The Minister for Finance, Mr McCreevy, has finally abandoned the pretence that the exchequer finances will be in surplus this year. In a statement with yesterday's exchequer returns, he conceded, for the first time, what most forecasters had been predicting for months - that the Government would have to borrow this year to balance its books.
The returns make grim reading. The Department of Finance predicts that tax revenues this year will be €1.3 billion below the Budget target. Even if the Government manages to get spending back into line - which is most unlikely - significant borrowing will be needed. The Minister yesterday predicted a deficit of €750 million for the year.
Both sides of the Budgetary arithmetic are now a cause for concern.
On the expenditure side, current spending is running 20 per cent ahead of last year, compared to a Budget target of around 14.5 per cent. A very sharp slowdown in spending growth would now be required to achieve the Budget target and this looks unlikely.
Taxation trends are also worrying. On Budget day, the Minister predicted an 8.6 per cent rise in tax revenue this year, but by the end of last month the increase was just 2.6 per cent. The main shortfalls are in income and corporation taxes, which are both running way below target levels. There has been a slight revival in tax trends over the past couple of months - perhaps suggesting some modest pick-up in the economy - but the SSIA scheme, which is significantly depressing tax revenue, is now looking like a particularly costly mistake.
The financial trends, which point to a stringent Budget in December, provide further bad news for the increasingly beleaguered Government. Ministers can claim, with some justification, that the shortfall in tax revenue is greater than might have been anticipated a few months ago, but it was evident from early in the year that tax revenue was weak.
However, the two government parties have no defence on the spending trends. Current spending has been allowed to soar over the past couple of years and, with the economy now slowing fast, a particularly painful adjustment lies ahead. For all their talk of prudent management, Fianna Fáil and the Progressive Democrats are now faced with undoing a mess of their own making.
The underlying trends must be returned to a sustainable track. As the Economic and Social Research Institute commented yesterday, this indicates a prudent Budget is appropriate, in the hope that tax trends may start to revive next year . A key focus must be on value for money. Spending has surged over the past couple of years, but the level of services to the public have not improved commensurately. Not only has spending been allowed to run out of control, but there appears to have been little emphasis on securing value for what was spent.