ANALYSIS: In an attempt to control overspending, the Department of Finance has now moved back into the driving seat, writes Cliff Taylor
Government ministers had two options when considering how to compile and present this year's estimates. They could try to gently apply the brake, trim back on some spending plans and hope that they would be rescued by an economic recovery next year. Or they could don the hairshirt and aim to sharply slow spending.
The clear indications now are that they have adopted the second approach. The spending ministers, used to getting their way in recent years when spending has galloped ahead by some 20 per cent per annum, have been told that it has to stop. Backed by the Taoiseach and the Tanaiste, the Minister for Finance and his officials have prevailed in discussions on the estimates. The Minister will today announce spending increases for next year in "low single-figure" percentages - and he will say that he intends to stick to them.
The announcement will see the Department of Finance move firmly into the driving seat. Over the past couple of years the Department has had to look on - apparnelty powerlessly - as Exchequer spending surged ahead. Now measures will be put in place to try to keep a lid on spending and to make sure that it remains within target.
The political gamble for the Government is simple: get the pain out of the way early and hope that more largesse can be distributed in the years ahead.
However, ministers know they are going to face some very considerable flak. The need to slow spending so sharply is a direct result of allowing it to run so far out of control over the past couple of years. Had a tighter rein been kept on the State finances, the adjustment now would be much less painful. As it is, the Government lost control of spending before the election and - despite all the post-election talk of " adjustments" - has completely failed to get it back on track in the meantime.
Instead day-to-day spending, having risen by 22 per cent in 2001, is running 20 per cent ahead again this year. The increases in capital investment spending have been at similar levels.
Even if the economy had kept growing rapidly, this would have been unsustainable. But given the slowdown, the Exchequer will slip heavily into deficit unless spending growth is slowed very sharply next year. This is now all the more important as the international economic outlook is poor, and this will affect tax revenue buoyancy next year.
Most damaging for the Government is that the money it has spent has still left the economy with a creaking infrastructure and inadequate services to the public in a range of areas. To an extent this reflects the legacy of past under-investment. However, much is also due to poor management of spending, which sees the National Development Programme behind schedule and huge increases in areas such as health only leading to a limited increase in service levels to the public.
On day-to-day expenditure the Government now faces huge challenges both to keep the lid on spending - remember public pay increases are still on the negotiating table - and to ensure it gets value for money in what is spent.
Looking at the capital investment budget, much emphasis has been put on the potential of public-private partnerships; but as a report yesterday from A.& L. Goodbody solicitors points out, the Government's whole approach in this area remains unclear.
Having got back into office following a spending splurge, the Coalition partners are now being forced to abandon election promises and hack back spending plans.
Budget policy over the past few years will thus have added considerable cash to the economy at a time when it was booming, but will not add any funds next year, when it could do with a boost. This is precisely the opposite course to that which would be advised by orthodox economic theory.