COMMENTARY: the days of soaring tax revenues are over and the next finance minister will have to decide how to allocate limited resources, writes Cliff Taylor
The boom is over, so where has the money gone? The Government's handling of the fruits of the Tiger economy will be a central issue in the forthcoming election campaign.
The Fianna Fáil/PD coalition trumpets the transformation of the economy under its stewardship, while the Opposition claims that billions have been frittered away and a huge opportunity missed.
One thing is for sure; whoever succeeds Charlie McCreevy as finance minister will have much tougher choices to make, as reality returns to the Exchequer arithmetic after a period when the normal rules appeared to be suspended and every budget brought lower taxes, higher spending . . . and the promise of more to come.
The Minister was not slow to use the opportunity announcing a string of generous budgets. This strategy did involve risks. By injecting so much money into the economy, the Government contributed further impetus to an economy threatened with overheating. Measures such as the big reduction in the top tax rate further pushed up already-soaring property prices.
The generous 2000 and 2001 budgets, in particular, risked adding fuel to an economy already firing on full cylinders. As it turned out, the boom ran out of steam in 2001, easing inflationary pressures.
A budget which looked over-generous when it was delivered in December 2000 did not carry the same risks by the middle of 2001 when the combination of foot-and-mouth disease and the technology downturn had taken the steam out of the economy.
Mr McCreevy's five budgets will be best remembered for their radical transformation of the tax system, significantly increasing the amount which employees take home.
Such has been the extent of the reform that the election campaign will be the first in many years where lavish "tax packages" will not be used to lure voters. Ireland is no longer a highly taxed State and the public is now focusing much more on public services.
The transformation of the tax system has been fundamental and important. This is not to say Mr McCreevy finished the job. He might have done more for lower-income employees and high tax rates can still kick in at relatively low-income levels, particularly for single employees and single-income couples.
The Minister's individualisation agenda - of particular benefit to two-income families - was controversial. It did increase the incentive to work for couples to both stay in the workforce, but at the expense of attracting the ire of their single-income counterparts. It raised a fairness or equity issue which will feature in the campaign.
While Fianna Fáil and the PDs will not be slow to trumpet the tax reductions in their term in office, their record on spending will attract more Opposition fire. Investment spending has risen rapidly, although the ambitious targets in the National Development Plan are being missed. Shortage of money is not the main reason why the programme is behind schedule, rather factors such as planning delays and tardy assessment, decision-making and implementation have slowed progress.
THE Government has provided the plan and started to put the money in place, but its management skills and those of the public service have fallen short in many cases and a strategic approach to setting and implementing investment priorities is missing. If the Republic's economic progress is to be sustained, this is a key issue.
The coalition spent too much time, it seems, arguing about high-profile projects such as the "Bertie Bowl" and not enough setting in place a structure capable of delivering the development plan. However it does deserve plaudits in one area - that of pension planning - where a decision to pay money each year into a national pension fund to deal with an ageing population is a wise move and one which should not be reversed by any incoming administration.
The Government's key weakness in the area of public finances has been its control of current spending, which has been allowed to soar. Critically, the level of public services has not seemed to improve commensurately. In short, the Government has not ensured sufficient value for money from the extra cash it has spent.
This value-for-money question will be central to the forthcoming campaign. The public perception is that the billions poured into areas such as the health service are simply not reflected in a better quality of service. It is hard to argue with this conclusion.
Certainly, extra spending in some areas has been required merely to make up for gross under-funding from past cutbacks. However, as with investment spending, the Government has struggled to put in place coherent programmes which deliver planned improvements over a period of time; only in recent months, for example, has it published a medium-term health strategy, while its record on tackling social disadvantage is decidedly mixed.
Part of the Government's difficulties is raised expectations, particularly in public-sector pay, where health and education employees among others believe that in a modern economy they should be paid more. Part of the reason why higher spending does not always lead to better services is that it is going in extra pay to public servants (which is not to say that in many cases extra money is not deserved.
Rapidly rising current spending and the expectation of powerful public service groups that a process of benchmarking their pay now under way will deliver substantial pay rises provides a dangerous backdrop to a deteriorating public finance position. Fortunately, the overall Exchequer position is still sound; however, the days when soaring tax revenues allowed the minister great latitude are over.
Normal transmission has now resumed and the next government will face the familiar need to decide how to allocate the limited resources at its disposal and, crucially, how to ensure that the money is well spent.
Cliff Taylor is an Irish Times journalist and former finance editor