Figures submitted to the European Commission yesterday confirm that the Government's budgetary forecasts for this year were much too optimistic, with official surplus projections now 87 per cent lower than they were on Budget Day last year.
The report, made under the terms of the Stability and Growth Pact, shows that the Government is now expecting its overall budget to be €110 million in surplus at the end of the year.
This compares to a General Government Balance (GGB) surplus forecast of €837 million made on Budget Day, and a surplus of almost €1.8 billion estimated for last year. The GGB, a favoured measure among international economists, differs from the Exchequer balance in that it counts revenue and expenditure in all arms of Government.
The planned €110 million surplus, which equates to 0.1 per cent of GDP, was first flagged by the Department of Finance last month when it cut its original surplus forecast of 0.7 per cent of GDP.
Fine Gael's deputy leader and finance spokesman, Mr Richard Bruton, yesterday called on the Minister for Finance, Mr McCreevy, to make "a clear statement" on the implications of the revised figures for the public finances in coming years.
"Just two years ago, Ireland enjoyed a surplus of €4,600 million. This has been frittered away and the pace of deterioration is alarming," said Mr Bruton.
Under the Stability and Growth Pact, Economic and Monetary Union participants must not allow their deficit to grow beyond 3 per cent of GDP, a limit which most commentators believe the Republic is still in no immediate danger of reaching.
"We're very much within the comfort zone of the Stability and Growth Pact. That's not an issue," said Goodbody Stockbrokers senior economist Mr Don Walshe.
Goodbody is forecasting a deficit of 0.4 per cent, or €325 million, in the GGB this year.
Mr Walshe said that "deficit prevention" is not, in itself, a sound economic policy, particularly when the deficit in question is being used to fund useful Government expenditure, such as the construction of infrastructure.
"I really only complain about deficits to the extent that they become self-fulfilling," he said.
Bank of Ireland chief economist Dr Dan McLaughlin said he did not see a problem in the current state of the Government's budgetary position. "A lot of the talk about the public finances is hysterical," he said. "Does anyone suggest that we shouldn't be spending on infrastructure?"
Dr McLaughlin is forecasting a deficit of €2 billion for 2003, assuming that Mr McCreevy does not engage in "some of the revenue tricks" previously seen, such as the unforeseen transfer of funds from the Central Bank.
"I believe that we could increase day-to-day spending by around 9 per cent next year, borrow €6 billion for the capital side and still have an overall deficit of €2 billion, or about 1.5 per cent of GDP," he said.
He also said the Republic's position among its EU peers would remain strong, even with a small deficit. Germany, France and Italy are teetering close to breaking the terms of the Stability and Growth Pact, according to recent reports.
