. McCreevy just ignored all that, as did Bertie.

  For Quinn, the tax changes McCreevy introduced, and especially those introduced in his first budget, unbalanced this situation. An ‘avalanche’ of money began to flow into an economy that was already creating a thousand new jobs with every week that passed.

  When Quinn’s view of the freedom with which McCreevy operated was put to Micheál Martin, he didn’t necessarily disagree. He said a Minister for Finance has to be allowed act without interference from his Taoiseach. He cited as an example his experience during the second Ahern Government, when he was Minister for Health and McCreevy was presiding over a post-election tightening of public expenditure. According to Martin, Ahern, who always maintained his interest in the Mater Hospital and would regularly meet consultants and others to discuss how it was faring, was concerned about how the health cutbacks in 2003 were affecting the hospital.

  We lost three hundred beds in the Mater and places in Dublin. Bertie was very upset. He’d say to me, ‘Have you gone to Charlie?’ I’d say, ‘I have, but there’s no give.’ And he would say, ‘Ah, Jesus!’ And I’d say, ‘You’re the leader. He’s the Minister for Finance.’ He would have wanted me to win against Charlie.

  However, Ahern would not go directly to McCreevy and instruct him to change a particular decision or policy. He never ‘undermined’ McCreevy in that way, Martin said. ‘The conventional wisdom is that you never undermine your Minister for Finance, because that is the end of the minister in terms of credibility.’ Martin was sure that Ahern would have organised endless official representations to McCreevy, but he’s equally certain that he never made a direct approach.

  For Greg Sparks, Martin’s analysis of the relationship between a Taoiseach and the Minister for Finance was too simple. ‘In the final analysis, the Minister for Finance is there on the Taoiseach’s permission.’ Sparks’s experience was that alliances were formed in the Government in relation to particular issues; how these played out influenced what a Minister for Finance would or could do in relation to the Government’s work. ‘You could play other ministers against finance. You got everyone else on side before going to finance. You played one off against the other.’

  For Sparks, McCreevy’s independence in the Government vis-à-vis Ahern and his Fianna Fáil colleagues arose from McCreevy having political views that were more suited to membership of the PDs than of Fianna Fáil. McCreevy was a long-time friend and admirer of Harney’s, and at the time of the formation of the PDs he surprised observers by not leaving to join the new party.

  Joan Burton, who studied commerce in UCD with McCreevy, said he is ‘very right wing and abhors the state. He wants to minimise the involvement of the state.’ This was a sentiment shared by the PDs. For Sparks, the relationship between Harney and McCreevy, with McDowell later as Attorney-General, created a circle around Ahern that isolated him as Taoiseach and affected his ability, and that of his Government colleagues, to control the Minister for Finance. ‘That was a very powerful axis for the Taoiseach’s office. The dynamic there was far too powerful. The Taoiseach was captured.’ The fact that McCreevy felt an affinity for the politics of the PDs, and was particularly friendly with Harney, also affected his loyalty to his party leader. ‘If loyalty is with the leader of another party, that exposes the Taoiseach, because it makes the finance minister that bit more impregnable.’

  For Sparks, it was because Ahern lacked strong political convictions that he was particularly susceptible to the arguments of McCreevy, Harney and McDowell. ‘I would think Charlie McCreevy had a far greater influence over him as Minister for Finance than he should have had.’ It is an observation supported by Pat Leahy. McCreevy and Harney essentially controlled the Government’s economic policy, according to Leahy. They found Ahern easy to get around, and McCreevy could persist with his radical views on taxation as long as he kept Ahern happy with increases in social welfare. Besides, their concern that the Government might not last meant that they front-loaded their most radical reforms. This view is also supported by the television documentary ‘The PDs: From Boom to Bust’, in which the journalist Sam Smyth interviewed leading PD members, McCreevy and others. In it, however, Ahern rejects the suggestion that McCreevy introduced policies without adequately consulting him.

  McCreevy’s first budget was presented in early December 1997. There were increases in the old-age pension, in child benefit and in other social welfare payments, though the increases in unemployment benefits were modest. It was the tax cuts that made the headlines. The higher and standard rates of income tax were each cut by 2 per cent, to 24 per cent and 46 per cent, while income tax allowances were also increased. There was a surprising cut in the rate of capital gains tax. The reduction from 40 to 20 per cent meant, for instance, that someone who bought land and then sold it on at a profit would now be able to keep 80 per cent of the profit made. The decision was McCreevy’s and caused consternation at senior levels within the department. It was the first of such major decisions that would be taken over the co
urse of McCreevy’s tenure in the department. McCreevy did little or no consulting with his Government colleagues before the budget announcement. He did keep Ahern and Harney briefed, with Ahern standing up to McCreevy and insisting that the social welfare increases that were to be announced had to be greater than McCreevy wanted them to be. McCreevy acquiesced.

  Ahern’s political judgement proved to be on form, as the social welfare increases served to dampen the message carried by the tax reforms. This was so, even though the tax-cutting measures cost the exchequer £500 million, while the social welfare increases cost only £100 million. The opposition criticised the tax measures, claiming that they would disproportionately benefit the better off. Quinn said the budget combined ‘economic madness’ with ‘political selfishness’. Ahern said it was equitable and a ‘budget for everyone’. The highest absolute gains will always be to the better paid, he said. This was a presumably deliberate confusion of what was at issue.

  John Bruton, in a speech delivered the day after the budget, made a series of prescient observations. The budget involved larger changes in income tax and PRSI than budgets introduced by the rainbow Government, yet it would see lower-paid workers gain less, he said. Workers on the average industrial wage would gain less than they did from the budget of the previous year that Bruton’s Government had introduced. Those on higher incomes would benefit significantly more than those on low and middle incomes. Bruton said that, in fairness to the Government, this was what had been promised in the election campaign, but he then asked why any government would set out to do something that was manifestly unfair. Before answering his own question, he said everyone agreed that all parties, including those in government, had a sense of social concern.

  The reason is that this budget was not driven by a desire to achieve social justice but by the needs of marketing. It is easier to market the concept of a reduction in tax rates because little has to be explained. Two pence in the pound speaks for itself. On the other hand, it requires an effort to explain that an increase in personal allowances and a widening of the tax band benefits those on lower incomes more than a reduction in the top rate . . . It was a form of intellectual and political laziness on the part of the government, a willingness to pursue the easy marketing approach of concentrating on tax rates rather than the more difficult, in marketing terms, but much fairer, in political terms, approach of increasing tax-free allowances and widening tax bands.

  The policy being pursued was not consistent with the proclaimed values of Fianna Fáil, Bruton said. He added that it was the vision of trade union leaders such as Peter Cassells, who had argued for wage restraint during the 1980s, that had played the key role in the creation of the boom. But social partnership

  will be put under strain in the next two years. One of the things that will put it under strain will be increased house prices. That inflation in house prices is being contributed to by the tax policy of the government, which puts so much emphasis on reductions in income tax for those on higher incomes who are the people bidding up the price of houses.

  Social partnership and the idea of wage restraint would come under great pressure, Bruton said, as people who were getting married found that they could not afford to buy a house on the wages they were earning.

  According to Bruton, the Taoiseach and his party did not have to choose a policy that benefited the rich but they did so to guarantee the support of the PDs. They got into government on the strength of that, and they delivered on it, but it was wrong and a political mistake. It was also an economic mistake, Bruton said.

  Quinn told the Dáil that he was one of the few deputies who had sat through George Colley’s budget speech in 1978. ‘As has often been remarked since, that was a great party, and we spent about fifteen years paying for it.’ He said it was extraordinary that McCreevy and Harney, who had spent most of their political lives denouncing the profligate nature of the 1977 manifesto, were now back in the Dáil repeating that ‘economic madness’.

  The circumstances today are uncannily similar to those in 1977. This year, as in 1977, a good and prudent Government handed over office with an economy in excellent shape and starting to boom—in the recent case the boom is well under way. Instead of nurturing the economy, the Lynch Government felt impelled to deliver on its extraordinary promises, and the rest is history. Within a short time the economy overheated and crashed viciously, with the weak, the poor and the most vulnerable bearing the burden of recovery. The 1998 budget threatens to repeat that serious tragedy.

  Quinn said the effect of the budget was to completely change direction. The Government had inherited a budget surplus, a robust economy and a partnership agreement that envisaged how the fruits of the boom would be distributed in society in the years to 2000. The effect of the budget was to change matters so that the more you earned the more you got.

  In particular, Quinn criticised the decision to reduce the capital gains tax rate by half, to 20 per cent. ‘So much for the work ethic . . . The budget sends out a message that people should switch from work and enterprise, for which they will pay 46 per cent at the margin, to trading and dealing in property, for which they will pay a mere 20 per cent in tax and no PRSI or levies.’ The measure would reorient the country in the direction of ‘traders and hucksters instead of promoting wealth, enterprise and employment.’ The new rate ‘sends a signal to investors to intensify the purchase of property where the greatest gain can be maximised. This will cause further asset fluctuation and drive out the ordinary house-buyers,’ Quinn said. ‘It is scandalous, stupid, brazen and unnecessary.’

  Quinn also raised the fact that the state was embarking on ‘the important but hazardous entry into economic and monetary union.’ He argued that the Government needed to generate large surpluses, since it was going through the high period of the economic cycle, but was instead introducing tax measures that disproportionately favoured the better off. ‘It is the poor and the weak who will have to pay when the party comes to an end.’ The country, he said, had to have a debate about the discipline needed to accommodate being in Economic and Monetary Union so that the citizenry could understand what was required. (Later analysis of what went wrong during the boom years would identify this as a critical, if not the critical, challenge the Ahern Governments had faced.)

  For Quinn, the budget indicated a decision not to use the positive economic circumstances the Government found itself operating in to seriously redress inequity and social exclusion. ‘I am deeply, passionately angry,’ he said.

  Ahern saw matters differently. ‘This is probably the most remarkable budget of modern times.’ It was ‘historic for many reasons,’ he said. The ‘amount we have been able to do’ was a reflection of the economic growth of the past ten years. The broad budget balance meant that the state would not be borrowing to add to the national debt. ‘I did not think I would ever see that.’ The Government, he said, had delivered on its social partnership commitments by agreeing by the second year what was to be given over three years, and it had fulfilled its promise to the electorate by announcing one-third of the tax reliefs promised over five years.

  The budget gave a huge boost to the economy and to the growing feeling among the work force that the era when the Irish could be depicted by the international media as the ‘poorest of the rich’ was now firmly in the past. The widespread feelings of optimism were added to by the renewed good relations between the Irish government and the republican movement, boosting hopes of an eventual solution to the North’s problems.

  During its early period, the Government, and Fianna Fáil in particular, was buffeted by a series of scandals involving the Haughey legacy, Ray Burke, planning corruption and other matters. But as the economy continued to improve it was difficult for the opposition to make inroads into the Government’s ratings. Ahern and his party were also buoyed up by the election near the end of 1997 of its presidential candidate, Mary McAleese. In the wake of the poor performance of the Labour Party’s candidate, Adi Roche, D
ick Spring resigned as party leader. Quinn took over the role and by the end of the year had negotiated the merger of his party with Proinsias de Rossa’s Democratic Left.

  When Pádraig Flynn had to resign from the European Commission because of inquiries by the planning tribunal into a payment made to him, he was replaced by David Byrne. Ahern then invited Michael McDowell, who had just finished chairing a report for the Government on new structures for financial regulation, to take on the position of Attorney-General. McDowell went to Government Buildings to meet Ahern and emerged to tell reporters that he had accepted the position. He had not yet rejoined the PDs, but he was inching back towards a political career. His move into the centre of power no doubt added to the influence of the political outlook of the PDs on the Ahern Government.

  The appointment meant that McDowell, who had a deep interest in Irish history and politics, was centre stage for some truly historic developments. The efforts of the Irish and British Governments to bring about a resolution of the conflict in the North had deep roots. From the point of view of nationalism, the process began with contacts between John Hume of the SDLP and Gerry Adams of Sinn Féin in the mid-to-late 1980s. The two sides became involved in a debate over the future direction of nationalist effort, and papers swapped between them featured heavily in Sinn Féin publications and internal party debate. What Adams had in mind when he entered the talks cannot be known, but it is certainly the case that much of Hume’s criticism of republicanism became internalised within the Provisional movement. By the late 1980s discreet contacts with the Irish Government had opened, and when Reynolds became Taoiseach he took the process and ran with it. He had an excellent relationship with the British Prime Minister, John Major, and won the trust of the republicans. Reynolds, a wealthy businessman with a penchant for risk-taking, threw everything into winning the prize of peace.