Sunday 23 October 2016

The five big tests McCreevy's inquiry evidence failed

Published 05/07/2015 | 02:30

Charlie McCreevy is very wrong about the state of the public finances and the property market when he left office
Charlie McCreevy is very wrong about the state of the public finances and the property market when he left office

They have a saying about the Titanic in Belfast: "There was nothing wrong with it when it left here."

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Charlie McCreevy adopted a similar stance at the Banking Inquiry during the week. The wags in Belfast are right about the Titantic, but McCreevy is very wrong about the state of the public finances and the property market when he left office.

Here are five central points in his evidence where I believe he is wrong.

1. His was the "most responsible than any other government in the history of the State".

McCreevy signed off on many budget surpluses but created an unsustainable underlying structure to the Exchequer finances. Whatever about spending money on infrastructure, McCreevy sanctioned massive current spending increases which couldn't simply be turned off when the economy began to slide.

Between 2000 and 2004, total government spending went up by 29pc, while public sector wage costs rose by a massive 38pc in just four years.

2. There was no housing bubble by 2004. McCreevy policies did not help to create the bubble afterwards.

It makes absolutely no sense to suggest that the bubble was not already unfolding by 2004. The bomb had been primed. A year earlier, bank lending to the property sector exceeded all previous traditional levels.

When, in 2007, the crash came, house prices fell well below 2004 levels - back to around 2000 levels. Even if they overshoot in a crash, house prices in many parts of the country today are nowhere near 2004 levels.

3. McCreevy's dismissal of the Galway tent showed how he wasn't influenced by property vested interests.

Back in 1999/2000 when houses were becoming unaffordable for many ordinary working people, the government commissioned economist Peter Bacon to do a series of reports on the property market. He made many solid recommendations on curbing house-price growth.

On foot of it, McCreevy proposed in summer 2000 to introduce a 2pc tax on property bought for investment purposes. However, it was never introduced and by February 2001, he announced he was dropping the proposal.

This followed extensive lobbying of the department. In 2001, he also cut stamp duty for investors, and in 2003, he extended a range of property incentives.

As far back as 1999, McCreevy extended the rural renewal scheme from commercial and industrial projects to residential houses, after lobbying by some of his fellow TDs, including Sean Doherty, John Ellis and Fine Gael's John Perry. They wanted the scheme extended to their own constituencies.

Doherty himself began a 13-house development beside the Shannon which qualified for tax breaks. Ellis and Perry were also investors in the property market.

4. The Special Savings Incentive Scheme (SSIA) worked very well.

This cost the State a fortune and allowed people who already had extensive savings to collect free money from the taxpayer by just moving it from one bank account to another.

Aimed at encouraging greater levels of spending, it backed up amounts people had available for house deposits. It was taxpayer's money going round in a circle as part of a free money scheme.

Everybody benefited - yet everybody lost as a result of the Exchequer cost.

The wealthy benefitted the most. McCreevy admitted that he didn't take his officials' advice about the scheme.

5. Decentralisation was a success.

No consultation process took place in the run-up to this budget-day announcement which cost hundreds of millions of euro. Yes, it did land some civil servants in some regional towns - but with no cost/benefit analysis, it is impossible to say if it was successful at all.

It was so expensive and with questionable outcomes that it had to be abandoned.

One thing McCreevy is right about is hindsight. The story of the boom/bust is constantly rewritten and hindsight makes everything look simpler. Unfortunately for him, mitigating risk is the best way to make decisions in the present when hindsight isn't available. A bookie would lay off some of the risk. As a man who likes a bet, McCreevy should have known that.

Roaming charges ruling is a victory for lobbyists

The abolition of mobile-phone roaming charges in the EU by the end of 2017 was greeted as a big consumer victory.

It wasn't. The European Parliament had voted to abolish the rip-off charges by the end of 2015. The compromise agreed with the EU Council was a big victory for lobbyists hired by mobile-phone operators who won an extension.

Roaming charges are big business. They may be 90pc cheaper than they were in 2007 - but they are still worth an estimated €4.8bn to mobile operators in the EU.

Data roaming is where the big rip-off persists. In 2013, there was an 800pc gap between data-roaming charges and average national at-home charges across the EU. Last year, the gap was 300pc. It has fallen more sharply for voice and text messaging, but it is high time the whole lot were simply scrapped.

Incredibly, only 8pc of people say they use their phone the same way while abroad as at home. Higher usage would come from scrapping the charges which would be good for business, consumers and even for the mobile operators. But they are worried about the loss of this major cash cow.

I live in Donegal, seven miles from the border. Mobile operators, incapable of providing a proper signal, charge me UK roaming charges on data use above a certain level of usage - even though I haven't left home.

Lobbyists will get paid a mint for their EU roaming extension as we all pay for it while on holidays (or while still at home, in my case).

Time to end the phoney mortgage-rate stand-off

The banks are taking a leaf out of the mobile-phone company books when it comes to introducing complex, opaque, indecipherable charging structures.

Mortgage providers are now moving to different variable interest rates depending on things like loan-to-value. This is an old stunt, masterminded by phone companies, health insurers, hotels and airlines.

The more complex the pricing structure, the better it is for provider, not customers. Next thing you know, you will be charged different mortgage rates, depending on whether you use your home at the weekends!

Enda Kenny has been busy lecturing the Greeks, yet his Government has not exactly done much in forcing the banks to stop the interest rate rip offs. He should either force through cuts, or if that has too many negative implications for the banking sector, just come clean and say it.

The current charade between the banks and the Government is a pantomime.

C&C is too dependent on those cold Celtic climes

C&C blaming cold weather for a poor cider sales performance is nothing new. In fairness, cider is a warmer weather drink. But surely, the business has had time to re-focus over many years to reduce that impact.

In July 2007, a newspaper headline said: "Shares in C&C washed out by bad weather." The following summer, one of the wettest on record, saw headlines like "Sales slump and inclement weather cast cloud over C&C."

At the time, management emphasised how an expansion of Magners into Europe would offset the dependence on the inclement Irish and British weather. Today, C&C is heavily exposed to Ireland and Scotland - not exactly hot spots.

Last year, Ireland accounted for €59m of earnings, with Scotland ringing up €39.2m. The rest of the world accounted for €16m.

A Scottish crackdown on drink driving is compounding the problem for publicans as well as brewers. One-in-40 drivers stopped recently by the police was over the new lower alcohol limit, which no longer ensures you are safe with even just one drink. The new Scottish limit matches ours.

Ireland and Scotland are wet, windy, cold and now very conscientious about drink driving. North America has been tough for C&C and new markets are hard to crack.

But it is time to look further afield.

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