A table represents the best way of measuring the deterioration in our public finances over the past two years. It compares the first estimate made by the Department of Finance of next year's budgetary outturn, which was published two years ago on the occasion of the Budget of December 6th, 2000, with the revised estimate for 2003 published by the Department a year later, and also with the latest ESRI estimate of the 2003 Budget out-turn, which was published two weeks ago.
At the bottom of the table are to be found also the estimates of national output in 2003 that were made at each of these three stages.
The slowdown in the world economy has, of course, had a negative effect on our national output, and in terms of the value of our GDP this has been only partially offset by our higher inflation rate.
As a result of this, the ESRI now believes that our GDP next year will be 7.5 per cent lower than the Minister for Finance quite reasonably believed two years ago to be the likely case in 2003. Because of this lower level of nominal GDP, the current revenue accruing to the Exchequer is now about €2.7 billion less than the Minister had assumed two years ago.
In last December's Budget documentation the Department of Finance revised its revenue projection for 2003 in the light of the huge shortfall in tax revenue in 2001, reducing its current revenue forecast for 2003 by over €4 billion, or 11 per cent. In view of this year's further large revenue shortfall, the ESRI believes that the tax revenue figure for next year now needs to be cut by a further amount of over €1 billion.
This means that next year's current revenue is likely to fall short of the Department's December 2000 forecast by a total of €5.25 billion. Barely half of this is explained by the economic slowdown, which has made it necessary to reduce forecast GDP for 2003 by just over 7 per cent, so the revenue shortfall arising from badly-planned tax cuts or other errors has been about €2.5 billion. One-sixth of this was due to a gross miscalculation of the cost of the SSIA savings scheme, but there remains a further €2 billion revenue shortfall that has yet to be explained.
On the expenditure side, the ESRI believes that, even after the massive spending "adjustments" which the Minister for Finance is now seeking from his colleagues, current spending will rise by a further 10 per cent next year, to a figure that will be €2.5 billion above that which the Minister announced for 2003 when he introduced his December 2000 Budget.
As will be seen from the percentages at the bottom of the table, the proportion of GDP absorbed by current public spending next year is now expected to be fully one-sixth higher than the Minister had thought would be prudent a mere two years ago.
To sum up, even after the painful spending "adjustments" that have yet to be made, the current budget outturn for 2003 is likely to be €7.2 billion worse than the Minister foresaw two years ago, and of this barely one-third can be explained by the downturn in the economy.
The remainder is accounted for by: the introduction of the SSIA scheme costing €0.5 billion; a Revenue miscalculation costing €2 billion; and spending in excess of the Government's own target, costing €2.5 billion. Together these three items add up to a total cost of €5 billion.
Given that our Budget now involves total spending of €36 billion, this error of €5 billion amounts to 14 per cent, or one-seventh, of the total Budget.
So far no explanation has been offered of how such huge mistakes were made in the last two Budgets by Charlie McCreevy. And, until now at least, he has appeared notably unwilling to rein in the disastrous anti-social transfer of €500 million from taxpayers to the better-off section of our community, namely those who can afford to save money in this way.
He has also seemed resistant to any idea of a temporary crisis-year diversion of the €1.1 billion pre-pension fund payment to other uses, such as the Capital Programme.As an economist I would make two other suggestions. First, given the damage done to the economy by the present high rate of inflation, I would at all costs avoid expenditure tax increases that would further push up the cost of living.
Most of the revenue shortfall we now face seems to have been due to ill-thought-out income-tax reductions, the cost of which was grossly miscalculated. If, as now seems likely, more revenue is needed it should be sought instead from high-income taxpayers who have been the main - partly inadvertent - beneficiaries of many of the miscalculated tax cuts of recent years.
Second, I would re-examine the roads programme. Why, and in what circumstances, was a decision taken to reclassify for motorway treatment many stretches which as recently as 1998 had been identified by the expert National Roads Needs Study as requiring only dual carriageway roads in order to cope with traffic growth up to 2019?
This seems to be an area where painless economies could now be made.