The spending Estimates published by the Government yesterday continue the prudent, conservative management of the economy which has helped to create the current unprecedented level of growth. The increase in Government spending will continue to be reined in, with an increase of about four per cent in current spending planned for next year. Some extra latitude will be allowed for increases in social welfare payments on Budget day, but the surge in tax and VAT receipts means that the Government has room for manoeuvre to deliver both these increased welfare payments and sizeable tax cuts in next month's Budget. The other notable feature of the Estimates is the planned 17.5 per cent increase in capital spending in areas such as roads, education, the health service and the environment. Some of this is explained by the Government's need to spend money in order to draw down EU funds and by the recent investment in technological education. But the Minister for Finance, Mr McCreevy, insists that the increase - well above the five per cent promised in the Government's programme - reflects a deeper commitment to capital projects.
This, in itself, is no bad thing; the level of capital investment - over and above that funded by the EU - has been woefully poor. And the signs of this are to be seen everywhere; in poor roads and a rudimentary public transport service, in underdeveloped, cash-starved educational services and a lack of basic cultural and recreational facilities. Mr McCreevy has an unprecedented opportunity to upgrade these services and to make a real difference to the daily lives of people in this State - while maintaining overall fiscal discipline.
It is essential, however, that the capital programmes are properly evaluated before any funding is committed. Capital spending should represent an opportunity to build for all our futures; it should not be used to fund projects designed solely to win political favour.
Mr McCreevy's insistence that the growth in public-service pay must be kept in check will find a ready echo with employers and employees in the private sector. What the Minister termed the "upward gallop" in public-service pay, must be halted; increases of 10.5 per cent in the current year and a projected increase of 5.6 per cent next year are clearly unsustainable at a time of very low inflation. But successive administrations have only themselves to blame; the hugely powerful public-sector unions have flexed their muscles and governments have rolled over. Mr McCreevy can extol the benefits of restraint but this Government has still to be fully tested on the pay issue. Of the £426 million increase in spending on providing Government services next year, almost £300 million will go towards extra public-sector pay. In many cases, of course, higher spending on pay feeds through to a better quality of service. But, as in many other area of public-sector spending, there is a need to focus clearly on value for money and to link above-average pay rises to higher productivity.
The Estimates, of course, tell only half the story. In a few weeks time, the Minister, Mr McCreevy, will deliver the 1998 Budget. In presenting the Estimates, he highlighted the need to prepare for monetary union by leaving sufficient scope for flexibility in the exchequer finances. This thinking must now inform the final shaping of the Budget.