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Analysis/Comment Last Updated: Oct 4, 2010 - 4:00:19 AM

IBEC delivers Irish tribal conservatism not needed radicalism
By Michael Hennigan, Founder and Editor of Finfacts
Oct 29, 2009 - 5:40:45 AM

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José Manuel Barroso, President of the European Commission received a delegation from the Irish Business and Employers Confederation (IBEC) on Sept 02, 2009: Tom Noonan, President of IBEC, José Manuel Barroso, Danny McCoy, Director General of IBEC, and Brendan Butler, Director of strategy trade EU and international affairs of IBEC.

With a wide gap between the Irish employer and employee union bodies, IBEC and ICTU, on budgetary policy, IBEC have flunked the opportunity to propose radical reform in its pre-Budget submission. Like the trade unions, it remains in its comfort zone of tribal conservatism. So the credibility gap continues on the perceptions of both sides in how best to tackle the crisis in the public finances consistent with building a sustainable competitive economy.

There is agreement on the need for a significant job stimulus and IBEC says that it is unlikely that there will be any employment growth before 2012.

With a weekly shortfall in the public finances of €400m, IBEC wants a €5bn adjustment in the December Budget, mainly focused on spending cuts, and the European Commission budget deficit target met by 2013. ICTU is in favour of tax rises and would likely agree to some public service reform measures over its favoured adjustment time horizon until 2017. However, weighting adjustment towards reform measures is simply long-fingering the problem. Just consider the recent evidence.

Slow-motion reform at glacial speed:

  • January 2007: Taoiseach Bertie Ahern requests the Paris-based think-tank for governments, the OECD, to review the Irish public service.
  • April      2008: OECD reports; Ahern says of the 800 State agencies/quangos, there are" too many by half.”
  • October 2008: Justice Minister Dermot Ahern cuts Equality Authority budget by 43%; Most other State quangos subject to single-digit cuts
  • October 2009: Taskforce still apparently reviewing the report

Since June 2008, 209,000 jobs in the private sector have been lost compared with an overall fall in employment in the public sector of 2,700.

The plight of the jobless does not appear to be a very high priority for each camp and it could take years before more than 200,000 sustainable new jobs are created.

The issue of economic competitiveness is not just a public sector issue and this is where IBEC opted for the default conservative approach instead of showing that it is also pushing an agenda of radical private sector reform to match its expectations from the public sector.

On Monday, the Irish Times Business editor John McManus wrote: "The Government has a duty to drive down the obscene fees paid to lawyers, accountants and other advisers."

The draft business plan for the "bad bank" NAMA (National Assets Management Agency), budgets for fees and expenses of €2.64bn over the agency’s projected 10-year life. The fees will be paid at every step of the process. The banks will be required to get external valuations of their loans; these valuations will have to be checked by NAMA external valuers; NAMA’s external legal advisers will then have to check all the legal documentation related to the loans; other advisers - - called loan valuation firms - - will then put an overall value on the loans. The whole process will then be audited by yet more external advisers.

In modern times, the big professional firms are significant providers of services to the public sector and they operate in a world of secrecy comparable with the public sector because they generally are partnerships and are not subject to limited liability disclosures.

In the past decade, billions of euros have been paid from public funds to consultants, lawyers, investment banks, doctors, dentists, pharmacists and property services.

The cost of commissioning reports, taskforces, advisory bodies and so on, never seemed to matter.

Some 12 of 15 Government Departments spent almost €11m on consultants' reports last year. The Department of Enterprise, Trade and Employment commissioned 21 reports for €860,815 including €273,460 for an assessment of the restructuring plan for the State training agency Fás. Some 13 reports for the Department of Health cost €855,731 including a fee of €397,540 for an assessment of how to achieve a 35-hour week for nurses.

Three departments didn't bother replying to a parliamentary question and no data was provided on the biggest bonanza for consultants  - -  Information Technology project work.

The members of the Commission on Taxation were paid fees of over €500,000.

Strangely for Ireland, two members turned down fees: one a trade unionist, the other a taxation partner at a professional services firm.

The system of Victorian era secrecy where information on public purchases of goods and services are secret is not only not in the public interest but it protects insiders and promotes informal cartels.

Besides, each year the Comptroller and Auditor General chronicles a litany a waste in a system of limited accountability, where the buck appears to stop nowhere.

In his annual report last month, the C&AG said the Government and State bodies paid €15 million to legal, financial and property advisers for services in relation to “stabilising the banking sector” up to the end of June. John Buckley said this included a €7.3 million contract  - - which was awarded without a competitive tender process  - - between the National Treasury Management Agency (NTMA) and US firm Merrill Lynch, for financial advice.

The C&AG said the Farm Waste Management Scheme (FWMS), which had no cash limit, initially had a budget estimate of €248 million but farmers have been paid €550 million in grants for the building of slatted sheds and slurry tanks. The scheme is now expected to cost €1.1 billion.

So why isn't IBEC pressing for a fully transparent public procurement process?

Last month, Minister for Health Mary Harney referred to the price differential on delivery of flu vaccines between Ireland the UK, pointing out that Irish GPs get paid €38.95 to administer the seasonal flu vaccine to patients. In the UK GPs get paid £7.51 (€8.30) for doing the same job.

Last June Harney said when defending a cut of €133m in payments to pharmacists over the following 12 months, that the cost to the State of  providing drugs had doubled since 2002 to over €1.68bn in 2008  -- up from €332m in 1997 - -and it cost €640m to provide €1.04bn of drugs at ex-factory prices, to patients.

There are thousands of public appointments to the boards of State bodies where even the ratio of staff to board members can be as low as 2 to 1.

Recently, Tánaiste Mary Coughlan published legislation to reform governance of Fás through the Labour Services (Amendment) Bill 2009.

The Bill provides for a reduction in board members  to 11 members from 17 and also removes role of the social partner organisations, and Fás employees, in appointing directors.

The National Consumer Agency, which was set up in response to what was termed "rip-off Ireland," but as become a rip-off symbol itself, has a 14-strong board and a staff of over 20.                         

Fine Gael TD Leo Varadkar says there are more than 7,000 positions on State bodies, which are appointed directly by the Government.

Attendance for meeting can be patchy and there could be at least 4,000 excess positions costing each more than the average industrial wage, including expenses.

Many professionals have foots in both camps and the biggest earners such as the hospital consultants when they are charging private superfees, do not operate in a free market.

The high costs work their way through to the health insurance premiums paid by people on modest incomes.

Again, the market does not operate at the top of the legal profession and while some apparently view €2,500 each day for tribunal lawyers as a bargain, it is ridiculous that the biggest purchaser of  legal fees in the State - -  the public sector  --  is funding the featherbedding without a whimper.

Costs and mindsets from the age of delusion and the permanent free lunch, no longer have place in the current financial environment.

It's time to make a bonfire of Victorian convention and open up public spending to sunlight and transparency that will promote competition; end professional fee cartels and ensure proper accountability.

The tribal conservatism of public sector unions unwilling to give up the spoils of the boom years is matched in the private sector by vested interests addicted to public largesse.

So IBEC, it's time to take a credible stand!

Urgent reform is needed and you should be to the forefront in advocating it.

The high price has to be paid by someone at the end of the day.

Finfacts articles:

Fianna Fáil minister says his department should be abolished; Ireland in the Age of the Spoilsmen

Boom or bust - - Big accounting firms still in the money but should they be trusted?

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