Last Saturday I wrote about the poor shape of our national finances following last year's disastrous failure of the Minister for Finance to control public spending, which led to an overrun of €800 million. I also pointed out that a further overrun of some hundreds of millions was now likely in the current year, writes Garrett FitzGerald
The April returns published on Thursday show that current expenditure other than debt service for the first four months was running 21 per cent ahead of last year's level - in other words, it has been rising half as fast again as was budgeted by Charlie McCreevy last December.
If that rate of overspend between January and April were to continue for the rest of the year, the total expenditure overrun this year would be €1.5 billion.
The Exchequer returns now show that revenue from income tax has been running 11 per cent below last year's level, whereas it had been budgeted to rise by 3.5 per cent. In other words, there is now a shortfall of almost 15 per cent in income tax receipts vis-à-vis the budget figure. Moreover, revenue from stamp duties (much of it consisting of payments in respect of house purchases), which had been projected to equal last year's out-turn, has been running one-third below the budgeted level.
If these trends continue until the end of the year, and even if all other taxes are in line with Budget forecasts, there would be a revenue shortfall of €1.75 billion. In other words, all other things being equal, we now seem to be on course for an overall budget deficit of more than €3 billion.
For the purposes of the EU Stability and Growth Pact, the budget out-turn is, however, calculated on the basis of what is known as the General Government Balance, which is a slightly more relaxed method of measurement. According to the budget tables, the General Government Balance should this year yield £700 million better than that shown by our traditional budget accountancy.
On that basis, taken together, the April figures for income tax and stamp duty revenue and for current expenditure point towards a general government deficit of about £2.5 billion, or 2 per cent of GDP for the current year. That would bring us disturbingly close to the 3 per cent deficit figure beyond which we would be in breach of the EU Stability and Growth Pact provisions, to which we committed ourselves some years ago.
When one adds last year's overruns and those that now seem to be looming up for the current year to the past two years' miscalculation of revenue, the total amount missing approaches €6 billion. That is a huge scale of error in relation to a budget of around €30 billion. Could special factors account for some of the revenue shortfall and expenditure overrun shown by these appalling April figures? Of course this is possible, but is it likely?
First of all, let us examine the expenditure side. In government, I insisted on the production for the first time of cumulative monthly accounts by departments (unbelievably, no such check on current performance had previously been available), and it was found that while the first couple of months of the financial year cumulative expenditure figures were not a reliable guide to the eventual outcome, by the month of April each year the expenditure trends had stabilised and provided us thereafter with a solid basis on which to identify and tackle looming departmental spending overruns. On the basis of that experience, I would judge that the 7 per cent overrun of current spending shown by the April returns is a valid indicator of a serious problem on the spending side.
What about the April revenue figures? When the March returns were published, the detailed Department of Finance statement accompanying these monthly Exchequer figures commented that the shortfall in revenue that was already evident at that point "should be taken in the context of the budget-day changes which will boost receipts later in the year". But it went on to say that these changes would boost VAT and corporation tax, not income tax or stamp duty - the taxes responsible for the present shortfall.
Thus nothing in the Department of Finance comments on the March figures suggested that the returns for these taxes might improve in the months ahead. For, even if economic growth improves during the course of the year, it will take many months for this to produce a recovery in employment, and thus in income tax receipts.
In the light of these dreadful figures, the vigorous debate between the parties about their future spending plans seems to me unreal. It would have made much more sense for the parties to have asked some economists to give their views on the present financial situation rather than to propose that they should attempt to evaluate the parties' respective spending plans.
If whatever government emerges from this election were to tackle immediately our looming financial crisis, it is possible that by 2004 the spending issues that the parties have all been arguing about during the past week might then become relevant. But all that seems to me to be remote and theoretical.
What we need to hear about now is what the parties intend to do to tackle the financial crisis that has been created by what can only be described as gross mismanagement of our finances since the year 2000. It is understandable that Fianna Fáil should be unwilling to address this issue during an election campaign, but the silence of the Opposition up until Jim Mitchell's critical comments on Thursday is harder to understand.
It has been clear for some weeks now that the Fianna Fáil is hugely vulnerable on this subject. That matter could, and I believe should in the public interest, have been the main theme of the Opposition's campaign from the outset.
The Irish people are entitled to an assurance that the financial crisis is being taken seriously and will be tackled energetically after the election. At the very least, the major government party should be required to face this issue now and be forced to offer some assurance that if it wins this election its new administration will put someone in charge of our finances who has the guts to reverse these alarming trends, and to get our finances in order within the next 18 months.