If the economy is well managed by an incoming government it will be possible to build on present prosperity. If an incoming government is riven by division or if it is prisoner to ideological extremism, that prosperity may be undone. It is this stark reality which brings the political debate well beyond the question of who offers the best tax package. Control of public spending will be a crucial task for the new government, not only to leave room for tax cuts but to ensure a continued stable economic backdrop and to prepare the economy for the move to monetary union. Building on the economic uplift, while managing the move to monetary union, will be the key challenge.
There can be no gain saying the impact of EMU. It will fundamentally change the task of managing the economy. Irish policymakers will no longer be able to adjust interest rates to influence the level of economic activity, while the value of the currency will be irrevocably linked at a fixed value against the other member currencies. Policy autonomy in these areas has, of course, always been limited. But from January 1st, 1999, it will disappear completely. Management of the Budget will be central to ensuring overall economic stability. The rules of the stability pact - which will govern members of monetary union will limit the overall level of borrowing to 3 per cent, at most, of national output and will put pressure on member states to hold borrowing even lower than this level. But it is essential if monetary union is to work that member governments have sufficient scope to adjust their budgets within these rules.
For Ireland, such budgetary flexibility is essential. Britain will not join monetary union on day one, although there is a chance that the government will seek agreement for sterling's entry not too long thereafter. But Irish policymakers cannot rely on this. We must have sufficient flexibility to respond to adverse circumstances such as a sharp fall in sterling by adjusting taxes and spending levels.
This will present the government of the day here with an extraordinarily difficult balancing task. It must continue to run a surplus on the day to day running of the State the current budget while moving towards balance on overall exchequer borrowing over the next three to four years. It can point out that last year the current budget was in surplus and it has budgeted for a surplus this year. But it is a most serious flaw in this Government's record that it has consistently missed its own spending targets. And it has not emphasised the need for greater control during the campaign to date. Coalition Ministers must be asked whether they will show more commitment to the spending targets in Partnership 2000 than they did in their Programme for Government.
Fianna Fail has made an issue of spending control and has made some important proposals in this area. Its potential partners, the Progressive Democrats, have also called for much tighter control on spending. But the PD proposal to reduce the size of the public service by 25,000 over five years, while at the same time leaving front line services in areas such as health and education unaffected, simply does not add up. A key factor in maintaining stability will be to build on the partnership approach where the government, trade unions and business plan the future together. The PD approach, which Fianna Fail has sensibly declared it would not adopt, would be certain to disrupt such consensus.
The incoming government will have to grapple with the whole issue of public sector pay, which is central to spending control. And beyond that it will have to look at all the various tools necessary to continue to build competitiveness, moving into monetary union. Tax reform is one aspect of the agenda but there are others which have to take precedence. Stability has been the key to Ireland's recent economic successes. The key question as the election approaches is to determine which party or combination of parties can best maintain a firm hand on the economy while moving it confidently into monetary union.