The half-year Exchequer figures reveal a continued deterioration in the national finances. Any temporary tactical advantage this might confer on the Government in the debate over implementing the benchmarking awards, is outweighed by the long-term consequences of its failure to control spending and manage revenue.
Indeed, the Government's grip on the economy is starting to look unsure. Yesterday, the Department of Finance conceded that tax revenues this year could be €500 million below the Budget target. A number of explanations have been advanced but none of them is really convincing.
The shortfall in income-tax revenues will probably be compensated for by revenue from a number of sources that were not anticipated on Budget day. As a consequence, the Minister for Finance may yet finish the year with the €170 million surplus he forecast. But even this, is contingent on spending growth for the year being pegged back from its current level of 21.1 per cent to the Budget target of 14.3 per cent. The odds on this happening lengthen as we pass the half way mark of the year .
Balancing the Budget is the fundamental fiscal objective of any Government. But for this administration, it is in danger of becoming both an end in itself and a substitute for prudent management of the public finances. Achieving surpluses through a combination of luck and creative accounting is preferable to running deficits, but it is not much of a long-term strategy.
It is imperative that the national finances are returned to a situation where moderate day-to-day expenditure can be paid for out of sustainable sources of revenue, such as taxation. Controlling expenditure is a perennial issue for any administration, but it now looks as if this Government has a serious problem on the revenue-generating side.
A number of factors have been advanced to explain the shortfall in income tax that is at the heart of the Government's revenue problem. These range from changes in the tax year to slow economic growth. Neither stands up to much scrutiny. The changes in the tax year were known in advance of the Budget and economic growth this year is set to match, if not exceed, the 3.9 per cent target set by Mr McCreevy on Budget day.
Income-tax receipts are the single biggest contributor to the Government's coffers, accounting for almost one third of tax revenues. Whatever is causing the deficit, it is vital that it be addressed quickly. Mr McCreevy cannot afford another shortfall in tax revenues next year. And it is worth noting that he was careful yesterday not to rule out tax increases. In this, he echoed the sentiments expressed by the Taoiseach at the weekend.