McCreevy issues stern warning on public spending

The Minister for Finance, Mr McCreevy, has issued a stern warning on spending to Government departments, insisting that they must live within their means as the public finances come under renewed pressure.

The latest Exchequer returns show that taxation revenue - the main source of Government funding - is running €340 million below targets set by the Revenue Commissioners earlier this year.

The shortfall, when combined with a poor economic outlook, has led the Department of Finance to predict a €500 million hole in tax receipts for the end of the year.

This would mean that the Government would be forced to borrow more than it had originally planned in order to meet spending requirements. It would also seriously limit the scope for increases in expenditure in next December's Budget.

Constraints on spending in 2004 are likely to come to the fore over the summer months as Government departments begin to submit next year's budgetary requests to the Department of Finance.

Mr McCreevy said the projected tax shortfall reinforced "the need to continue to manage spending effectively and within budget".

The employers' body, IBEC, said the Government should use the deterioration in the public finances as a basis for renegotiating benchmarking awards. "When you hit rougher times, you cannot cruise on as if nothing has changed," IBEC director general, Mr Turlough O'Sullivan, writes in The Irish Times today.

"Any private-sector company which found itself in the position of the present Government would present the facts to its employees and renegotiate what had been agreed."

Mr Richard Bruton, Fine Gael spokesman on finance, also hit out at benchmarking yesterday, describing it as "a crude pay deal that has pre-empted all the resources available in agency budgets". He said the effect of the benchmarking process had defeated its purpose.

Labour accused Mr McCreevy of applying a "you can only spend it when you have it" philosophy to the State's finances.

"The half-baked and desiccated thinking reflected in these Exchequer figures is inflicting damage on the Irish economy which will be felt for many years to come," said Labour's finance spokeswoman, Ms Joan Burton.

Green Party finance spokesman, Mr Dan Boyle, predicted the Government would embark on "corrective action" in the autumn and thus put pressure on public services.

The Exchequer returns point to significant weakness across the economy, with tax receipts coming in beneath expectations in almost all categories.

The only area to beat the Revenue Commissioners' targets was stamp duty, a performance which reflects the continued buoyancy of the housing market.

Predicting a €500 million tax shortfall for the year, Mr McCreevy said there was "pressure in a number of areas".

Some commentators believe, however, that the taxation hole could be significantly larger by year-end if current trends are maintained. Economists at Davy Stockbrokers said that the tax shortfall could reach €1 billion, while Mr Oliver Mangan of AIB was also sceptical of the department's projection.

Friends First chief economist, Mr Jim Power, said current trends in the public finances could mean the forthcoming Budget would be the most difficult in a decade.

On the spending side, the Exchequer figures show that all Government departments managed to stay within their allocations for the first half, with overall expenditure coming in €1.1 billion below expectations.