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The Slush Fund For Failures

Posted on: March 9th, 2009

EOGHAN Harris was in flying form in the Senate last week. He and I sit on opposite sides of the House, but it is always reassuring to see a friendly face on the Government benches. I settled comfortably into my seat, ready for a dose of compelling rhetoric from the Senate’s most passionate speaker.

Eoghan did not disappoint. He was making perfect sense on the controversial Bill which enables the State to pillage money from the National Pension Fund and use it to bolster the banks. The only surprise was his expertise in money matters. I found myself nodding wisely in agreement. Suddenly my Sunday Independent comrade shattered all the unity that might be expected of a parliamentary colleague from this paper.

After I had given my best shot at a speech on the merits of the Bill, Senator Harris rose to his feet and cast a terrible slur on my financial acumen.

Out of the blue Eoghan offered some pretty damning evidence, undermining at a stroke my qualifications to offer opinions on investments.

Eoghan has a long memory. He related how, many years ago — in my stockbroking days — he had asked my advice about where to invest a small sum of money. He provoked loud laughter at my expense when he revealed that this particular stockbroker told him to wrap it up in a plastic bag and bury it in the garden. He was then gracious enough to admit that this was why he remains solvent today.

Happily, I clearly recall the incident. Eoghan’s version of it is 100 per cent true. Equally happily, I was able to tell the Senate that as a stockbroker I had a well-practised technique for dealing with intelligent people seeking advice. I avoided them.

If that failed, I usually told them to put their savings in the post office. If they looked like becoming clients, I would suggest the plastic bag in the garden. That way, they never came back.

I only took this extreme course twice. One was in Eoghan’s case.

Stockbrokers do not welcome intelligent clients. Especially those who have educated themselves in the tricks of the trade. Apart from Eoghan’s treacherous challenge to my credentials, we appeared to agree on the most important consequence of the Bill: Ireland’s pension fund is a changed creature.

Eoghan did not give a hoot what the fund was called as it is now an emergency fund available for crises in the public finances.

Charlie McCreevy’s little baby, designed to pay public service pensions in 2025, is today a slush fund to bail out the banks. The steam must be coming out of the commissioner’s ears over in Brussels.

It is now a hybrid. Part of it — €4bn — has been plundered to rescue the banks. Meanwhile €12.4bn remains intact, in readiness for the next bailout.

Yet an astonishing revelation surfaced in the Senate debate. Apparently, penniless Ireland is still sinking a few bob into the hybrid every year.

During the debate, I asked Minister of State Martin Mansergh how much we put in annually.

I anticipated a figure of zero, maybe even a small top -up. Times are tight.

The reply was stunning. It is the Government’s intention to put €1.6bn into the fund in 2009. And in 2010. And in 2011.

He was not joking. We are broke; yet despite our penury a government priority is to keep shovelling more than one-and-a-half billion euro of public money into a fund with an unknown mission.

When I expressed amazement at this extravagance, the minister received a hurried note from Department of Finance civil servants sitting behind him. The gist of the message was that the fund was a “symbol” of Ireland’s commitment to fiscal rectitude. It was necessary in order to impress international investors.

When I protested at this Department of Finance gobbledygook I swear that the likeable, but sometimes excitable, Martin began to salivate.

Martin Mansergh is delightful, but he has a tendency to be a bit barmy. No one is better equipped to defend such insane government behaviour but it would make you wonder, did no one think of stopping our contribution to the fund?

We would save €1.6bn at the drop of a hat and nearly €5bn over three years.

A sum not to be sniffed at by a basket case like Ireland.

Worse still transpired. The entire €1.6bn will be borrowed. Yes, borrowed.

Assuming we are borrowing at 4 per cent interest, that means we are paying €64m in interest for money we do not need and will not use. At the stroke of a pen, we could save over €1.6bn. Plus interest.

So Ireland is borrowing money at penal rates to top up a fund that has been losing money. The pensioners of 2025 have no hope of seeing a cent of it.

The reason is simple. The fund is a sacred cow. Politicians need it — in case they and the bankers ruin the economy once again. It is a safety net for their failures. Now that it has been converted into an emergency fund, they can use it to give the banks a second bite of the cherry. Or they can treat it as a political piggy bank. It will reduce the need for them to practise financial discipline.

And this is not the only sacred cow being preserved in our search for cuts in public expenditure. Wait and see. There are plenty of other untouchables.

A funny thing happened last week. News of a mini-budget started a stampede into a consensus.

Fine Gael and Labour trotted along to the Department of Finance to help out. The two big parties are fast finding common ground.

More tax is suddenly hailed as the answer. Cuts in public expenditure are playing second fiddle to the latest mantra, the need for everyone to “share the pain”.

When Fine Gael and Labour visited the department, the powerful mandarins’ orthodoxy was clear: they would bridge the deficit by taking 75 per cent from extra tax and 25 per cent from cuts. Let us hope Sir Humphrey has told Brian Lenihan.

The Opposition appears on the point of swallowing the bait and suggesting tax increases to the Government.

In response, the Government will thank Fine Gael profusely, praise its statesmanlike approach and then generously spread the blame for the unpopular bits. Labour is far less likely to be sucked into the mandarins’ tax agenda.

Tax is easier for the mandarins. There is certainty. It is dead easy to number-crunch and collect. None of their pals in cosy positions of State will be disturbed. They would hate to see €500m wiped off the wasteful Fas monster. They do not want to tackle another dinosaur, the Health Service Executive. They will protect costly quangos like Enterprise Ireland and CIE to the last. And they will be joined by politicians who treat some of these state agencies as protected species.

Cuts, not taxes, are the answer. The Government and the mandarins could start with the €1.6bn recklessly borrowed for the bankers’ bailout fund.