The Minister for Finance, Mr McCreevy, rediscovered words like "prudence" and "caution" yesterday when presenting the Government's spending Estimates for the year 2002. He spoke of an unexpected slowdown in the economy and of an altered international trading situation. In spite of that, he has determined that current spending will rise by 9 per cent - with further increases to come through the benchmarking process next June - while capital spending on necessary infrastructure will tumble to 5 per cent.
Last year, Mr McCreevy ignored the advice of the Central Bank and the European Commission and planned for a 13 per cent spending increase in a booming economy. The out-turn came to a whopping 21 per cent. This year, with the economy slowing rapidly and growth for the coming year unlikely to exceed 2 per cent of GNP, the Minister for Finance has provided for a rise in overall spending of 8 per cent. No doubt, there will be a significant over-run by the time the effects of the December Budget and related supplementary estimates take effect. It is a far cry from Mr McCreevy's election commitment to keep annual spending increases to 4 per cent during the lifetime of this Government.
With a general election pending, the big-spending departments of Health, Education, and Social Welfare have been allocated the largest increases. But some departments have had their funding cut. Health will get 14 per cent, as against 13 per cent for Education. But the full increase for social welfare will not become clear until after next month's Budget. The bulk of the new funds will go on pay and pensions.
It is clear that the Government anticipates difficult times ahead. Unemployment is expected to rise by 12,000 next year. FAS grants for the retraining of workers will be increased. And IDA funds for the attraction of foreign investment will remain static. On the basis of these and other indicators, tax receipts are likely to remain flat. And the Minister spoke of widespread uncertainty about the timing and pace of any pick-up in the global economy.
These spending Estimates fly in the face of everything the Minister once held dear. In the run-up to a general election, Mr McCreevy has been persuaded to devote the bulk of available resources to current spending on health, education and other worthy plans while cutting back sharply on capital projects. There is no doubt that difficult and painful decisions were taken in framing these Estimates. And some Ministers will feel badly done by in the allocation of resources. But the balance is askew. Capital spending increased by 23 per cent this year and the National Development Plan is still behind schedule.
Inflation within the construction industry has been running at about 12 per cent. In that context, a 5 per cent increase in capital spending will not prepare us for an economic up-turn.