Holding to his target of limiting the increase in current spending to 4 per cent annually now appears next to impossible for the Minister for Finance, Mr McCreevy. Even taking the average increase over the 1998 Budget and the upcoming Budget, the Minister looks likely to exceed the 4 per cent target unless he has some fresh expenditure saving up his sleeve. At yesterday's publication of the Estimates and the Public Capital Programme, Mr McCreevy insisted that he would keep within his self-imposed limit of 4 per cent. "Just wait and see," was his answer to how he would manage this, when asked at the press conference.
But current spending is already budgeted to be up 4.9 per cent next year, compared to this year's estimated likely out-turn. Looking at the average annual increase between 1997 and 1999, the total now comes to 3.9 per cent. On the face of it, that leaves room for extra spending of only about £16 million on Budget Day, if the average annual rise over the two years is to be held within the 4 per cent limit.
Last year, additional spending on Budget Day came to over £220 million on social welfare and health changes. Even given the far lower number of people on the Live Register, which is estimated at 210,000 from the 232,000 estimated a year ago, £16 million would clearly not be enough. If the Minister is to provide the generous package to pensioners that he indicated last week, he will certainly have to bust his limit.
He is also coming under considerable pressure from a variety of groups to provide significant extra welfare increases to make up the difference between welfare payments and growing wages.
As a result, he is quite likely to go over the target, although he will probably say that the 4 per cent is an average over the lifetime of the Government and that the annual average will come back below this figure over the full Government term. Some new saving over the 1999 estimates announced yesterday can also not be ruled out as a way to stay within the limits. Still, with economic growth set to slow somewhat in the years ahead, it will get ever harder to hold overall spending in check.
According to Mr Dermot O'Brien, chief economist at NCB Stockbrokers, if the Minister were to deliver even close to the same amount of additional spending on Budget Day as last year, total current spending would rise by 6.5 per cent in 1999 over 1998 or by about 4.7 per cent on an average over the two Budgets. And as Mr O'Brien noted, the Minister may find that a little hard to sell.
Also, further pressure may come on the spending figures outlined yesterday for 1999. The assumption in the figures is that public sector pay will rise by only about 5.2 per cent in 1999. If that were correct it would represent a dramatic departure form the experience of recent years.
In 1998 public sector pay is up £131 million more than was estimated this time last year - giving a total annual rise of 9 per cent - and if a similar percentage rise were to occur in 1999, it would add about £220 million and blow the 4 per cent limit completely, adding about 1.5 percentage points.
Already, public pay rises next year account for over 42 per cent of the total planned current spending increase, or £301 million of the increase in current spending from a total of £423 million, when the £224 million technical adjustment for the new funding arrangements for the local authorities are taken into account.
So the 4 per cent limit on current spending is under serious threat. And the other spending target set in the Government's programme - a 5 per cent limit on capital spending growth - is already long forgotten. The Government argues that capital spending - spending on roads and other infrastructure such as schools and hospitals - needs to rise much more sharply to lay the foundation for future economic growth. Road congestion, for example, is a threat to economic growth in the Dublin region and extra investment spending helps to address this.
Last year, Mr McCreevy increased Exchequer capital spending by 23 per cent and this year by a massive 26.6 per cent. The overall increase in the Public Capital Programme next year including internal semi-state spending comes to around 18 per cent, again after adjusting for the new funding mechanism for local authorities which means they will pay for spending in areas such as roads from their own resources - including motor tax receipts - rather than from funds coming directly from the Exchequer.
The Minister believes that capital investment is vital to the future economic development of the State.
The money will go to projects in health, housing, road and rail, education, sport and recreation. Public Enterprise will get the largest share at £90 million, of which £20 million is carried over from last year for Luas funding.
The overall result of the 1999 spending plans is likely to be a smaller projected surplus of Government revenue over spending next year than many analysts had been predicting. Mr O'Brien said he is now expecting a surplus after the Budget of around £1.1 billion. The Government's forecast that the surplus this year will be around £800 million - criticised by some forecasters as too low - now looks to be about correct.
This year's surplus will be used to reduce the national debt. But with strong tax revenues continuing into 1999, Mr McCreevy will face a favourable Budgetary picture when he tots up how the Exchequer finances will look in the light of the planned spending figures. The strength of the economy is such that even allowing for the substantial rises in spending, a generous tax package can still be afforded. It appears that there is still no problem with Mr McCreevy delivering a full-year tax cutting package of about £400 million. Given that tax cuts do not come into effect until April, that would come to roughly £260 or £270 million in terms of the cost to the Exchequer in 1999.
The shape of this package will now be finalised in discussions between Government ministers. The tax package will certainly be "sold" as one to benefit low to middle-income earners. But it remains to be seen whether the Government can resist the temptation of also giving substantial gains to higher earners in an attempt to win favour with the electorate.
There has not yet been a decision on how much will go to widen the standard rate income tax band and increase personal income tax allowances.