COMMENT: The Government is now facing hard choices about funding the capital programme, according to Pat Rabbitte.

Last week, with the Dáil safely in recess, the Tánaiste, Ms Harney made some comments on the EU's Stability and Growth Pact. To judge their significance, we must go back to the general election campaign of 2002, and the debate on economic policy, which dominated its first 10 days.

Frequently generating as much heat as light, the parties and the commentators pored over economic programmes, the detail of which were, perhaps, intelligible only to the specialists. But behind it all, important political issues were at stake.

In fact, the story starts in November 2000, when Labour published a document entitled New Direction, New Priorities. In it, we set out a critique of Fianna Fáil/Progressive Democrats (PDs) economic policy and pointed out what we would do differently.

Crucially, we made the point that the scale of the Republic's capital spending needs were such that future Governments would have to borrow to finance them.

That idea was greeted with howls of abuse from Fianna Fáil and the PDs, and indeed encountered opposition from some economic commentators. But Labour persisted with the argument.

In the run-up to the election, we constantly challenged Fianna Fáil when it claimed that it could deliver better public services, high levels of investment and low taxation without recourse to borrowing.

Shortly before the campaign started we published an updated policy document, again pointing out that it would be necessary and prudent to borrow to fund capital projects.

Last week, economists from the Economic and Social Research Institute (ESRI) called on the Government to do just that.

But Fianna Fáil and the PDs were not anxious to confront hard choices.

They constantly denied that there were any hard choices to make. They continued to claim that they could deliver on their election pledges and keep taxes low without borrowing. Labour's willingness to consider borrowing would, they claimed, ruin the economy and drag us all back to the dark days of the 1980s.

Crucially, it would also be in breach of the EU's Stability and Growth Pact.

Labour argued that, with low interest rates, the second-lowest debt/GDP ratio in the EU and massive capital spending needs, it was prudent and necessary for Ireland to borrow for capital purposes.

We also argued that it could be done, given a reasonably flexible interpretation of the rules of the stability pact.

Fast forward to last week and we find the Tánaiste making exactly those arguments. What the PDs claimed 12 months ago would bring ruin on the State is now PD policy.

A few weeks ago in Brussels at a meeting of EU finance ministers, Mr McCreevy, whose opposition to borrowing had been just as trenchant, made a similar, if quieter, U-turn.

These policy shifts, however, are more than simply further proof of the dishonesty of the Government's re-election campaign. They go to the heart of the austerity programme that the Government has been inflicting on public services since the election.

Before the last budget, the Government had a target of spending 5.5 per cent of gross national product (GNP) each year on capital projects. This is about twice the EU average but it is vitally important that Ireland addresses its major infrastructure deficit if we are to deliver low inflation and low unemployment.

During the boom years, with the Exchequer running large surpluses, the Government chose to fund this expenditure from day-to-day income.

Following the election, with the Government's mismanagement of the public finances becoming increasingly evident, they faced some hard choices about funding the capital programme. They could cut capital spending, they could raise taxes, they could squeeze day-to-day spending on public services or they could borrow.

To a greater or lesser degree they chose all four options. They cut the target for capital spending by half a percentage point of GNP, or some €500 million. The effects on the roads programme and other areas of the National Development Plan have been immediate, with significant long-term costs to the economy.

The Government didn't want to raise income tax, so they put up VAT and every other charge they could think of, adding at least 1.5 percentage points to inflation, and hitting family budgets.

And they instituted a wide-ranging programme of cuts in public services. The effects on public services have been well chronicled.

They also budgeted for some modest borrowing but this was the least-favoured option. To keep borrowing to a minimum, important spending programmes, both capital and current, were cut and VAT and other charges were raised.

And then, last week, the Tánaiste said this wasn't necessary.

States such as Ireland, she said, with low levels of debt, should borrow to pay for capital projects. If that is true, as Labour believes it is, why did we need all the cuts and all the increases in charges?

Why are children being educated in rat-infested schools, vital road programmes being put on hold, and home-help services being cut, if a lot of it isn't necessary?

Pat Rabbitte is leader of the Labour Party