Remarks by the Minister for Finance and Public Expenditure and Reform, Mr. Paschal Donohoe, T.D.
7th February 2018
Firstly, I want to thank Joe Carmody and Feargal Purcell of Edelman Ireland for the invitation to attend the launch of the 2019 Edelman Trust Barometer here this morning.
In my remarks, I would like to focus particularly on the key role that strong public institutions play in the development and maintenance of trust in our economy and society more generally.
Equally institutional failings are corrosive to public trust in the ability of government or the private sector to act in the common good.
Trust in society, between all its actors and institutions alike, has always been integral to the realisation of a well-functioning, democratic and successful society.
Our own system of representative democracy here in Ireland is based upon a social contract between citizens and Government.
Our recent history shows that this contract cannot be taken for granted.
It must continually be renewed and legitimised or it risks falling into disrepute.
In general, Edelman’s research shows that trust in Governments is falling with polarising effects that we now see on a daily basis.
More broadly, there has been a growing dis-trust, not just of Government, but of institutions more generally.
And while Ireland is different, with trust in government and politics higher than elsewhere, we cannot be complacent.
Trust in Institutions
They are the enablers of social and economic well-being.
In Ireland, however, our public institutions have often ignored or become fodder for political point-scoring.
Ultimately, I believe, this is counter-productive and unsustainable.
Indeed, I would highlight that the economic literature in this area is consistent in its finding that strong institutions are part of the DNA of a strong economy.
Economists and political scientists such as Robert Putnam and Francis Fukuyama in seminal works such as ‘Bowling Alone’ and ‘Trust’ have helped us understand this relationship.
However the Global Financial Crisis, and the so-called Great Recession that ensued are often seen as a watershed moment: many people lost faith and trust in institutions – both public and private – during the crisis, and the legacies of this remain with us today.
It is clear that the trust that was lost has not been fully restored and many legacies of that era still persist.
And while our institutional framework here in Ireland has generally served us well, that is not to say that it couldn’t have been better or that the journey has been smooth.
Indeed, it has been anything but smooth – think of the mismanagement of the public finances, especially during the 1980s, which economists largely see as the reason our living standards remained far below EU norms for so long.
Other parts of our institutional framework have been more effective – for example our corporation taxation system or our system of income re-distribution.
As Minister for Finance, I want to focus this morning in particular on the role of economic institutions.
As I alluded to moments ago, the Global Financial Crisis has been a ‘game-changer’ in many ways.
As you know, a decade ago we in Ireland were at the coal-face of this crisis.
A system-wide collapse of our banks, one of the sharpest declines in economic activity and one of the largest increases in public debt ever recorded in an advanced country outside of war-time created what can only be described as an existential threat to our living standards.
Ultimately these developments all led to a loss of economic sovereignty, and our citizens – quite rightly – questioned the role of our institutions and fundamentally lost trust in their ability to act for the common good
In the public sector, institutional shortcomings certainly contributed to our crisis.
Several reports – the Regling Report, the Honohan Report, the Wright Report the Banking Inquiry Report to name just some – all identified failures within important institutions of the State.
To address this, structures have been put in place to enhance the analytical capacity of the Department in all areas under its remit, and it is my view that the Department an entirely different organisation than the one that entered the financial crisis.
These are all building blocks of greater public trust in our institutions.
In particular, in recent years we have seen significant reform brought into our budgetary framework, which has facilitated a more transparent, inclusive and effective budgetary process.
The establishment of the Oireachtas Budget Oversight Committee in July 2016 means that there is now more involvement among your public representatives in the consideration and evaluation of budgetary proposals, both prior to and following Budget day.
The process now begins with the Summer Economic Statement, which sets out the broad parameters for macroeconomic growth as well as details of the fiscal outlook and constraints over the medium term.
Another relatively new element of the process includes the National Economic Dialogue – aimed at facilitating an open and inclusive exchange amongst all members of Irish society in advance of the Budget.
Separately, the Mid-Year Expenditure Report provides the starting point for the examination of the budgetary priorities by the Oireachtas.
This is followed by publication in July by the Department of Finance of their Tax Strategy Papers, which costs some of the budgetary options being considered in terms of possible changes to taxation measures.
These concrete, tangible steps have transformed our approach and are in line with best practise as recommended by the OECD amongst others.
There is an inherent value in such constructive exchanges on the key issues facing our nation.
Indeed, in an era where open dialogue is under attack worldwide, our commitment to building consensus through social dialogue is a testament to the fact that we remain an open society that is committed to building greater trust.
Financial and Corporate Culture
Since the financial crisis, reforms we have introduced to the Central Bank has enhanced the quality of financial regulation and oversight.
The Bank is much more active and hands-on in discharging its functions, rather than the ‘principles-based’ approach that characterised it previously.
This is a critical component in restoring trust to our wide banking and financial system where trust has taken an enormous hit.
The collapse of the domestic banking system was clearly a defining moment.
However, subsequent behaviour including around tracker mortgages has done nothing to help the cause.
In the aftermath of the tracker mortgage scandal – and I use that word deliberately - I requested the Central Bank to prepare a report on the behaviour and culture in the five main retail banks in Ireland.
I requested this report as culture feeds directly into whether customers and citizens have trust in the banking system, which is a fundamental prerequisite to the proper functioning of both it and the wider economy.
The Central Bank’s Report is well worth a read as it was written in conjunction with their colleagues from the Dutch National Bank, who are considered world leaders in banking culture.
One of the clear takeaways from the Central Bank’s Report is that the culture of banks meant employees did not feel able to speak up and stand up when something was happening, whether it was mistakes being made, poor processes and controls in place, or outright wrongdoing.
This culture has very significantly undermined the public trust in a vital economic sector.
It is easy to single out bankers, but we have many examples across many professions in this country where an excess of forbearance has been damaging to public trust in our institutions and to our public life in general.
With this in mind, my officials are working on new Central Bank legislation to enhance the regulatory and enforcement powers of the Central Bank, which will cultivate “good culture”.
While the building of trust in both our private and public institutions is critical, these are necessary but not sufficient steps in the restoration of greater trust in our social contract
For that we must develop a deeper sense of citizenship and of what our French colleagues call a ‘sens de l'État’, a commitment to public service that transcends political, sectional and personal interests.
In doing so, we need to make a much stronger case for the achievements of the State than are sometimes reflected in day to day political and media discussion.
In this, all politicians and public servants hold a solemn responsibility.
Because it is only by meeting real and compelling needs of our citizens, while openly acknowledging when we fall short of these standards, that we can enhance the legitimacy upon which that very sense of citizenship rests.
Before I conclude, I want to acknowledge the work carried out by Edelman in highlighting the significant trends that have been taking place among different societal groups, in terms of the level of trust and confidence that is now placed in our key institutions.
I am particularly struck by the findings that despite general trust in media remains low, that trust is greater in traditional news sources than social media which has dipped significantly in recent years.
As a lifelong newspaper reader and strong supporter of public service broadcasting, I take some reassurance in these findings.
They suggest that in an age of snap judgements, hot takes and confirmation bias that there is still a demand for balance, perspective and reflection on public affairs.
Equally, the increasing trust in employers is significant both here and globally.
The expectation of employers both amongst their employees and customers has risen and this represents a significant responsibility and opportunity for business.
Overall, the results of this report act as a reminder to all who serve in public office, that openness, accountability and transparency must inspire our work at all times when we serve the public; a public who have placed their faith in us to deliver and maintain a high quality of public services.
We have witnessed rising economic and political uncertainty globally in recent years, with increasing moves towards trade protectionist policies in the United States, to the series of challenges that may lie ahead of us in the form of Brexit.
As evidenced by Edelman’s report, pessimism will rise amongst the public on the back of this uncertainty and there will be a negative impact in terms of people’s expectations for their future.
It is, therefore, imperative on us in government, to take all necessary measures to protect and strengthen our own institutions, to continue on the journey of rebuilding trust in our institutions.
As I finish, I will leave you with a few words from Edmund Burke, which provide the best guidance on how those in public and commercial life can build public trust in their actions:
“It is not what a lawyer tells me I may do; but what humanity, reason, and justice tell me I ought to do.”
I thank you for your time today.