Bertie

by Colm Keena

  I remember discussing the Green Card thing with Bruce Morrison [American senator], and he said he could not think of any country in the world, ever, that had such a volume of inward migration in such a short period of time—that it was the largest ever, per capita. After 2004 people did not expect the volume that came subsequently, but it was kind of virtuous at the time. There was full employment, virtually, even with all the numbers coming in, and the argument was coming from the Dells and the Hewlett Packards that they needed these people, to keep the expansion going.

  I don’t think the effect on expenditure on health and education was ever quantified in any systemic way. I’m not saying it has been a negative impact. I think in the longer term it will have a beneficial impact—even in the short term it had a good impact—but I think it did have an impact on the boom thing, on the bubble economy. Because remember we went from about a million people at work fourteen years ago to maybe 2.1 million. I remember telling international audiences this, and they thought it was absolutely incredible.

  Ireland held the Presidency of the EU, and the expansion ceremony was held in Áras an Uachtaráin, with the heads of state from the existing and new states all in attendance, their flags flying, a choir singing the chorus from Beethoven’s Ninth Symphony, the hugely popular Taoiseach Bertie Ahern playing host. The fact that Ireland was immediately welcoming in workers from the new member-states added to the positive atmosphere.

  But it was Ahern’s work on the negotiation of a constitution for the European Union that really made his mark on the EU stage. He threw himself into the project. He created a team of Irish civil servants and advisers and began to work the European capitals. His Minister for Foreign Affairs, Brian Cowen, and his Minister of State for European Affairs, Dick Roche, were the key politicians involved. It was an exceptional period in Ahern’s political career in that his focus shifted to outside Ireland. At an intergovernmental conference in Brussels at the end of June he worked in the same way that he had in Castle Buildings in Belfast when persuading the parties to agree the Belfast Agreement. Issues and objections were dealt with one after the other with patience and determination, as Ahern moved the wide range of parties closer and closer to a deal to which they could not object. By the end of the meeting, and to most people’s surprise, a final document was agreed. It was an enormous coup for the Irish presidency and for Ahern. When he got back to Dublin he gave an interview to Charlie Bird of RTE, selecting All Hallows as the location.

  One of the matters the leaders had not been able to agree on was who the next president of the European Commission would be. Ahern was by this time the second most experienced prime minister on the EU stage—only Jean-Claude Juncker of Luxembourg had been in power for a longer period—and his achievement in relation to the constitution increased his status hugely. In his memoirs he said that it was at this time that other leaders began to suggest that he should become president of the Commission. He weighed up the matter and in the end decided against it because of his dislike of being abroad, his view of the job itself and his desire to challenge the record of the founder of Fianna Fáil, Éamon de Valera, and go to a third successful election in a row.

  In June 2004 Ahern also met the President of the United States, George W. Bush, in Dromoland Castle for an EU-US summit in which they discussed items of geopolitical importance. During his presidency Ahern attended summits with the governments of Japan, Canada, Russia and some Latin American and Caribbean states. He also attended a G8 summit on an island off the coast of the American state of Georgia, where, much as he would later do in Inchydoney, he went for a ‘relaxed’ walk on the beach with the heads of state of the major powers, surrounded by a mob of photographers and television cameras. The picture of Ahern wearing a cream jacket and banana-yellow trousers among the other more sober-suited world leaders became one of his best-known images at home. It contributed to the view of Ahern as a politician who had become an international statesman while remaining the same old familiar, slightly hapless Bertie. Many surmised that this was precisely the impression he had aimed to create.

  As the world economy picked up again, Irish property prices soared, and media reports about individual Irish investors or groups of investors buying iconic commercial buildings in London and elsewhere became a staple. Foreign observers began to refer to Irish property developers as oligarchs, a reference to the billionaire business figures who made so much money in post-Soviet Russia. Helicopters became a common form of transport for many of them as they rushed around Ireland and over and back to Britain, checking on their business projects. There were even reports of people being invited to children’s parties with co-ordinates being included on the invitations for those who would be arriving by helicopter. When the property developer Seán Dunne married the journalist Gayle Killilea they hosted an extended celebration on the Christina O, the former yacht of the Greek shipping magnate Aristotle Onassis. The yacht was by this time actually owned by an Irish syndicate, which had used a complicated tax structure that sheltered some of their income from Irish tax.

  The rebound in the economy in the period after 2003 meant that Ahern was back dealing with the problems of expansion rather than contraction. An enormous National Development Plan was announced for modernising and expanding the state’s infrastructure so that it would be better able to cope with a bigger economy and a larger population.

  Brian Cowen, in his period as Minister for Finance, presided over budgets that tried to cope with the demands for transfer payments, the pressures on parents who had to pay for child care, and concerns about the management of the property market. In his first budget speech in December 2004 Cowen said he aimed to ensure that the benefits of economic growth ‘permeate society as a whole.’ He increased personal income tax credits while leaving rates alone, which meant that more lower-paid workers found themselves not being taxed at all. ‘More than 650,000 of the 1.9 million income earners will be exempt from paying tax on their earnings,’ he told the Dáil. He also widened the standard rate band so that fewer middle-income earners would find themselves paying tax at the higher rate.

  In the weeks before the budget, and for some time previously, there had been media stories running about the number of very-high-income individuals who had reduced their effective income tax rate to low levels, and in some cases to nil, through the aggressive use of the tax reliefs that were available. Joan Burton had elicited figures from the Department of Finance that caused quite a scandal. Eleven people who had earned more than €1 million had paid no tax at all in 2001, while an astonishing 242 people who earned between €100,000 and €1 million during 2001 had paid no tax. Many of the measures that facilitated this tax avoidance, such as the urban renewal and hotel investment schemes, were themselves contributing to the buoyant property market that was such a feature of the period. In his budget speech Cowen noted that the Revenue Commissioners had recently estimated that the annual cost of these more controversial reliefs was in the region of €200 million per year.

  Because of the complex nature of this issue, the interaction of such reliefs with economic activity and the unintended consequences that untimely action may have for investment, I want to take the time necessary to strike a careful and considered balance in what I do.

  Cowen said he had decided to ask his department to study the issue with the Revenue Commissioners and come up with proposals that struck a proper balance between the needs of the investor and the well-being of the community.

  I am now making it clear that I intend to include appropriate follow-up measures in next year’s budget. Those using this particular group of reliefs should therefore realise that the concept of unlimited or unrestricted reliefs is no longer viable or acceptable to the general tax-paying public in current-day economic circumstances. I want to ensure that everyone makes an appropriate contribution to the state.

  Nine property-based reliefs were already due to be abolished in July 2006, having been given a stay of execution in McCreevy’s final b
udget, and the termination date for these schemes remained in place. However, the strategy adopted had an unforeseen consequence in that it acted as an incentive to those contemplating such investments to hurry on with them. Local authorities around the country were being flooded with planning applications for hotels, multi-storey car parks and other developments that qualified under existing tax schemes.

  Ahern, speaking on RTE radio about the budget, said ‘the game is up’ for rich people who used tax schemes to significantly lower their tax bills, echoing a claim he had made at the time of McCreevy’s first budget six years earlier.

  Cowen returned to the subject with his second budget. There were ‘more than 250,000 jobs in the construction sector, and the building industry accounts for approximately 20 per cent of the economy.’ It was a percentage that was well out of line with the historical and international average. ‘We should not do anything that disrupts unnecessarily an industry that is such an important driver of jobs,’ he said.

  He announced that a number of schemes were being terminated, ‘subject to certain transitional provisions’: the urban renewal, town renewal and rural renewal schemes and the special reliefs for hotels, holiday cottages, student accommodation, multi-storey car parks, third-level educational buildings, sports-injuries clinics, developments associated with park-and-ride facilities and the general rental refurbishment scheme. The transitional provisions for projects already in the pipeline gave an additional five months of 100 per cent relief on expenditure on approved projects, bringing the scheme forward to the end of 2006. A sliding scale of relief levels then covered the period of the following two years. He said that the design chosen for transitional measures was half way between the two schemes suggested by two sets of consultants who had examined the matter. He also retained some reliefs, including those applying to nursing homes, childcare facilities and private hospitals.

  However, Cowen introduced a minimum rate of income tax. By reducing the amount of income that could qualify for certain tax reliefs, he in effect introduced a minimum rate of 20 per cent on those with high incomes. ‘This phenomenon will help eliminate the phenomenon of tax-free millionaires.’ Interestingly, Cowen’s department, Finance, had been wary of introducing a minimum rate of tax for fear that those high-net-worth individuals who availed of tax schemes would consider it a target to be achieved by their accountants.

  In this budget Cowen introduced a cap on the size of personal pension funds that could be built up by the wealthy while they availed of the income tax relief that accompanies pension contributions. People who owned their own companies in particular were paying themselves huge amounts of income, as pension payments, into their personal approved pension funds and so misusing a measure aimed at encouraging provision for pensions. Cowen’s move had been well flagged, and the financial accounts for such companies, as they were filed in the months following the budget, showed large amounts of money being paid to owner-directors by way of pension contributions, with these payments having been made before the budget cap. In time it would emerge that many rich people used their approved retirement funds to invest in property, using the fund as an equity investment and borrowing the bulk of the price they paid for their office or retail building. When the crash came, they ended up with personal retirement funds that were in negative equity.

  The consultants’ reports into the tax relief schemes were published in February 2006. A review by Goodbodys for the Department of Finance concluded that a relatively small group of high-income individuals had avoided approximately €3 billion in tax over recent years through the use of Government-promoted relief schemes. Pride of place went to the urban renewal schemes, which the department now estimated had cost something in the region of €1.43 billion in tax forgone. During the more recent boom years the scheme had benefited the developers of projects that would have been built anyway, yet the tax breaks involved could represent up to 43 per cent of the value of the projects concerned. As the consultants put it, the measures had ‘strong negative distributional effects’, could no longer be justified and were an expensive way of achieving the objectives for which they were designed. Incredibly, the scheme, just like all the others reviewed, had been established without any cost-benefit study being conducted. In their report on a number of property-based schemes, Indecon consultants recommended that schemes promoting investment in private hospitals, nursing homes and childcare facilities should be continued, even though they would cost the exchequer an estimated €850 million in taxes forgone over the coming years.

  As well as the cost of €3 billion to the state of the various property-associated relief schemes, an additional €1.4 billion in taxes was lost to the exchequer in 2001 alone as a result of the relief from taxes of pension payments. While such benefits were widely spread, some very high-net-worth individuals were using the relief to shelter huge amounts of income. The report cited two unidentified individuals with seven-figure incomes who had built up personal retirement funds of €100 million each.

  While Cowen implemented many of the report’s recommendations, opposition politicians criticised him for allowing the extension of existing schemes without their being subjected to a rigorous cost-benefit analysis. ‘This is a key recommendation,’ Richard Bruton said in response to Cowen’s reaction to the report. ‘It is regrettable that Minister Cowen chose not to implement this recommendation. Tax relief is a very blunt instrument for achieving social or economic objectives.’

  Joan Burton, the Labour Party’s finance spokesperson, pointed out that people with pension funds of €100 million were able to draw down a quarter of that amount upon retirement, entirely tax-free.

  It seems from this report that the beneficiaries of property-based tax schemes, such as builders and developers, not alone avoid paying tax as a consequence of schemes such as park-and-ride and private car parks, but as retirement approaches they have ready-made channels for setting up extraordinarily lucrative pension schemes funded by even more tax breaks by the state.

  By the time of Cowen’s third budget speech in December 2006, economic growth was running at 5 per cent, and the number of people employed exceeded two million. Ireland’s unemployment and inflation rates were among the lowest in the EU, and the Government expected growth of 51/4 per cent during 2007, when more than seventy thousand new jobs were expected to be created. An unprecedented level of infrastructural investment was being made, the public services were being expanded and there were more gardaí, doctors, nurses and teachers employed than ever before.

  Again, there were no cuts in income tax rates, but increases in tax credits and the standard rate band were announced. These changes meant that ‘two out of almost every five earners will be outside the tax net in 2007, compared to one-third in 2004 and one-quarter when we took office in 1997.’

  By the time Cowen had introduced his third budget, the Irish Times had broken the story about the Mahon Tribunal’s inquiries into Ahern’s personal finances, and the Government had been through one of the most difficult and intense political crises of his period as Taoiseach. The strength of the economy and the belief of many that it was Ahern’s Governments that had delivered this level of prosperity were key factors in his ability to survive the huge controversy. He was an enormously popular political figure, and his Government was riding the crest of an economic wave.

  However, the disclosure, and Ahern’s interview with Bryan Dobson on RTE’s television news, had used up much of Ahern’s political capital and meant that he had indirectly supplied answers to the tribunal earlier than he would otherwise have done.

  Following on from the Peelo document given in confidence to the tribunal in April 2006, a wider number of people were drawn into the developing inquiry. The tribunal was considering whether there were foreign-currency aspects to some of the lodgements it was examining. Celia Larkin, in her private interview with the tribunal’s legal team, confirmed that she had been given £50,000 in December 1994 for use in the fitting out of the Beresford A
venue house, but she revealed that she had handed the money back to Ahern, in cash, the following month. The tribunal had also discovered another AIB account in Larkin’s name into which £28,772.90 had been lodged in December 1994. It began asking about this money. In time it would learn that this was cash—mostly sterling, according to Ahern—that had been given to him in a briefcase on a Saturday afternoon when he had been fully expecting to form his first Government, with the Labour Party, the following week.

  Guidera was busy answering questions on his client’s behalf. In early February 2007—election year—he told the tribunal that the £50,000 had been sought back from Larkin when ‘it became more apparent to Mr Ahern at around this time that it would be more convenient for the monies to be held in cash.’ The cash had been held in Ahern’s safe in St Luke’s, the tribunal was told. On 2 March 2007 the tribunal again wrote to Guidera, informing him that it was ‘of the opinion that the information so far provided via correspondence does not resolve the tribunal’s inquiries as to the source of the following payments to Mr Ahern and subsequently lodged as set out hereunder or the purposes for which such payments were made to him.’ Ahern was invited to meet the tribunal’s legal team in private ‘at the earliest possible opportunity suitable to him.’

  On 5 April 2007 Ahern went to the offices of his solicitors, Frank Ward and Company, to be interviewed by the tribunal’s legal team. A transcript of the interview was later leaked to a number of reporters, and its contents caused enormous controversy during the 2007 general election. In fact it is widely believed that Frank Connolly’s reports in the Mail on Sunday, based on the transcripts, led directly to Ahern’s panicked calling of that election.