The Shafting of McCreevy

By John Spain

USUALLY in Ireland we wait until someone is dead before we canonize them. Last week, however, Minister for Finance Charlie McCreevy was elevated to sainthood here in spite of being very much alive. 

Unless you missed all the Irish papers, you will be aware that McCreevy is leaving his job as the Irish minister for finance to become our next European commissioner. He was offered the job in secret about two weeks ago by Taoiseach (Prime Minister) Bertie Ahern, he said.

And although he had been saying all along that he did not want to go to Europe, he eventually decided to accept. That was the official version, when McCreevy called a hasty press conference on Tuesday of last week to announce it. 

The problem was, no one believed it. What everyone actually believed was that McCreevy had been shafted. What they believed was that the architect of our economic boom had been dumped in a shameful exercise aimed at restoring the Fianna Fail vote. 

So for the past week it has been a huge news story here. Normally, the nomination of an EU commissioner is far from exciting (how many of you can name the current incumbent?)

Normally there is some discussion about what EU portfolio the next commissioner will get, and speculation about who might replace them in the Dail (Parliament). Dull stuff, really. 

But this time it was different. Charlie McCreevy is the most successful minister for finance this country has ever had. Over the past seven years in the finance job he has overseen the transformation of the Irish economy, turning us into the low tax, high employment, fast growing Celtic Tiger. 

He fundamentally changed the way we think, encouraging people to be self-reliant and inventive, to take risks. By keeping a tight grip on state spending he was able to leave more money in our pockets, incentivizing business people big and small to create more jobs and encouraging workers to be more productive. The economy roared, with growth rates that left the big powerhouses like Germany and the U.S. trailing behind. 

It was a complete change from previous decades, when high state spending (and therefore high taxes) were seen as the solution for all our problems, encouraging a huge dependency culture and resulting in low investment and job creation and mass emigration. And although it was not all down to McCreevy alone, there is no doubt that his courage and vision was a key factor in the transformation of the Irish economy. 

So he was the best minister for finance we have ever had. The tributes to him last week were close to canonization. 

And now he has been shafted. There was real shock at the news that would no longer be in charge of finance. 

But it became an even bigger story because to most people it was clear that he had been pushed, that he had been given an offer he could not refuse by Ahern. 

The reason was the disastrous Fianna Fail performance in the recent local elections which panicked the backbench Fianna Fail Dail deputies. If this slump in votes was repeated in the general election in two or three years, more than 20 of them would lose their seats, they said, the party would be out of government and Ahern would no longer be taoiseach. 

And who was to blame? It was the minister for finance, whose right wing image and policies had alienated working class voters, making them vote for Sinn Fein. 

His low corporate taxes, extensive tax breaks for high earners, tight control of state spending on things like hospitals, education and welfare schemes, had given Fianna Fail a bad image. He had to go and state spending had to be loosened up. 

In the wake of the local elections, Ahern listened to all this from a procession of backbenchers. And then two weeks ago he offered the EU job to McCreevy who, knowing that he was unlikely to be left in finance after the autumn Cabinet reshuffle in spite of Ahern’s vague promises, took the hint. 

The big question now is whether this is just window dressing or whether it marks a genuine shift in economic policy here. Business people are worried that we may slide back into the high tax, high spend bad old days. The Progressive Democrats, Fianna Fail’s partners in government who shared McCreevy’s view on economic policy, are particularly concerned. 

One way or the other, McCreevy’s departure in a couple of months will mean that the future here will be a lot less interesting. As one economist put it, an ideologically-driven politician in Ireland is as rare as a snowman in the Sahara. What drives most politicians here is pragmatism aimed at getting themselves re-elected, rather than conviction aimed at doing the right thing for the country. 

With the support of Progressive Democrats leader Mary Harney, McCreevy had a profound impact on the shape of the Irish economy, and it is a pity that he has been dumped before his work is complete. He has had seven years in the finance job but there were another three years to go before the next election and the possibility of a historic third term for Fianna Fail in government after that. 

Viewed in that way, McCreevy was only halfway through his possible time in finance. He clearly loved the job and wanted to stay in it. He had earned the right to do so. 

Instead he has been undermined by a few dozen spineless backbenchers and others in Fianna Fail who lost their nerve. The tragedy for the country is that the McCreevy revolution is only half complete. 

The expected successor is Brian Cowen, the tough talking minister for foreign affairs. He will be no pushover, but he is much more a Fianna Fail pragmatist than McCreevy and will do whatever is politically necessary to get the party back in power again. 

Cowen is a lawyer. There is a theory, of course, that this does not matter. Some previous ministers for finance have had little experience of figures. 

But McCreevy was an accountant and was very much in charge of the Department of Finance civil servants who surrounded him. He not only drove policy but was in total command of the detail in a way that none of his possible successors is likely to be. 

His legacy is a remarkable one, well known from the Celtic Tiger boom headlines — since 1997 when he became minister we have had average annual growth of 7.6% per annum, and unemployment has fallen from 10% to 4% now. Since 1997 he has cut the standard rate of income tax from 26% to 20% and the top rate from 48% to 42%. 

He also cut capital gains tax and inheritance tax, halving them from 40% to 20%. The left went crazy — but the yield from these taxes trebled as people who had previously been sitting on unrealized gains took their profits. 

Some of the changes he made were imaginative, like his decision to put most of the proceeds of the 1999 Telecom Eireann privatization into a new fund to meet future state pension liabilities. This has been topped up by annual contributions of 1% of national output and now stands at almost 10 billion euro. With the number of pensioners in Ireland set to double by 2030 this may well prove to be McCreevy’s most enduring legacy. 

Again, to encourage people not to waste the fruits of the boom, he started the special savings and investment accounts with the carrot that the state would add a big chunk to the pile when the scheme matured after five years. 

Over a million people joined in and are set to reap the benefits starting in a couple of years. So just as the next general election approaches, there will be a massive feel-good factor among voters. 

Ironically, the very thing that has got him into trouble now, his decision to squeeze public spending hard as soon as the 2002 election was over, will also mean that the strong state of the public finances will enable heavy state spending in the run-up to the 2007 general election. 

Which means that Fianna Fail should do much better than they did in the recent mid-term elections. There is actually no need to panic, but then Fianna Fail backbenchers have all the backbone of a worm and about as much vision. 

So Ahern may yet do what no Fianna Fail leader since Eamon de Valera has done and win a third consecutive general election in three years. He will have McCreevy to thank if he does. Sadly, he won’t be around to share in the victory.