Despite declining to reveal any aspect of Budget Day, Mr McCreevy's space for surprise looks rather slim, writes Una McCaffrey.
On a recent outing, the Minister for Finance made a characteristic comment on what the Republic's electorate might expect from him on December 4th, the date of his Budget for 2003. "No sane Minister for Finance ever signals what he might do before Budget Day," he said, declining to reveal any aspect of his thinking on the issue.
Unfortunately for Mr McCreevy, this year is slightly different from his previous five in the Budget chair. The signalling he speaks of has on this occasion largely been done for him, in part by an inadvertently leaked memo from June and in part by the well-documented tight economic situation which has characterised the last year. In short, the space for surprises looks rather slim, regardless of how sane the Minister is feeling over the coming weeks.
"So many things are nailed to the floor," says Mr Danny McCoy of the Economic and Social Research Institute (ESRI), which yesterday launched its latest commentary on the economy.
Mr McCoy is calling for a "neutral" Budget which would, at a cost of about €1 billion, see tax being indexed to expenditure so there is no real change when price and wage changes have been considered. This "minimalist" approach probably represents the middle ground among economic commentators, with some believing that even it would go too far, or be too expensive. As befits his position, Mr McCoy is keen to advocate the "don't do something, just stand there" approach in part because it will allow the series of adjustments made to the Republic's tax base over recent years to work their way out of the system, thus offering a clearer picture to forecasters.
Mr McCoy and his colleagues say that, if all goes well between now and the end of next year, the Republic's economy could be in for the proverbial "soft landing" with growth of about 4 per cent of GDP this year and next. He admits, however, that "fears abound" on the chances of this occurring, with a list of downside risks standing in its way and thus clouding the budgetary picture.
For his part, the Minister for Finance has been active on the public-speaking circuit of late, at every opportunity preparing the voters for the advent of what must sound to some like a kind of economic doom. "The boom is over," was his message for the social partners just over a week ago. Last night, he told the Institute of Bankers "it is obvious that we can only spend what we have, when we have it". The question of how much "we" will have at our disposal at the start of next month is, despite all the clues, not exactly easy to answer.
The leaked memo is probably the best place to look for an answer in the first instance. In that document, the Minister was planning to announce €1.9 billion in new spending on Budget Day, a target which has since been whittled down, at least in media speculation, by about €800 million.
Within the initial number, about one-eighth was to be spent on tax reform, with about €450 million, or about one-fifth, to be spent on infrastructure. The commitment to pay 1 per cent of gross national product (GNP) into the National Pensions Reserve Fund was also upheld, with most of the remainder to go on other expenses such as "post-PPF pay increases".
On the funding side, excise duties were to be increased significantly, with additional revenue to come from the sale of State assets - such as third-generation mobile phone licences - and transfers from the Central Bank. This would, based again on initial estimates, have left him with just more than €33 billion to spend next year, still less than the sum of the cost of current public spending and the so-called €1.9 billion in new spending. The difference was to be bridged through cutbacks in spending and a borrowing requirement of more than €2 billion.
In the meantime, the picture has changed somewhat, with any shift heading defiantly in a negative direction. Taxes have come in below even pessimistic targets - just about 2.3 per cent growth was seen at the end of October, far short of an 8.6 per cent goal, while public spending remains in a state of dangerous expansion. In such a situation, presuming that the Minister wants to continue with some kind of "new" spending package on December 4th, requirements to borrow loom even larger in the focus of commentators.
The ESRI is predicting an Exchequer deficit of €3.7 billion next year, about €2 billion more than the authors of the June memo.
Crucially, this estimate does not include the cost of benchmarking which the think tank believes could haul the Exchequer deficit well over €4 billion if implemented. In general government balance terms - a measure favoured by economists which takes account of all arms of Government at once - this deficit range would extend between €1.6 billion and more than €2.5 billion. The ESRI expects tax and spending to grow at about 8 or 9 per cent next year.
Mr Robbie Kelleher, chief economist with Davy Stockbrokers, says that as an economist, he "wouldn't have a problem" with a general government balance deficit of €2 billion next year, a sum which would probably equate to between 1.5 and 2 per cent of GNP. To achieve this goal, Mr Kelleher says books will need to be balanced on Budget Day, a goal which he considers more achievable if the potential €1.5 billion cost of benchmarking is excluded. He is expecting the Minister to present a social inclusion package costing about €850 million (much like that delivered last year).
"My suspicion is that he will go with social inclusion but severely row back on benchmarking," says Mr Kelleher, who believes the disparity of awards included in the benchmarking recommendations is so large as to carry its own difficulties in industrial unrest terms.
On the taxation front, the consensus points to the Minister having no leeway for income tax cuts this year. If adopted in four weeks, this approach will come as no surprise to the voters, according to a consumer sentiment survey, compiled by the ESRI and IIB Bank and released earlier this week. Data in that index showed that 42 per cent of consumers were expecting the Budget to leave them slightly worse off. Mr McCreevy's harsh talk about the boom being over is working.
Mr Oliver Mangan of AIB's economic research unit acknowledges that indirect taxes - VAT and excise - are likely to be targeted. He is also doubtful on the implementation of benchmarking. Mr Colin Hunt, chief economist with Goodbody Stockbrokers, is also expecting the old reliables to "get a rattle". Otherwise, he is expecting a "quieter event than we have seen in the past - a damp squib for those who've been used to Budget-day spectaculars."
