McCreevy promises to stick to 4% spending limit

The Government will maintain a tight rein on spending and will stick to its current spending target of 4 per cent, the Minister for Finance, Mr McCreevy, said yesterday. He said he was determined to keep to the target, first set out during the election campaign and promised in the coalition's programme for government, and that this would be demonstrated when the abridged Estimates are published on Wednesday.

Separately, sources have indicated that the Estimates will show an increase in day-to-day spending next year of less than the 4 per cent ceiling. However, further spending in areas like social welfare will be added on Budget day, which will push up the annual increase.

Speaking yesterday, Mr McCreevy said: "Unless you set yourself an exact target, you have no hope of achieving it at all. Addressing a lunch of the Association of European Journalists, in Dublin, he added: "That is why it is a very simple thing we set ourselves - a 4 per cent increase in spending - that any person can understand. That is the intention of the Government."

He also stressed that he saw the spending limit as a long-term goal.

"Let's be honest about it - the big thing will be to stick with that current spending for the lifetime of the Government. I intend, and my colleagues intend, to be in Government until 2002," he said.

"There won't be any great credit in sticking up an estimate for 1998 and then seeing it beaten out of sight when you come to the end of the year. The intention is that the end-of-year figure will be within it as well and the average over the five years will be 4 per cent," Mr McCreevy added.

On the question of who should be the first governor of the European Central Bank (ECB), now that French central bank governor, Mr Jean-Claude Trichet is a candidate alongside the Dutch head of the ECB's precursor, the European Monetary Institute, Mr Wim Duisenberg, Mr McCreevy said the Government had not made a decision.

"That was only sprung on us on Tuesday or Wednesday. It had been assumed for some time that Mr Duisenberg was the only candidate in this particular race. Now it will be necessary to reassess the situation; we haven't given it any consideration, and neither has any other administration, I can safely say," Mr McCreevy said.

The Minister would not be drawn on the contents of next month's Budget, but insisted that there would be few surprises.

"There was once a time when you could more or less dream up a budget the way you would dream up a painting," he said. "Budgets aren't like that any more. We're part of a wider economic entity, and the Minister for Finance has to control his creativity in order to stay within parameters."

Sources say that Mr McCreevy will introduce tax reductions of some £400 million, comprising a mixture of reducing income tax rates, increasing the income tax allowances and widening the standard rate band.

On European economic and monetary union, Mr McCreevy said that, while he had listened carefully to remarks made by his opposite number in Britain, Mr Gordon Brown, on why Britain would initially remain outside the single currency, the Republic would participate regardless.

"We have made up our minds about this; we will join on Day One," he said. "We have decided to join, notwithstanding what we well know that, with Britain not joining from Day One, there are downsides to it."

He said that it was particularly important, given that Britain would not be in the first wave of EMU, that the Irish economy be able to respond to developments as they arise.

"The economy needs to be flexible to adjust to economic shocks," he said. "One crucial dimension of internal flexibility is the degree of responsiveness in the economy's cost base."

The cost base must be capable of adjusting to economic shocks, so that disturbances can, over time, be absorbed by appropriate adjustment to domestic costs and prices, leaving long-term competitiveness unaffected, Mr McCreevy added.

He said the current Partnership 2000 programme set the appropriate framework within which such flexibility could be pursued.