Exclusive: How Charles Haughey cooked the books in 1981

A leaked document from the Department of Finance reveals the extent of Haughey's misrepresentation of public finances

By Vincent Browne

A confidential document from the Department of Finnance leaked anonymously to Magill suggests that prior to the last election the Government of Charles Haughey effectively falsified budgetary figures, before engaging in a massive splurge of public expenditure financed by foreign borrowing.

Sources inside the Department of Finance have confirrmed the authenticity of the document which was prepared for the incoming Coalition Government last summer. These sources also reveal that there was grave disquiet within the Department over the underprovision in the budgetary estimates in January 1981.

The affair raises serious questions about the credibility of Charles Haughey and his suitability as Taoiseach once more of this country.

He entered office as Taoiseach committed to restoring order to the public finances. In his now famous teleevision address on January 8, 1980 he said, "We are borrowwing enormous amounts of money, borrowing at a rate which just cannot continue". He attached special significance to the current budget deficit and said in reference to the then imbalance in the public finances, "We must first of all, as a matter of urgency, set about putting our domestic affairs in order".

On the following February 27, Haughey's then Minister for Finance, Michael O'Kennedy, sought to give effect to his leader's avowed aim. He announced that the current budget deficit for 1980 would be £353m., representing 4.1% of G.N.P. as compared with a deficit of £522m" 7.1% of G.N.P. in 1979. In the event the budget deficit for 1980 was £547m. (6~% of G.N.P.), primarily because Haughey's Government lost its nerve during the course of that year and capitulated to the public service unions - public service pay rose by 34% in 1980.

In his budget of January 28, 1981, Gene FitzGerald, the new Minister for Finance, stated that the deficit for 1981 would be £515m., 5~% ofG.N.P.

The Government was already under heavy attack for allowing the public finances to get out of order in 1980 and therefore Gene FitzGerald was defensive about the strategy being adopted in the 1981 budget, primarily about the failure to take more decisive action about the problem at the time.

Far from not taking more decisive action at the time however, there was built into the January 1981 budget underestimates of a staggering amount and in the months that followed Government action resulted in further unncontrolled public expenditure which drove the current budget deficit towards a year end figure of £971m - almost 10% of G.N.P. Remember the deficit which Haughey found so unacceptable when he became Taoiseach was only 7.1 %. The effect of this exercise was to avoid the politically diffiicult decisions on increasing taxes and cutting public expennditure, while appearing not to abandon all pretences at fiscal rectitude.

The accompanying tables form the appendix to a report on the state of the public finances, prepared by the Department of Finance for the Coalition Government when it came into office in July of last "year. Work on the report had begun before Fianna Fail left power.

The significance of these tables is that they suggest that there was an element of deliberation in the undertion of public expenditure for 1981 on a vast scale. They also document that in the run-up to the election Haughey engaged in a massive binge of public expenditure, to be paid for entirely out of foreign borrowing, in an attempt to win the election.

More than anything else, it was this conscious underrestimation of public expenditure in the January 1981 buddget and the subsequent pre-election splurge that has caused such serious crisis in the nation's public finances.

Some of the underestimates are explicable in terms of marginal accounting errors or of rapidly changing circummstances such as increasing unemployment giving rise to higher unemployment assistance payments and higher army pay because of an influx of new recruits. But the vast majority of the underprovisions do not yield to such sympathetic explanation.

Chief among these is the underestimation of £89m. on special pay and pension increases in the public service. As the tables show, only £80m. was provided in the January budget for this, yet by 2 July £90m. was already spent. In the January budget statement Gene FitzGerald had ackknowledged that special pay increases in the public service had cost £260m. over the previous two years. As do all Ministers for Finance he called for moderation in the comming year, but backed his call with the most anaemic of pleas:

"I would earnestly ask all concerned to consider the matter seriously in the national in terest". It was entirely incredible that special pay increases for 1981 could be held to £80m., without any firm commitment on the part of the Governnment to resist these increases.

The provision for unemployment assistance in the buddget was only £93.9m., a reduction of £33m. over the preevious year at a time when unemployment was known to be rising!

The grant to Health Boar~s and Voluntary Hospitals was increased from £39lm. to only £397.6m., which amounted to a decrease in real terms of around 14% - no decisions were taken by the Government to cut back on the Health service, thus the figure had to be a gross underprovision (it was by £37.sm.).

In the case of CIE, the grant in 1980 was £70m. yet the 1981 budget provided for only £65m. and inevitably this was shown to be a vast underestimation. In several of the lesser allocations; it can be shown that there was also underrprovision which is not explicable by any changing circummstances.

Officials in the Department of Finance were aware at the time that vast underprovision was made in the budgetary estimates. They have tried to insist that the figures publishhed were not those of the Department of Finance but rather those of the Government of the day and they deny that their credibility was lent to these estimates. They also mainntain that the estimates were not necessarily wrong, had Government action followed on to drastically cut public expenditure right across the board.

But the fact is that Department officials were aware that no such Government action or decision had been taken or was likely to be taken. There was some discussion in the Department about resignations in protest against what was regarded as a serious misrepresentation of the true state of public finances but none materialised.

It is also difficult to understand how other members of the cabinet were not aware of what was going on. This was Gene FitzGerald's first budget and he was presumably unacquainted with the procedures within the Department of Finance on these matters - he could hardly have been expected to be fully aware of the basis for projection of budgetary estimates. However, George Colley was a memmber of that cabinet and he must have been fully acquainted with these procedures having been Minister for Finance for 5 years. There is no evidence that he raised any protest against this, although he did explain to a colleague afterrwards that the reason he did not resign then was because he felt he would be blamed for defeat in the election and this would copper-fasten Charles Haughey's hold on the leaderrship indefinitely.

The story does not end with the underprovision in the budgetary estimates, however. Decisions were taken subbsequent to the budget to increase public expenditure on a truly massive scale in the run up to the election, without of course any provision for the financing of these programmes other than through borrowing. ESB rates were frozen, which meant that there would have to be a large exchequer subvention to the company (cost £58m.). Food subsidies were introduced, following repeated policy objections to them (cost £1Om.). A housing subsidy was introduced at a cost of £16.5m.

A vast programme of capital expenditure was underrtaken, in addition to that outlined in the Public Capital Programme and the Government's Investment Plan. Half of this additional capital expenditure was to finance some of the most wasteful projects in the public sector, NET and Irish Steel.

The issue of the public finances continues to be a major issue in the 1982 general election campaign and Charles Haughey's handling of the state's finances is still of major significance. He has repeatedly alleged since the campaign began that some people have become "hypnotised" by the budget deficit and foreign borrowings issues (he himself was similarly afflicted in January 8, 1980).

Serious differences on economic policy have begun to emerge between him and Martin O'Donoghue, his recently appointed spokesperson on Finance. On television on Jannuary 27 O'Donoghue refused to defend the Haughey Govvernment's economic record. He has thus far not given his opinion of the underprovisions in the January 1981 budget.

************************************
THE EVIDENCE

We reproduce here the full list of tables that forrmed the appendix to the document that was subbmitted to the Coalition Government immediately on its assuming office last summer. The prospective excesses represent the amount to which the Jannuary1981 budget underprovided in each area for both capital and current (non-capital) expenditure.

Prospective Excesses on Departmental Estimates 1981   
                              Exchequer-finance   
            Non-Capital excesses         capital excesses     
            (% excess in brackets)         (% excess in brackets)     
                              
Ministerial            
Group:          
            £m       (%)               £m       (%)   
Taoiseach           0.13       (0.7%)           0.85       -   
Finance           4.77       (3.9%)           1.73   (3.7%)   
Public Service       1.18       (3.5%)             -       -    
Agricultural           
Grants           0.36       (0.6%)             -       -    
Justice           16.3 7  (9.4%)           -       -   
Environment           34.59   (14.4%)           41.49   (11.5%)   
Education           9.59       (1.9%)           9.00       (11.3%)   
Fisheries/           
Forestry           1.04       (4.0%)           1.19       (3.8%)   
Gaeltacht           0.35       (2.0%)   
Agriculture/           
Lands           44.89   (30.6%)           17.76   (52.7%)   
Labour             -     -   
Industry,Commerce &           
Tourism           13.85   (18.6%)           2.15       (1.0%)   
Transport           29.00   (42.9%)           2.00       (6.5%)   
Posts and           
Telegraphs           18.61   (6.2%)           7.30       (3.3%)   
Defence           11.50   (6.9%)             -   
Foreign Affairs       -         -               -   
Social Welfare       76.98   (13.2%)             -   
Health           46.95   (7.1 %)           7.66       (19.4%)   
Energy           57.87   (392%)           2.10       (438%)   
Global pay           
(Special increases)       89.0       (111%)           -       -   
Capital           
contingency provision   -       -               106.62  (52.3%)   
 
TOTAL           456.68   (13.6%)           200.65  (16.9%)   

*******************************************************************
Prospective Net Excesses 1981     
(i) NON-CAPITAL               £m           £m   
TAOISEACH           
Additional grant for National       
Concert Hall                             0.13   

*******************************************************************
MINISTER FOR FINANCE         

Oireachtas:         
Secretarial assistance           0.108       
Increased post office charges       0.035       
Increased pension costs           0.065       
Excess on travelling               0.040       

Attorney General:         
Counsel's fees etc. Stardust Inquiry       0.450       
Revenue Commissioners:         
Increased post office services       1.600       

Stationery Office:         
Printing, binding paper           0.420       
Fuel and light               0.750       

Public Works:         
Rents                   0.770       
Maintenance and furniture           0.530         4.77   

MINISTER FOR THE PUBLIC SERVICE     

Office of the Minister:         
Pay excess                   0.10       

Civil Service Commission:         
examiners fees, travel, etc.           0.08       
Superannuation - under         
provision based on trends to date       1.00         1.18   

AGRICULTURAL GRANTS         

Extension of rates relief  
to agricultural land in urban         
areas and other minor changes       -             0.36   

MINISTER FOR JUSTICE         

Garda Vote:         
Pay and overtime               11.935       
Travel and subsistence           0.571       
Post office services               0.101       

Prisons Vote:         
Pay and overtime               2.333       
Travelling                   0.100       
Prison main tenance               1.076       
Prison Services               0.458           
                    *******
                    16.574       
Less savings on other         
Votes of group               0.200         16.37   

MINISTER FOR ENVIRONMENT           £m           £m   

Underprovision for Housing subsidy       16.50       -   
Underprovision for Sanitary Services       
Subsidy                     3.00     
Underprovision for Rates Relief         
Grant                     5.20     
Underprovision for Travelling         
People                     0.25     
Malicious damage claims             5.00     
Building Societies' subsidy         1.25     
Mortgage subsidy scheme             1.50         
Stardust Tribunal .             0.75     
Motor registration expenses         0.52     
Fire Prevention Task Force         
and fire services subsidy             0.21     
Travelling expenses (staff)         0.13     
Miscellaneous .                 0.28           34.59   

* In the sections dealing with each Department two sets of figures are quoted. Those in the left hand column itemize areas of underrprovision, whilst those in the right hand column give the total underprovision per Department.

MINISTER FOR EDUCATION       
School Transport                 2.50     
Improvements in pupil/teacher       
ratio at primary level             0.50     
Secondary Teachers - Employer's       
PRSI contributions shortfall         0.90     
VEC's and RTC's excess             4.70     
HEA excess                     2.00     
Other excesses (net)             0.99     
Less Increased appropriations in aid   
(Vocational Education Vote)         -2.00         9.59   
    ---     

MINISTER FOR FISHERIES AND FORESTRY     

Fisheries Vote:         
Fish price subsidy                 1.60     
BIM: Interest subvention on boat loans  0.40     
Travelling and incidentals             0.02     
                        ---     
                        2.02     
Less ( 1) Increased receipts       £m       
(Fisheries)               0.80       
(2)                   0.18       0.98           1.04   
                ---    ---        

MINISTER FOR GAELTACHT       
No non-capital excess expected       

MINISTER FOR AGRICULTURE       

Agricultural Vote:         
EEC Special Measures             9.25     
Disadvantaged areas             7.00     
Winter Fodder Schemes             6.43     
Dairy Produce Subsidies             10.66     
Disease Eradication             3.50     
Intervention expenses             2.00     
Intervention losses             2.30     
UK Export Premia (Net)             1.94     
Improvement of Livestock             0.53     
Exchange Risk Loses             0.50     
Sheep Headage grants             0.28     
                    ---
                    44.39  
   
Lands Vote:         
Shortfall in Income for letting land       0.50           44.89   
                    ---

MINISTER FOR LABOUR             £m           £m   
No non-capital excess expected       -           -   

MINISTER FOR INDUSTRY, COMMERCE & ENERGY   
Bread/Flour subsidies (not including       
any provisions for additional subsidies       
this year)                     10.00     
Shipbuilding subsidy             1.80     
Export credit                 0.70     
Currency exchange loss             0.24     
Bord Failte - increased promotion       
and currency losses             0.63     
SF ADCo - extra provision for traffic       
development     0.23     
Increased subscriptions to
international organisations         0.25           13.85   
                    ---

MINISTER FOR TRANSPORT       
Supplementary allocation for CIE       
(assuming no rates and fares         
increases this year)             29.0     
Additional equipment for Air         
Navigation Services             0.26     
Operating subsidy Dublin/Derry       
air service                 0.10     
Less: Increased appropriations in aid   0.36           29.0   
                    ---

MINISTER FOR POSTS & TELEGRAPHS     
Pay - mainly increased overtime       9.43     
Travelling and subsistence           1.57     
Accommodation               0.44     
Conveyance of Mails               0.89     
General Stores               1.55     
Engineering stores               4.50     
Office machinery               0.23         18.61   

MINISTER FOR DEFENCE       
Civil Service Pay               0.17     
Defence Forces - Pay and allowances       
(not including pay increases)       11.70     
Reserve Defence Force           0.87     
Solid Fuel, Transportation, Clothing,       
Sail training               0.90     
                        ----
                    13.64     

Less miscellaneous savings           2.14           11.50   

MINISTER FOR FOREIGN AFFAIRS       
Excesses of £0.62 million on travelling and £0.14 million on office machinery are expected on the Foreign Affairs Vote but these will be fully offset by an expected saving of £1.3 million on Lome Convention payments (provided these savings are not used for other ODA purposes).     

MINISTER FOR SOCIAL WELFARE           £m           £m   
Staff salaries               2.50     
Travelling, office machinery,       
P.O. Services               0.43     
Subvention to Social Insurance       
Fund (of which Unemployment +       
pay-related benefit accounts for £48.2m) 55.26     
Excesses on Social Assistance schemes       
(of which unemployment assistance £6.6m) 18.79       76.98   
                     ----
NB   Provision not included for 5%     
October increase in Old Age Pensions       
(£6.2m)       

MINISTER FOR HEALTH       
Shortfall in grant provisions for Health       
Boards and Voluntary Hospitals       37.50     
Excess cost of General Medical       
Services Scheme               6.30     
Excess on Drugs Refund Scheme       2.00     
Commissioning of new Units           0.65     
Increased PRSI contributions           0.50           46.95   

MINISTER FOR ENERGY       
Full compensation to ESB (assuming no price increases this year) for (1) fuelvariation charges foregone since 1st February 1981 and (2) annual price       

contract (£17m)               58.0     
Avoca Mines                   1.45     
Limerick Gas                   0.32     
Consultancy, travelling, etc.       0.35     
                    ----     
                        60.12     
Less increased receipts and savings       2.25           57.87   

GLOBAL PAY (Special Increases)       
Excess on budget provision of £80       
million for special pay increases       
(details on next page)                     89.00   
                                  ------   
Total non-capital excesses                     456.68   

**************************************************************

Details of expected cost in 1981 of special pay and pension increases for which £80 million was set aside in the Budget.   

Category                           £m Expected Cost 1981     
                              
 
Post Office Departmental Grades               10   
Non-industrial Civil Service                   38   
Industrial Civil Service                   11   
Army                               13 1/2   
Gardai                           12   
Teachers                           3   
Health Employees                       45   
Universities/VEC's                       8   
State Bodies                       13   
Devlin Groups                       1h   
Miscellaneous (overtime, disturbance allowances etc.)   3   
Sub-Total pay                       157   

Add     
Pension improvements                       7   
Pension increases consequential on above     
special pay increases (say)                   5   
                              --   
Sub-Total Pensions                       12   
                              --   
Grant Total                           169   
Less Budget Provision                   80   
                              --   
Excess on Budget provision                   89   
                              --   
About £90 million of the expected expenditure of £169 million is sanctioned or committed at 1 July.   

(ii) CAPITAL       
TAOISEACH                   £m           £m   
Microelectronic facilities           0.85           0.85   

MINISTER FOR FINANCE       
Office of Public Works       
Sites: extra for decentralisation less       
savings elsewhere on sites           0.25     
New Works: Fitting out Harcourt St.       0.25     
Papal cross and visit costs           0.30     
Arterial Drainage: construction works   1.252     
Less savings on engineering plant       
and machinery               0.402     
                      1.65     
Foir Teoranta - rescue finance       0.081       1.73   

MINISTER FOR ENVIRONMENT       
Local Authority Housing           32.69     
SDA Loans                   9.00
     
Miscellaneous environmental services:       
Belvedere Estate               0.245       41.94   

MINISTER FOR EDUCATION       
Higher Education Authority excess         7.5     
Site acquisitions for new regional techs. 3.0     
Additional sum for site purchase for       
Bolton St. College of Technology       
(Local Loans Fund)               1.5     
Less savings on primary education       
capital                   3.0           9.0   

MINISTER FOR FISHERIES AND FORESTRY     
Chipboard Products Ltd.           1.193       1.19   

MINISTER FOR GAELTACHT       
Increase for housing loans and grants   0.10     
Gaeltacht co-operatives           0.15     
Extra water scheme under new       
FEOGA arrangements               0.10           0.35   

MINISTER FOR AGRICULTURE           £m           £m   
Agricultural Vote       
ACOT - Ballinafad College           0.263     
Farm modernisation scheme       
Overrun (£9m) EEC interest       
subsidy (£5m) revised costings (£3m)       17.00     
                    17.263     

Lands Vote       
Land purchase - greater number of       
farmer retirement cases than expected   0.50           17.76   

MINISTER FOR INDUSTRY, COMMERCE & TOURISM   
Ceirnici Teoranta - joint venture with       
Australian firm on wheat/glucose       
project at Cork               2.148       21.5   

MINISTER FOR TRANSPORT       
Amount required in 1981 for Connaught       
Regional Airport (Knock)           -           2.00   

MINISTER FOR POSTS AND TELEGRAPHS     
Telephone development pay increases       2.0     
Increased travelling and subsistence       
allowances                   1.3     
Engineering stores and equipment       
commitments                   4.0           7.30   

MINISTER FOR ENERGY       
FEOGA Western aid package           1.20     
Private bog development           0.90           2.1 0   

MINISTER FOR HEALTH       
New Starts                   7.0     
Mental Handicap Centre, Swinford,       
and Geriatric Day Centre, Carlow       0.20     
Purchase of CAT scanner for Galway       
Regional Hospital               0.46           7.66   

NON-PROGRAMME OUTLAYS           £m           £m   
Excess on £70 million contingency       
Demands as follows:       
NET                       50.0     
Irish Steel                   55.0     
CSET                       44.0     
Air Companies               21.3     
B & I Ltd.                   5.4     
Limerick Gas                   0.92     
                    -----
                      176.62     
Less Contingency provison           70.00       106.62   
                            ------
Total Exchequer-financed capital excesses             200.65   

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