The buoyancy of the Irish economy has been confirmed once again by the year-end Exchequer returns released last evening. There is good news on virtually all fronts. The Exchequer surplus at £747 million is the highest in the history of the State; tax revenue is up by no less than 13 per cent, reflecting the sharp decline in numbers on the Live Register; receipts for Corporation Tax have surged by a staggering 21 per cent, as the boom generates more profits and creates more new enterprises. It is clear from these figures that the strength of the boom has confounded the Department of Finance itself - in December 1997 the Minister for Finance, Mr McCreevy, forecast a deficit of some £89 million. In fairness, it may be that the department, like most citizens, was surprised by the sheer scale of consumption and growth in the economy. But it could also be that the department was being characteristically overcautious. Even now, the Government's own growth forecast of six per cent for the year seems very cautious and the basis for this conservative estimate not entirely clear. Some of the same caution was evident in the response of the department and Mr McCreevy to the Exchequer returns. The message is unequivocal: Since successive governments accumulated a deficit of some £30 billion over the bad times, it is now prudent to reduce this during the current good times. In his statement, Mr McCreevy underlined how, in an era of sustained low inflation, "strict control of expenditure remains absolutely critical to achieving budgetary targets".
The central message from the Government is that the same policy mix which helped to drive the current boom will be maintained. But it is also obvious, on the basis of these figures, that the economy is moving into uncharted waters. The debt burden clearly must be reduced and spending kept in check. But there are other options to be considered, notably a stronger emphasis on infrastructural development. The Department of Finance, which has grown accustomed to managing a large deficit, now faces the longer-term challenge of framing a policy which allows this State to build on the current level of prosperity. The Government's more immediate concern will be that the robust state of public finances will fuel further hefty wage demands, as negotiations on a successor to Partnership 2000 begin. Mr McCreevy has moved sharply in recent weeks to lower expectations of substantial wage increases, while the Central Bank has also stepped up the pressure for wage restraint. It is clear that excessive pay rises represent the most serious threat to the current economic success and could damage Irish competitiveness in Europe, leading to an increased risk of job losses and declining foreign investment. Securing agreement on a new pay deal must be the Government's main economic priority for 1999. Social partnership has been, and remains, an essential building block of economic success.