THE DEPARTMENT of Finance repeatedly warned the government of the dangers of the budgetary policies pursued during the boom years, an independent review of the department’s performance has found.

However, the report, which recommends major changes to the budgetary process, criticised the department for not vigorously increasing the tone of its advice when it was repeatedly ignored.

The report – drafted by three former senior civil servants from Canada, the Netherlands and Ireland – was given to Minister for Finance Brian Lenihan on December 3rd last and was published yesterday by him. The authors reviewed in detail the June memorandums to cabinet produced annually by the department over the past decade.

Labour’s finance spokeswoman Joan Burton criticised the fact that the report was not published before the election and said it laid the blame clearly where it belonged.

The report found the memos provided “clear warnings” on the risks of so-called pro-cyclical fiscal action in which tax cuts and increased public spending was fuelling the boom excessively.

The views were signed off by the ministers for finance of the day and submitted to cabinet.

“The advice was more direct and comprehensive than concerns expressed by others in Ireland or by international agencies,” the report states.

However, the report said the budget packages announced each subsequent December were “very substantially above” those advocated by the department each June. It identified three reasons for this.

The “extraordinary sense of optimism” that existed at the time created great pressure for spending and taxation measures, the report said.

It also found the budgetary process involved inadequate accountability to the Dáil and was “completely overwhelmed” by two other dominant spending processes – the programmes for government and the partnership agreements, which often included specific spending and tax commitments.

Referring to passages from the 2002 programme for government agreed by Fianna Fáil and the Progressive Democrats, the report said it contained bad tax policies but that there was “no market” for departmental views on their suitability.

“Such analysis should have been provided and communicated forcefully to the minister for finance and the government.”

The report said the partnership process helped inflate public sector wages when the economy began to overheat.

The third reason for the excessively pro-cyclical budgets was the failure of the department to “vigorously” increase the tone of its warnings after several years of its advice not being heeded.

The report found the department provided advice on the risks of on overheated construction sector as far back as 1999 and that its assessments of the risks from the Irish housing bubble were at least as strong as any public analysis over the period.

However, it did not organise a strategic response to the problem or identify a full range of options to moderate activity in the sector. There was also a failure to identify macroeconomic risks to the Irish economy.

Mr Lenihan described the report as a welcome and fair assessment, while Sinn Féin said the report showed radical change was needed in the approach to budget formulation.

Reacting to the report’s comments on the role of the partnership process, the general secretary of the Irish Congress of Trade Unions, David Begg, said it was “a facile exercise in scapegoating, designed to obscure the true cause of the collapse: banks, builders and toxic government policy”.

The Association of Higher Civil and Public Servants said the report vindicated the work of its members.