As yesterday's publication of the Estimates underlines, the Minister for Finance, Mr McCreevy, is in an enviable position when it comes to framing his Budget on December 2nd next. With the economy continuing to register record levels of growth, it appears that the Minister will be able to provide tax cuts of £400-500 million, while still showing a surplus of about £1 billion in Government finances next year. A more ominous sign is that the Minister appears unlikely to be able to keep to his 4 per cent limit on current spending. And the inexorable rise in public service pay continues. Despite the record level of growth, there are few signs of any tightening of budgetary policy. Full judgment will have to await the delivery of the Budget package, but it appears that the Minister has opted for an expansionary approach including tax cuts, a plethora of new spending commitments in health, education and welfare and, critically, an extensive capital spending programme.
There are considerable inherent dangers in the Government's plan to inject a further £1 billion into the economy in extra current spending, at a time when it is enjoying such robust good health. Not least among them is the danger that the Minister's approach will trigger further inflationary pressure in an economy which, with interest rates at a historic low, is already powering ahead. For all that, there is no reason why the tax cuts package in the Budget should be inflationary, provided it is genuinely focused on the low paid. On the contrary, it may be that it may help to dampen some of the pent-up wage pressures in the economy, as well as making it more attractive for some people on welfare to return to work. The increase in capital spending - 23 per cent last year, 26 per cent for this year - also makes good sense at a time when the still underdeveloped nature of our transport infrastructure, in particular, could inhibit further economic growth.
In many respects, the Government is making up for lost time; our infrastructure is now increasingly out of kilter with the booming economic performance; there is, in the Minister's own phrase, an infrastructure "deficit". However, it is essential that there is a clear focus on value for money in new investments being made, which has not always been the case in the past. Few fair-minded citizens would question some of the other spending commitments: the additional investment in primary education, the extra spending on health and welfare, the allocation of monies for the 50-metre swimming pool and plans for the refurbishment of Mountjoy Jail are all designed to address very serious, in some cases shameful, inadequacies in our society.
Overall, however, the Government has much to do in holding day-to-day spending in check, a task which will become more difficult if economic growth slows. In particular, it will come under pressure to allocate more money next year to public sector pay. The Government's main challenge remains to keep the economy on course and contain inflationary pressures, as we head towards the single currency, while trying to ensure that all sections of society benefit from the strong economy. It can help to achieve this by directing budgetary tax reductions at the lower paid and pledging to keep public sector pay next year within the targets outlined in the Estimates.