The Minister for Finance, Mr McCreevy, will tell the Cabinet tomorrow that spending increases will have to slow down again next year, as efforts intensify to agree the 2004 Budget, write Mark Hennessy & Arthur Beesley.
The Taoiseach, Mr Ahern, gave yet another warning yesterday that the December Budget would be the toughest in years, adding that tax revenues were expected to fall even further behind target by the end of the year.
Tomorrow's all-day meeting of the Cabinet will not reach any final decisions about the Budget, but Ministers will have to accept the broad thrust of Mr McCreevy's thinking on it.
He is expected to tell colleagues bluntly that current spending must rise by no more than 7 per cent approximately, down from the 8 per cent increase allowed this year and the 14 per cent accepted in 2002.
He is under renewed pressure to curb spending because gross national product will rise only marginally next year, while inflation could dip as low as 2.5 per cent, if some economic predictions come true.
The diktat will mean that there will be little, if anything, left for new current spending once €600 million extra is found to meet expected pay rises for public servants under benchmarking.
However, the Government's short-term financial situation has been eased by the Minister's reluctant acceptance that he must borrow an extra €1 billion over the next three years to cover a tax shortfall.
The ability of spending Departments to keep in line with the monthly spending statements demanded by the Minister for Finance has also heightened hopes that spending can be curtailed. Under Mr McCreevy's predictions last year, Ireland's general government balance, which is the key EU measurement, is expected to rise in 2004 to 1.7 per cent, still safely under the EU's 3 per cent target.
The Minister has little room or desire to go closer to the outer limit, particularly since he will be in charge of the Ecofin council of finance ministers in the first half of the year during the Irish EU Presidency.
Equally, Mr McCreevy remains adamant that there will be no cut in payment, set at 1 per cent of GNP, into the National Pension Reserve Fund, a move which has been increasingly demanded.
Under EU budgetary rules, the Government's spending balance would be dramatically worsened by such a move, since the pension contribution is not regarded as spending, whereas infrastructure is.
Ministers will gather in Government Buildings at 9.30 a.m. and their meeting is scheduled to go on until 5 p.m., one of the longest such meetings chaired to date by the Taoiseach.
A flurry of wild predictions about cuts and new taxes in coming months, covering SSIAs etc, will suit the Government since it will prepare voters for draconian cuts, against which the Budget itself may come as a relief.
Meanwhile, the Government has rejected renewed suggestions that it might restrict the Special Savings Incentive Account scheme to ease pressure on the public finances.
The Taoiseach said Mr McCreevy had made it absolutely clear last year that he would not change the rules of the scheme, in which savers receive €1 from the Government for every €4 they invest.
"And he has said it since that he has no intention of capping, changing or restructuring it. That is still the position. The Minister emphatically said that he was not going to do that. And, of course, it subsequently happened that he didn't do it. We'll be at that this week," Mr Ahern said during the opening of a hospital service on Dublin's north side.
Earlier, the Department of Finance said Mr McCreevy had not said anything in recent times or in the past year to suggest that his position on SSIAs had changed.
The Special Savings Incentive Accounts will cost the Government €525 million annually this year and in each of the next three years, heightening the shortfall of tax revenue being experienced by the Minister for Finance.
Last year Finance officials warned that changes would undermine public confidence in any future State schemes, such as the new Personal Retirement Savings Accounts (PRSAs).