FG offers outstanding example of clever accounting

Despite ambitious and diverse spending plans, the party claims it can keep the country in the black as far as Brussels is concerned…

Despite ambitious and diverse spending plans, the party claims it can keep the country in the black as far as Brussels is concerned, writes John McManus.

Fine Gael has put forward its solution to the economic conundrum that will confront the next government. The answer would appear to be growth.

As long as the economy grows by 3.5 per cent this year and 5 per cent next year all the sums add up, according to Mr Jim Mitchell, the Fine Gael finance spokesman. These growth estimates are not out of line with most independent economic commentators and, according to Mr Michell, they are on the conservative side.

If the economy performs as predicted, Fine Gael expects that by 2006 it will be able dish out around €11.6 billion a year more than the current Government. By that stage the additional spending will be split roughly 80:20 between public services and tax improvements.

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The tax improvements planned include index-linking tax bands and credits, taking those on the minimum wage out of the tax net, and introducing a new 30 per cent tax band that will benefit middle-income earners.

Fine Gael also plans to reverse the tax credit system so that "single earner couples will again have the same tax credits and bands as double-earner couples".

However, there is an element of smoke and mirrors about this as double earners will get an extra €5,000 a year tax allowances for going-to-work costs for second earners. So in reality, double income couples will remain better off. Mr Michael Noonan, the Fine Gael leader, has said that reversing individualisation is the number two priority on his tax-reform list, but has given himself five years or more to do this.

The increased public spending planned by Fine Gael will cost €5.7 billion a year by the time it is fully implemented in 2007. The difference between the cost of the programmes and the €9.7 billion that is available in 2007 is Fine Gael's comfort zone, and allows for project over-runs.

In an election campaign that has been characterised by clever accounting, the Fine Gael economic prospectus is arguably the finest example.

The party predicts it can deliver on tax cuts; increase spending on services; fund the National Development Plan; pay into the National Pension Reserve Fund; start a new General Contingency Fund; and stay in the black as far as Brussels is concerned.

Fine Gael promises that the General Government Balance - used by Europe to assess economic performance - will remain in surplus, something no other party has dared suggest. Even the Progressive Democrats are only committed to keeping the figure "close to balance". The General Government Balance is the Exchequer deficit adjusted for various credits such as money put aside in the National Pension Reserve Fund and the surplus on the fund set aside for social welfare payments.

Although Fine Gael expects to run Exchequer deficits of up to €3 billion - like the other parties - it predicts that the General Government Balance will never fall below €100 million.

The main reason, according to Fine Gael, is that it would spend up to €2 billion a year less on capital projects than the other main parties.

In addition, it will fund the capital expenditure in ways that are more friendly to the General Government Surplus than the other main parties.

The party has not spelt this out in detail and the other parties may well challenge their analysis, but such a tactic will become a dispute about accounting rules that will excite the imagination of very few voters.

In the meantime Fine Gael can claim, not surprisingly, to be the best Europeans.