Shane Coleman Political Editor talks To Brian Lenihan Minister For Finance
‘An awful lot of debate about Anglo Irish Bank has been all wrong…’
With the country’s economic problems and his own health, it’s been a hard year for the finance minister. And the budget means it is not getting easier
‘ Taoiseach Brian Cowen (right) is a very shy man’, says Brian Lenihan
CRISIS, what crisis? Brian Lenihan must have a lot on his mind right now – the toxic Anglo, a brutal budget pending, the sovereign debt issue and the fall-out from the Taoiseach’s disastrous Morning Ireland interview, not to mention his own well- publicised health issue. But you wouldn’t guess it from his demeanour last Wednesday afternoon.
He bounds into the conference room in the Department of Finance, where the faces of his predecessors dating back to Michael Collins stare down from the walls, and he’s all affability and good humour.
One picture that isn’t there is that of his late father. Brian Lenihan senior held many portfolios but never finance. However, it’s impossible not to think of the former Tánaiste when Lenihan fills the doorway on his entrance. Everything – the voice, the eyes, the expressions – are almost a mirror image of his father.
It’s been said he doesn’t have the easy way with people that his Dad famously did – who does? But, if today is anything to go by, he seems to be picking it up just fine. He doesn’t quite use the ‘no problem’ catchphrase so associated with Brian senior but, he is happy to move outside or “wherever you want me” to oblige the photographer.
Those who know Lenihan say he learned his politics at his father’s knee – that his whole life was a preparation for government. That is probably an exaggeration, but it helps explain how he has dealt with everything he has had to face – in his political and private life – with such equanimity.
Of course, frustrations do creep in from time to time. Today it is suggestions in the media that the government has changed its position on the amount of savings that will be required in the budget. And he’s anxious to get it off his chest.
“€3bn is ‘the’ indicative figure, but clearly there is scope for the government to increase that figure if they are so minded. But again, no decision has been taken on that at this stage. That’s something the government could look at, not something they are looking at. Last year, the government secured €4.2bn not €4bn [the target agreed with the European Commission], so it is open to the government to go above. What I’ve made clear at all stages is that the €3bn figure is a minimum – in other words I can’t go below that… There has been no change in the government position”.
Lenihan insists that “the balance” of the savings will have to come from the expenditure side”, but accepts that “the budget in December will deal with taxation proposals as well”.
“We have to go through the current estimates next and see what savings can be found there first before we look at any issues relating to taxation.”
He lists out the limitations that exist on raising taxes and points out that income tax levels are at high rates, the scope for increasing corporation tax is very limited for obvious reasons, and any proposals for consumption taxes have to factor in the potential impact on cross-border shopping. But he does somewhat ominously point out that “of course, no minister for finance ever excludes taxation proposals in a budget”.
The obvious means of raising revenue would be the universal social contribution – a new tax that would replace PRSI and all the levies and which could bring some of the 50% of the workforce who make no contribution (other than PRSI) further into the net. The measure was flagged in last year’s budget but Lenihan is giving little away.
“Work is under way in my department on that. I’m not going to announce the tax proposals for the budget beyond that, but it’s something a lot of work has taken place on since last year.”
Pressed further, he will only add: “I will be addressing the issue in the budget, in my budget speech”. But he does reveal an insight into his thinking when it is put to him that any such move will inevitably be perceived as going after lower earners.
“Let’s deal with that perception. At present, the top 1% of earners pay 25% of the total tax take and the top 5% pay 48%. So we have a very progressive system in relation to the taxation of income in this country. But everyone must make a contribution and obviously it should be in accordance with their means. But the idea that no contribution should be made by any substantial section of the population is not sustainable in the current economic crisis.”
All of which suggests that Lenihan will indeed be “addressing the issue” in his budget speech come December.
On the prospect of a property tax, he is – if that is possible – even more reticent, other than saying the “programme for government envisaged work being done on a property tax and that work is not completed yet”.
Asked about planning minister Ciaran Cuffe’s suggestion that a property tax be introduced based on the size of a house – rather than the site valuation tax measure advocated in the programme for government – Lenihan notes that Cuffe “seemed to remove it from his blog with great alacrity so I didn’t get to see it. He’s made a proposal, but look, I will be examining all proposals coming in up until the budget. I’m not going to comment on it.”
Lenihan is more forthcoming, however, on Anglo Irish Bank and perhaps that is because, for once, there is some good news on that front. The minister is able to reveal that “work is now advancing very rapidly on the computation of the figures at Anglo Irish Bank” [for the estimate of the final cost of the bank] and that “finality will be brought to the figures” by the end of this month – several weeks earlier than originally anticipated. “That’s new,” he declares, readily agreeing that this should please the financial markets.
He declines to go as far as Anglo Irish Bank chairman Alan Dukes, who recently told the Tonight with Vincent Browne Show that, in coming up with this final figure, the authorities should “err on the side of caution” to help reassure the markets. Lenihan says he would “prefer to say that we have to be realistic”.
He believes there has been a lack of realism in the ongoing debate about Anglo and its bondholders. “An awful lot of debate about Anglo has been about the bonds. But, in fact, this is not Lehmans. The scope for resolving the problems through the bondholders is much more limited than the debate seems to assume. The deposits are upwards of €56bn, compared to €14bn in terms of senior bonds and €2.5bn in subordinated bonds. That’s a very important context for this debate which doesn’t seem to have materialised. That was the position in 2008 as well.”
He admits to frustration at the slowness in the investigation into any wrong-doing at the bank but is quick to add: “although I don’t want to be taken as criticising the prosecuting authorities who I’m sure are doing their very best, it is the case in the US that procedures can be fast-tracked in these matters. As far as I’m aware, that is not the case in Britain, France, Ireland and European countries. Far more time is given to the process of investigation. But naturally the public are anxious to see that any breaches of legal standards are published.”
Asked if the law should be changed to more US-style rules, the lawyer in him quickly emerges. “You can’t be retrospective in the criminal law. The problem here is that you can’t make up the rules as you go along. The rules are there and the prosecuting authorities are there to investigate them”. But he does accept that we are too slow in investigating white collar misdemeanours in Ireland, although he repeats his caveat that he is not criticising the prosecuting authorities.
Lenihan is unrepentant about his bold statement in last year’s budget that the worst was over. “We should talk about the real economy here and the real economy last year showed a decline of approx 8% in GDP. The forecast here in this department is a 1% growth this year. Now that’s a remarkable turnaround. I think if you study recessions worldwide there are very few recessions where a country who sustained a shock of the size of an 8% GDP collapse has managed to return to positive GDP growth within a year, so that’s why I indicated we would turn the corner and it’s clear that, in the real economy, we have turned the corner.”
But he does acknowledge that it may not feel like that for many people. “Of course, the real economy as measured by GDP is not the real economy of the unemployed person who is looking for a job. It’s not the real economy of the cash-starved small business. It’s not the real economy of the parent who is worried about the future job prospects of their children. I accept that. I’m not challenging that. But I’m saying, as an objective fact, what has been recorded this year is very modest growth and that in itself is remarkable when you consider the scale of the economic decline that struck this country in 2008 and 2009.”
As you would expect, he also strongly defends the establishment of Nama, quoting the Economist magazine which praised Ireland for forcing banks to clean up their balance sheets vigorously rather than “put off dealing with problems (as Germany has done) or insure dodgy loans and just hope they improve (as Britain has done)”. The influential magazine said although it put pressure on borrowing in the short term, because of the need to recapitalise the broken banks, setting up the “toxic loan repository” was the “better response in the long term”.
There are, however, lessons to be learned from other countries, he says. “In Sweden, for example, when they had a massive banking crisis in the 1990s, the first thing they did was install a guarantee. Then they set up an asset management agency. And they capitalised their banks. We seem to be fixated in this country on a ‘who done it’ style debate in relation to banking.”
And again citing the Swedish example – where there was all-party agreement on handling the banking crisis – he lays into Fine Gael and Labour. “Opposition parties were briefed by the officials in my department throughout 2009 about different initiatives that were taken and they went into the house and took up positions which were indefensible in market terms. And did it again and again. And that’s not good for the country,” he says.
“We gave the guarantee in September 2008 for the same reasons as the Swedes did, to reassure international investors that Ireland would honour its obligations and the obligations of its banking system. The Swedes didn’t have a prolonged public debate about dishonouring their banking obligations. We have and that is regrettable. And certainly, if I were in opposition I would not approve of policy fomented by opposition parties of making the banks a party political issue.”
Something that is very much a party political issue is the Taoiseach’s performance on Morning Ireland last week and the furore it sparked.
Lenihan – still seen by many as a potential successor to Cowen – insists he has full confidence in the Taoiseach who “will be leading us into” the next general election. “I’ve worked very closely with him. He has supported me very stoutly in cabinet through a range of very difficult decisions. He is a very humane man, a very shy man and I think a man who has to take the brunt of a lot of criticism throughout this crisis.”
Asked if Cowen needed to work on his communication/media skills, the finance minister responded: “Well, I think he’d accept that judgment in the context of his performance on Tuesday morning. He does accept that judgment in the context of his performance on Tuesday morning. He was hoarse.”
He says the issue of his own leadership ambitions does not arise as there is no vacancy. “I’ve too much to do in terms of the Department of Finance, in terms of meeting my own personal challenge on the health front, to be absorbing any thought of the question of leadership”.
Asked about his current health, he echoes what he said to RTÉ a fortnight ago. “I’ve completed my treatment. There has been some improvement in my condition and I’m not in any immediate danger. My energy levels are very good but the cancer has not gone away.”
He says that “by and large” – and he deliberately uses that qualifier – journalists have been very respectful of his privacy in relation to his health.
“There have been exceptions, of course, and I’ve taken up those issues. Can I just say, by and large, journalists have been very respectful of my privacy and very supportive of my personal fight and so also have people in many walks of life and I’ve been overwhelmed by the response. I think the Irish people are a very generous people.”