The latest exchequer figures confirm that the economy entered 2004 on an improving trend. Tax revenues are strong and the Minister for Finance, Mr McCreevy, looks on course to meet his Budget targets.
This is in contrast to many of his EU colleagues gathered in Punchestown this weekend, who are struggling - often unsuccessfully - to stay within EU borrowing rules. Here, the buoyancy in the figures will lead to pressure on the Government to reverse some of its more mean-spirited social welfare cuts and will encourage the trade unions to seek commitments on future tax reductions in the pay talks now underway.
The exchequer figures for the first three months of the year showed tax revenues running 15.2 per cent ahead of the same period last year. Capital gains tax and stamp duty, both driven by the strong housing market, are well ahead of target. However the main tax headings - income tax, corporation tax and VAT - are also well up on 2003. This signals that the pick-up in growth evident late last year, shown by official figures published this week, was maintained moving into 2004.
The economy should remain on a recovery path, though improvement may be gradual enough. The international recovery is patchy, so far, although a big increase in US employment last month, reported yesterday, is very encouraging. The EU economy, under discussion at the EU finance ministers' meeting, remains lacklustre and there is a strong case for another cut in euro zone interest rates. Here, some parts of the economy are also struggling. Manufacturing industry has been hit hard by the rise in the value of the euro last year and by competitive pressures on international markets. And the small rise in the March unemployment figures shows that recovery is steady but not spectacular.
Perhaps anticipating the renewed demands on the exchequer purse, the Taoiseach, Mr Ahern, yesterday made the case for continued prudence in economic policy. In broad terms he is correct, though this does not excuse the decision to push through welfare cutbacks to save a paltry amount. These should now be reversed. Meanwhile the trade unions will argue strongly for commitments to index the tax system in future Budgets. It must be recognised that this indexation merely stops the tax burden from rising and does not deliver real cuts.
The challenge for the Government is to use in a responsible way the additional room for manoeuvre now likely in the exchequer finances over the next couple of years. The Opposition parties are understandably nervous about a build up of generosity in advance of the general election through big tax cuts in the next couple of Budgets. However the key needs are now on the spending side, in terms of both infrastructure projects and public service delivery. Having overseen a wasteful spending binge before the last election, the Government must show that it can plan and deliver better services and infrastructure, vital for economic and social reasons.