Spending growth had to be slowed from the unsustainable rates reached before the last election and the 2004 Estimates represent the completion of this process.
They allow for a rise in total spending of 5 per cent next year and this is likely to rise to around 6 per cent on Budget day, when social welfare increases are added. This level of increase should roughly match the extra resources available from taxation. As the Minister for Finance, Mr McCreevy noted, when presenting the Estimates, this is the kind of level of spending growth which is likely to prevail over the next few years. Even if the recovery gathers pace, the likely rates of economic growth - and thus the prospective revenue increases - will be much more modest than in the late 1990s.
While the overall level of spending increase thus seems appropriate, there are difficulties when the details of the Estimates are examined. Services to the public will remain under pressure and the public faces new charges in a range of areas. By their nature many of these charges are regressive - hitting the less well-off harder. However, the Government seems prepared to carry the political cost, favouring this route to any increases in mainstream taxation.
The central issue is the big increase in the public pay bill next year, which has restricted the cash available in other areas.The Government points out, with some justification, that public servants are central to the delivery of better services - and that they must be paid properly. Before the end of the year, under the benchmarking process, public servants are due to agree on programmes delivering better services, in return for their additional pay awards. Final judgment will have to await the publication of these programmes, but from what we know so far it does not appear that the process will deliver the level of change required to justify the additional payments.
The allocation for State investment spending next year is also disappointing. Investment in this area remains at a relatively high level, but given the considerable infrastructure needs of the economy, it is disappointing that spending in this area will fall as a percentage of Gross National Product next year, for the second year in a row. However, in a welcome move, the Minister will outline a five-year plan for investment in this area as part of the budgetary process. It is to be hoped that this shows a rising allocation in cash terms to maintain spending at 5 per cent of GNP or more over the period.
The indications now are that the Budget will be a holding exercise as the Government hopes that a recovering economy will kick in next year. However, Ministers must realise that there is much work to be done.
The Estimates show that the focus must be on achieving better value for money by pushing through reforms in health and other areas. In an era when spending increases will be limited, this is the only way to deliver better public services and efficient investment programmes.