The Minister for Finance, Mr McCreevy, will have to borrow large amounts of money for the first time in four years when he presents his Budget to the Dβil next Wednesday. The Exchequer borrowing requirement for 2002 will amount to €655 million (£515 million) before any Budgetary measures, according to estimates of receipts and expenditure published this morning by the Department of Finance.
The Budget measures will push up this figure substantially. There will be extra spending on social welfare, health, education and infrastucture. With a general election less than six months away, the Government will be anxious to deny the opposition parties popular issues on which to campaign. And, in that regard, the health services may receive extra funding in order to provide for an extension of medical card eligibility. Some tax reductions will further add to borrowing.
There has been a spectacular reversal in the Government's financial situation. The current year will produce a bare surplus of about €300 million, instead of the whopping €3 billion plus that was envisaged last December. As late as last August, officials were talking about a €1 billion surplus this year.
The situation would be far worse if the Minister for Finance had not transferred the proceeds from the sale of the ICC and TSB State banks into the Exchequer, along with the income from the DIRT amnesty. In other years such money could have gone towards debt repayment or into the national pension fund. The fall in Government revenues can only be partially accounted for by last year's cuts in income tax rates. Economic activity has slowed sharply. Capital taxes fell heavily and that trend is expected to continue next year.
Mr McCreevy has already committed himself to a cautious and prudent fiscal approach because of the rapid and unanticipated deterioration in the international and domestic economies. His spending estimates for next year allow for a 9 per cent rise in current expenditure. But spending on capital projects has been held to 5 per cent. The Minister has indicated a desire to increase capital spending further on Budget day, if the demands of his Cabinet colleagues for extra current spending can be resisted.
Against this background, the Budgetary priorities are straightforward. Mr McCreevy's previous packages have been reforming - and have included many progressive measures - but have disproportionately favoured the better off. This time, tax relief must focus on the lower paid and social-welfare recipients should be generously treated. Also, extra spending on infrastructure would be welcome, to remove the key bottlenecks to growth, as part of a package which could focus on building competitiveness and readying the economy to benefit from an international upturn.