ANALYSIS:The huge declines in revenues – in evidence since 2007 – appear to be bottoming out
TAX REVENUES continue to show signs of stabilising. Although there are many issues determining whether control of the public finances can be regained, developments in tax revenues on a month-to-month and quarter-to-quarter basis are among the most important.
The latest figures from the Department of Finance, released yesterday, continue to suggest the projections are on track. The huge declines in revenues – in evidence since 2007 – appear to be bottoming out.
Given that the exchequer spending figures, also released yesterday, are broadly in line with budget day expectations, there is still reason to have hope that the position can be brought back from the brink.
The indicator that counts, however, is not the exchequer balance, but the “General Government” measure. The former is the one the Department of Finance has used for as long as anyone can remember, the latter is EU-standardised and is most easily interpreted by anyone looking to compare what is happening here with the State’s peers elsewhere.
We have learnt in recent days that, by this measure, the Government has admitted its budget-day targets are somewhat off track.
In December 2009, a General Government deficit of 11.6 per cent of GDP was forecast for 2010. That figure has been revised up to 11.9 per cent – excluding, of course, the massive costs of bailing out the banks.
Unfortunately, we know little of how the Government has arrived at this figure, as it has not published the numbers. It must do so if there is to be any meaningful public debate on a four-year plan for the public finances.
To see just how big a gap exists between the two measures, consider that the exchequer figure for current and capital revenues for 2010 is €34 billion, while the General Government Revenue figure is almost €20 billion larger, at €53 billion.
In itself, a four-year plan for the public finances is a good idea. It will let consumers, businesses and the funders of the national debt know upfront what to expect from Government in the years ahead.
A longer-term benefit is that multi-annual budgeting tends to improve resource allocation. Having to think through spending priorities over many years reduces or even eliminates the very short-term bias of the grab-what-you-can round of annual budget estimates.
Multi-annual budgeting is no longer best practice in developed economies, it is normal practice. One of the reasons this country is suffering the second public finances crisis in a decade is because even standard practice was not implemented here.
However, there is one big downside to setting out a detailed four-year package: it will give lobby groups time to focus their resources and hone their arguments against anything that they don’t like.
It will be interesting to see how the Government and Department of Finance balance the need to give credible detail to its plans while avoiding making it too easy for interest groups.
