Had advice from the Department of Finance on controlling overheating in the economy "been embraced", it could have "helped facilitate the chance of a soft landing" after the boom, the former director general of the Canadian department of finance has said.
Rob Wright told the Committee of Inquiry into the Banking Crisis that if he had been in the department he would have "pressed the red button" in 2005 or 2006.
Mr Wright said he would have provided written advice on the risks to the economy to the minister for finance and would have had a team tracking those risks.
Mr Wright was commissioned to produce a report on the Department of Finance called Strengthening the Capacity of the Department of Finance in September 2010 by then minister for finance Brian Lenihan. He interviewed over 100 people and examined the department's performance over the previous 10 years, as well as recommending for the future.
Overheating economy
He told the committee he had wanted to see written advice from the Department of Finance warning the government about the dangers of its fiscal policy overheating the economy.
"There was just very little written advice," he said. "You could get snippets here and there, but on something as vital as that - particularly when one has regular engagement with international institutions like the IMF, the OECD and the European Union where concerns had been expressed, one would have anticipated a consistent flow of advice through that period. We really could not find much of that."
He said the government was not in a position to increase interest rates, because of being part of the monetary union, so what was needed was “a more restrictive spending pattern”.
The department had provided verbal warnings and recommended tax measures, but “with very few exceptions that advice was substantially exceeded”.
“I did see some evidence of some good advice, advice that should have been taken from the department and was not,” he said.
Mr Wright said the department should have strengthened its advice to government in several respects and highlighted its concerns.
Asked by Fine Gael TD John Paul Phelan if department advice had been "largely ignored" by politicians, Mr Wright said "ignored" was a very strong word, but "it certainly wasn't followed".
Asked by Independent Senator Sean Barrett about whether the department raised concerns on 100 per cent mortgages, Mr Wright said the department "questioned it somewhat", but once the financial regulator supported it, "it was hard to resist".
Sinn Féin TD Pearse Doherty asked if there was advice from the department on not extending construction tax incentive schemes.
“We asked to see such advice; none was identified for us,” Mr Wright said.
Mr Wright also said one of his most important recommendations was that advice to ministers should be written down.
Once advice is in writing “you are going to articulate the rationale for it”, he said.
Freedom of Information Act
He said officials attributed not writing advice down partly to the Freedom of Information Act. The department would be at risk if the advice given to a minister was “truly blunt” and was released publicly. He said he believed this was probably “an overreaction by the department”.
Mr Wright denied that, in his report, he made social partnership “a scapegoat” for the country’s fiscal problems.
He said when social partnership started it enhanced competition, but by the turn of the century it was dominated by “Where is our piece of this prosperity?” and prompted substantial expansion of wages in the public sector.
