Leadership Avoidance by Central Budget Agencies: A Social Constructivist Comparison of the Irish Department of Finance and the New Zealand Treasury

By Wallis, Joe | Public Finance and Management, October 1, 2011 | Go to article overview

Leadership Avoidance by Central Budget Agencies: A Social Constructivist Comparison of the Irish Department of Finance and the New Zealand Treasury


Wallis, Joe, Public Finance and Management


ABSTRACT

When viewed from a social constructivist perspective, advisory agencies have opportunities to take the lead in interpreting policy reality so as to develop ministerial respect. They will seek to enhance their technocratic capacity when they face either delegative political leaders or an unpredictable succession of political styles but, as has been the case with the Irish Department of Finance, their motivation to do so may diminish when they are confronted with a strong deliberative political culture. This explains why this agency can be unfavorably compared with the New Zealand Treasury in providing leadership in strategy formulation and public service modernization. The Treasury did, however, develop a bias toward interpreting problems as requiring 'tame' solutions through the application of its in-house economic expertise - a rendition that was more successful in terms of generating sustaining and replicable models in the area of fiscal responsibility than in that of contractualist public management.

1. Introduction

The dramatic deterioration in the fiscal position of a number of countries since 2008 has raised two important questions. Firstly, can this development be attributed to external factors or to fiscally irresponsible policy decisions that exacerbated the domestic impact of external events such as the 2008 glob-al financial crash? Secondly, can advising officials, particularly in Central Budget Agencies (CBAs) be blamed for failing to warn about the risks of pre-ceding fiscal policy decisions?

Ireland exemplifies well a country where both questions have achieved prominence in recent public policy debate. Its economic and fiscal reversal after 2008 is striking when viewed against its unprecedented 1990-2007 period of growth and surplus. Two distinct phases can be identified in this growth period (Wright 2010, pp. 15-19). Firstly, the "Celtic Tiger' phase (1990-1999) was driven by rapid export growth stimulated by rising competitiveness and strong inward investment in anticipation of Ireland's participation in the single European currency. Secondly, between 2000 and 2007, growth continued but became less sustainable as falling competitiveness curtailed exports and the property sector boomed fueled by access of Ireland's banks to cheap European credit. The impact of the collapse of the property bubble in 2007 was exacer-bated by the global crash in 2008. Government receipts particularly from property taxes fell dramatically and Ireland was plunged into a fiscal crisis that prompted the EU and International Monetary Fund (IMF) to announce a "bailout' plan in 2010.

By this time, the incumbent government suffered a setback in its struggle to attribute this reversal to external factors rather than domestic "policy fail-ures' (Boin et al., 2009) with the publication of an external report that found that: 'Fiscal policy heightened the vulnerability of the economy. At the macro-economic level, it should have done more to dampen the powerful monetary and liquidity impulses that were stimulating the economy (...) budgetary poli-cy veered more toward spending money while revenues came in' (Regling-Watson 2010, p. 5).

By highlighting the role fiscal policy failures played in Ireland's fiscal re-versal, the Regling-Watson report precipitated intense media and parliamen-tary criticism of the Department of Finance (DOF)'s advisory role (Taylor 2011) which its officials were unable to defend themselves against since the advice they gave to Cabinet was confidential. Normally, a public defense of officials by the Finance Minister would have been a sufficient response, but the credibility of the incumbent Fianna Fail-led Coalition Government had diminished to the point that the (then) Finance Minister took the extraordinary step of commissioning an Independent Review Panel under the chairmanship of Rob Wright (a former Canadian deputy finance minister) to examine the Department's performance since 2000 and advise how it might adapt to meet future challenges. …

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