Despite its overall optimism the NESC report stresses that the ability of the State to handle rising expectations will depend very much on fiscal developments. The council has made "tentative projections" of the fiscal position to the year 2005.
On the one hand it assumes real annual economic growth of 5 per cent and inflation of 2 per cent. This gives a nominal increase in GNP of 7 per cent.
Assuming that tax revenues and public investment run more or less in line with GNP, at 6.5 per cent and 5 per cent respectively, this would allow a real growth in tax revenue of 4.5 per cent a year.
Even if the real rate of current expenditure continued at 6 per cent, the average rate which prevailed throughout the 1990s, the Government would still be able to balance its books up to 2005. It might show a slight surplus, even allowing for the declared intention of the Minister for Finance to invest 1 per cent of GNP a year in a new public pension fund.
However, if economic growth slowed to around 2.5 per cent, which is nearer the EU average, then "a large deficit of 4 per cent of GNP by 2005" was likely. This would mean breaching "by a wide margin" the terms of the EU Stability and Growth Pact.
"The council believes that, over the three years to 2002, the real increase in public expenditure should, at a minimum, correspond to the real growth rate of GNP in order to stabilise the current budget surplus (excluding privatisation receipts) at close to its present level. Such a target implies a significant slowdown on the trend increase in current public spending during the 1990s.
"The reasons for running a large fiscal surplus under present conditions are: to provide the resources for public infrastructure investment, to leave fiscal policy with room for manoeuvre should there be an unexpected and serious deterioration in the economy, and to repay some of the debts incurred when the economy was weak in the past.
"Moreover, each of these steps would enhance the credibility of Irish economic policy."