Bertie Ahern: The Man Who Blew the Boom: Power & Money (23 page)

For Rabbitte, Ahern’s establishment of the Moriarty and Flood Tribunals meant that he was a member of the Government while inquiries were under way that might discover some of the skeletons in his own cupboard.

Very, very few politicians in Leinster House would have been able to carry around in their stomach what Bertie Ahern carried around during his period as leader. He knew these things, we didn’t know them, and he was always alert to [the danger]. That’s why Ray Burke resigned. Bertie had promised Ray Burke that there would be no tribunal, no matter what happened; and then events, dear boy, happened, and he conceded a tribunal and Burke went mad and resigned on the spot from the House as well as the Government. Burke had a few real set-tos with Bertie, because they knew a lot about each other, and Bertie harboured these things and performed swimmingly as Taoiseach. Very few members of Dáil Éireann would have been able to do that [knowing that Burke was out there] and knowing himself about some of his own dealings, and so on. It was for that reason that he sometimes became tight-lipped and wary, in that fashion, because he was trying to figure out [what to say or do].

With regard to the country’s economic management, Ahern’s biggest decision in 1997—perhaps in his whole political career—was the appointment of Charlie McCreevy as Minister for Finance. There was a political logic to the move, in that McCreevy was close to the
PD
s, with whom Ahern was going into coalition, both personally and in terms of political philosophy. Moreover, Ahern appears to have come to the conclusion that the country was in the mood for centre-right politics. McCreevy was an idiosyncratic individual with strong libertarian views and, amazingly, had almost free rein for the implementation of fiscal policy. According to Pat Leahy’s book
Showtime: The Inside Story of Fianna Fáil in Power
(2009), which is based on extensive interviews with members of that Government and its senior advisers, Ahern was just about consulted by his Minister for Finance, while the rest of the Government was ignored. Ahern was not given to strong views on policies anyway, and the tax-cutting measures that McCreevy implemented over the following period went down well with the public and created unprecedented popularity ratings for Ahern. The boom that was taking off as Ahern came to power continued and gathered pace through his first Government. He marshalled his considerable political skills towards being given the credit, creating the impression that it was he and his Government that had brought about the transformation of Ireland.

The taxation and spending policies McCreevy implemented were the defining elements of the first Ahern Government. Ruairí Quinn, who handed over the reins in Finance to McCreevy, had very negative views on the appropriateness of his successor’s policies and believed that McCreevy paid little heed to Ahern’s views on the matter. For Quinn, Ahern was ‘intellectually intimidated’ by McCreevy. Ahern was over-impressed by the fact that McCreevy had attended Gormanston College, a fee-paying boarding school, had gone to university (he was in the same class as Joan Burton) and was ‘a bright qualified accountant’. Ahern had gone to his local school and then went straight into the work-place after his Leaving Certificate. For Quinn, Ahern’s falsification of his
CV
, to say he had studied at the
LSE
, was evidence of ‘a big inferiority complex’ and was in sharp contrast with the attitude of Ray MacSharry, who gave the impression that he was proud of what he had achieved, given that he had finished his formal education when he left secondary school.

McCreevy was a ‘very maverick sort of character’, Quinn said. He did what he wanted and at times didn’t even inform Ahern about what he was planning. And Ahern didn’t feel strong enough to challenge him.

McCreevy was a Eurosceptic. He didn’t want Ireland to go into the currency union, but it was party policy and he had to go along with it. The holy grail of the single currency for me was that you get into a low-interest, low-inflation, stable currency that didn’t devalue and fluctuate. So money had to earn its keep. It was no longer profitable to put money on deposit at 10 per cent. So there was enough money coming into the economy. The banks were lending as they hadn’t done before. Interest rates dropped even before we joined. McCreevy just ignored all that, as did Bertie.

For Quinn, the tax changes McCreevy introduced, and especially those introduced in his first budget, unbalanced this situation. An ‘avalanche’ of money began to flow into an economy that was already creating a thousand new jobs with every week that passed.

When Quinn’s view of the freedom with which McCreevy operated was put to Micheál Martin, he didn’t necessarily disagree. He said a Minister for Finance has to be allowed act without interference from his Taoiseach. He cited as an example his experience during the second Ahern Government, when he was Minister for Health and McCreevy was presiding over a post-election tightening of public expenditure. According to Martin, Ahern, who always maintained his interest in the Mater Hospital and would regularly meet consultants and others to discuss how it was faring, was concerned about how the health cutbacks in 2003 were affecting the hospital.

We lost three hundred beds in the Mater and places in Dublin. Bertie was very upset. He’d say to me, ‘Have you gone to Charlie?’ I’d say, ‘I have, but there’s no give.’ And he would say, ‘Ah, Jesus!’ And I’d say, ‘You’re the leader. He’s the Minister for Finance.’ He would have wanted me to win against Charlie.

However, Ahern would not go directly to McCreevy and instruct him to change a particular decision or policy. He never ‘undermined’ McCreevy in that way, Martin said. ‘The conventional wisdom is that you never undermine your Minister for Finance, because that is the end of the minister in terms of credibility.’ Martin was sure that Ahern would have organised endless official representations to McCreevy, but he’s equally certain that he never made a direct approach.

For Greg Sparks, Martin’s analysis of the relationship between a Taoiseach and the Minister for Finance was too simple. ‘In the final analysis, the Minister for Finance is there on the Taoiseach’s permission.’ Sparks’s experience was that alliances were formed in the Government in relation to particular issues; how these played out influenced what a Minister for Finance would or could do in relation to the Government’s work. ‘You could play other ministers against finance. You got everyone else on side before going to finance. You played one off against the other.’

For Sparks, McCreevy’s independence in the Government
vis-à-vis
Ahern and his Fianna Fáil colleagues arose from McCreevy having political views that were more suited to membership of the
PD
s than of Fianna Fáil. McCreevy was a long-time friend and admirer of Harney’s, and at the time of the formation of the
PD
s he surprised observers by not leaving to join the new party.

Joan Burton, who studied commerce in
UCD
with McCreevy, said he is ‘very right wing and abhors the state. He wants to minimise the involvement of the state.’ This was a sentiment shared by the
PD
s. For Sparks, the relationship between Harney and McCreevy, with McDowell later as Attorney-General, created a circle around Ahern that isolated him as Taoiseach and affected his ability, and that of his Government colleagues, to control the Minister for Finance. ‘That was a very powerful axis for the Taoiseach’s office. The dynamic there was far too powerful. The Taoiseach was captured.’ The fact that McCreevy felt an affinity for the politics of the
PD
s, and was particularly friendly with Harney, also affected his loyalty to his party leader. ‘If loyalty is with the leader of another party, that exposes the Taoiseach, because it makes the finance minister that bit more impregnable.’

For Sparks, it was because Ahern lacked strong political convictions that he was particularly susceptible to the arguments of McCreevy, Harney and McDowell. ‘I would think Charlie McCreevy had a far greater influence over him as Minister for Finance than he should have had.’ It is an observation supported by Pat Leahy. McCreevy and Harney essentially controlled the Government’s economic policy, according to Leahy. They found Ahern easy to get around, and McCreevy could persist with his radical views on taxation as long as he kept Ahern happy with increases in social welfare. Besides, their concern that the Government might not last meant that they front-loaded their most radical reforms. This view is also supported by the television documentary ‘The
PD
s: From Boom to Bust’, in which the journalist Sam Smyth interviewed leading
PD
members, McCreevy and others. In it, however, Ahern rejects the suggestion that McCreevy introduced policies without adequately consulting him.

McCreevy’s first budget was presented in early December 1997. There were increases in the old-age pension, in child benefit and in other social welfare payments, though the increases in unemployment benefits were modest. It was the tax cuts that made the headlines. The higher and standard rates of income tax were each cut by 2 per cent, to 24 per cent and 46 per cent, while income tax allowances were also increased. There was a surprising cut in the rate of capital gains tax. The reduction from 40 to 20 per cent meant, for instance, that someone who bought land and then sold it on at a profit would now be able to keep 80 per cent of the profit made. The decision was McCreevy’s and caused consternation at senior levels within the department. It was the first of such major decisions that would be taken over the course of McCreevy’s tenure in the department. McCreevy did little or no consulting with his Government colleagues before the budget announcement. He did keep Ahern and Harney briefed, with Ahern standing up to McCreevy and insisting that the social welfare increases that were to be announced had to be greater than McCreevy wanted them to be. McCreevy acquiesced.

Ahern’s political judgement proved to be on form, as the social welfare increases served to dampen the message carried by the tax reforms. This was so, even though the tax-cutting measures cost the exchequer £500 million, while the social welfare increases cost only £100 million. The opposition criticised the tax measures, claiming that they would disproportionately benefit the better off. Quinn said the budget combined ‘economic madness’ with ‘political selfishness’. Ahern said it was equitable and a ‘budget for everyone’. The highest absolute gains will always be to the better paid, he said. This was a presumably deliberate confusion of what was at issue.

John Bruton, in a speech delivered the day after the budget, made a series of prescient observations. The budget involved larger changes in income tax and
PRSI
than budgets introduced by the rainbow Government, yet it would see lower-paid workers gain less, he said. Workers on the average industrial wage would gain less than they did from the budget of the previous year that Bruton’s Government had introduced. Those on higher incomes would benefit significantly more than those on low and middle incomes. Bruton said that, in fairness to the Government, this was what had been promised in the election campaign, but he then asked why any government would set out to do something that was manifestly unfair. Before answering his own question, he said everyone agreed that all parties, including those in government, had a sense of social concern.

The reason is that this budget was not driven by a desire to achieve social justice but by the needs of marketing. It is easier to market the concept of a reduction in tax rates because little has to be explained. Two pence in the pound speaks for itself. On the other hand, it requires an effort to explain that an increase in personal allowances and a widening of the tax band benefits those on lower incomes more than a reduction in the top rate . . . It was a form of intellectual and political laziness on the part of the government, a willingness to pursue the easy marketing approach of concentrating on tax rates rather than the more difficult, in marketing terms, but much fairer, in political terms, approach of increasing tax-free allowances and widening tax bands.

The policy being pursued was not consistent with the proclaimed values of Fianna Fáil, Bruton said. He added that it was the vision of trade union leaders such as Peter Cassells, who had argued for wage restraint during the 1980s, that had played the key role in the creation of the boom. But social partnership

will be put under strain in the next two years. One of the things that will put it under strain will be increased house prices. That inflation in house prices is being contributed to by the tax policy of the government, which puts so much emphasis on reductions in income tax for those on higher incomes who are the people bidding up the price of houses.

Social partnership and the idea of wage restraint would come under great pressure, Bruton said, as people who were getting married found that they could not afford to buy a house on the wages they were earning.

According to Bruton, the Taoiseach and his party did not have to choose a policy that benefited the rich but they did so to guarantee the support of the
PD
s. They got into government on the strength of that, and they delivered on it, but it was wrong and a political mistake. It was also an economic mistake, Bruton said.

Quinn told the Dáil that he was one of the few deputies who had sat through George Colley’s budget speech in 1978. ‘As has often been remarked since, that was a great party, and we spent about fifteen years paying for it.’ He said it was extraordinary that McCreevy and Harney, who had spent most of their political lives denouncing the profligate nature of the 1977 manifesto, were now back in the Dáil repeating that ‘economic madness’.

The circumstances today are uncannily similar to those in 1977. This year, as in 1977, a good and prudent Government handed over office with an economy in excellent shape and starting to boom—in the recent case the boom is well under way. Instead of nurturing the economy, the Lynch Government felt impelled to deliver on its extraordinary promises, and the rest is history. Within a short time the economy overheated and crashed viciously, with the weak, the poor and the most vulnerable bearing the burden of recovery. The 1998 budget threatens to repeat that serious tragedy.