The Government will have to borrow up to €1 billion (£790 million) to meet spending commitments next year as the economy heads into a substantial downturn.
With the government gearing up for a general election in 2002, the Minister for Finance, Mr McCreevy, has had to cut expenditure in many departments in the Estimates for next year which were published yesterday. This will allow him to spend substantially more in the politically sensitive areas of health, education and social welfare.
But the minister has had to slow the pace of investment in capital projects, such as roads, provoking Opposition claims that the National Development Plan has been virtually shelved.
For the first time since the Rainbow Coalition was in office in 1997, the Government will have little choice but to resort to borrowing as declining growth, rising unemployment and falling tax revenues take their toll on Exchequer revenue in the run-in to the general election.
So far Mr McCreevy is budgeting for a 9 per cent increase in the day-to-day running of Government departments - amounting to €22 billion (£17.3 billion). But the Minister announced a rise in capital expenditure of just five per cent - to around €5 billion (£3.9 billion), less than the rate of construction industry inflation.
The Opposition attacked the move, warning that the much vaunted transformation of Ireland's infrastructure might now never happen. Fine Gael's Finance spokesman Mr Jim Mitchell said the reduction of projected spending on roads, railways and other projects was "particularly disappointing". Labour's finance spokesman, Mr Derek McDowell, said the National Development Plan had been "shelved".
Mr McCreevy insisted the Government should not spend money it did not have, although he said some new spending projects would be announced in the Budget on December 5th.
The extent of any new infrastructural commitments will depend on the scale of tax cuts and social welfare spending increases agreed in the interim as well as the buoyancy of the Exchequer finances at the end of November. But Mr McCreevy is understood to have set his face against substantial increases in borrowing next year.
Fine Gael has warned that the Government will have to borrow as much as €1 billion - the largest amount since 1987. However, that would amount to a deficit of less than 1 per cent of GDP under EU rules, well within EU guidelines.
As the economy slows, the Department of Finance is expecting an average of 155,000 on the live register next year from 142,000 this year. It is predicting growth in GNP of closer to 2 per cent.
The Minister found substantial funds for key election battlegrounds such as health and education which will see spending rise by around 13 per cent, paying for 2,500 new health professionals and 1,290 in the education service next year. This amounts to around €800 million for health and €540 million for education.
The bulk of spending is on the public service pay bill which will rise 11 per cent to €11.2 billion (£8.8 billion) with non-pay projects up a far smaller 7 per cent. The pay bill does not include any provision for rises under the benchmarking review which is due to report next June.
Social welfare also received large increase of 8.5 per cent, a rise of €350 million. However, this does not take into account any increase which will be announced on Budget day.