THE Department of Finance has defended the appointment of Colm McCarthy as chairman of the review group on state assets amid criticism that work he carried out for the Irish racing industry in the past made him un­- suitable to assess whether Horse Racing Ireland should be sold off as part of a firesale of state assets.

Some industry insiders have expressed unease that McCarthy had been advising the industry on how to adapt to economic conditions, and would now be making recommendations to government on what to do with HRI.

As chair of the review group on state assets, McCarthy has been asked "to review relevant investment and financing plans, commercial practices and regulatory requirements" of Horse Racing Ireland, one of more than two dozen state agencies and semi-states in his remit.

In his report on the racing sector, he said the prospects of additional state funding for the industry were "poor".

The report said: "In these circumstances it is necessary to look to sources other than the exchequer for any additional resources the racing industry may feel are required."

McCarthy then recommended the introduction of a 2% levy on all bets that originate in Ireland to help fund the industry.

Its conclusion said: "Revenue raised from these measures should be used to improve both the finances of racing and the exchequer position."

The Department of Finance said McCarthy had made them aware of "this issue [the horse racing report] at the start of the process".

The government officially appointed the economist as chairman of the review group on public bodies, agreeing a fee of €35,000 for the work.

McCarthy has already been paid the same amount for his original work on the report of An Bord Snip Nua, the Department of Finance said.

That brings to €70,000 the amount the well-paid University College Dublin economics lecturer has earned in the past two years from the Department of Finance.

In his new role as chairman of the review group, McCarthy – along with senior civil servant Donal McNally and TCD economist Alan Matthews – will be looking at 28 separate bodies.

Their job is to determine whether it is possible to make "better use of those assets", which could include the very real possibility of selling the most profitable of them.

Among the organisations being examined by the McCarthy group are the Dublin Airport Authority, all of the main public transport operators, RTÉ, Bord Gáis and the ESB. Horse Racing Ireland, the Irish National Stud Company and Bord na gCon are also being closely examined in view of the "indebtedness of the state".

The Department of Finance said: "The Chairman of the Re­view Group on State Assets and Liabilities made [us] aware of the position in July 2010 before the work of the group commenced ... internal arrangements will be made by the group to obviate any potential conflict of interest."