The introduction by the Government of a Spring statement on the public finances, due to be published next week, is welcome, as it will inform debate on the financial options facing the State. The cutbacks made during the economic crisis and the return of economic growth are creating some room for manoeuvre in budget management. The Spring statement will outline how the numbers might add up for the coming years and, as such, will form the basis for much of the debate in the run up to the next general election.
The turnaround in economic growth has been quicker than expected. If growth continues as expected – and this is a big if – then reducing the deficit and the national debt burden becomes easier to achieve. From a position of crisis cuts a few years ago, we now have choices.
It is important to recognise the significant progress that has been made, but also to keep it in context. There is still work to be done to eliminate the deficit and reduce debt to a more manageable level. Whatever plans are put in place for the next few years must have this as a priority. If economic growth falls away at some stage, then we need to have some leeway and not return to the boom to bust cycle of the past.
Most Government and Opposition reaction to the Spring statement will, no doubt, acknowledge the importance of fiscal prudence and of not putting ourselves in a vulnerable position in future. However with a general election coming into view, there is a risk of a competition to see who can deliver the most by way of tax cuts and spending increases to an electorate jaded by austerity.
It is, of course, appropriate to plan to increase spending and adjust taxes when affordable. But in addition to the danger of spending too much, too soon, there is also the risk of not using resources wisely. People need more cash in their pockets, for sure, and public spending and investment is justified in key areas, but the Government must not be seduced by political expediency into trying to meet the demands of those who shout the loudest.
The Spring statement needs to be seen in the context of public finances returning to a sustainable position, but not quite there yet. What room for manoeuvre there is will relate to EU rules which impose new disciplines on spending and tax. There will not be enough to go anywhere near meeting the demands on this Government, or the one that will follow it after the next general election.
The political challenge will be to balance the message of hope and progress against the need for continued caution. We cannot simply turn the clock back and restore tax and spending to where they were before the crisis. Growth is creating a dividend for the public finances, but it is finite.