A sharp deterioration in our public finances last year, which is about to create a huge problem for whoever forms the next government, reflects a coincidence of two distinct phenomena: first, a spiralling loss of control over public spending by the Minister for Finance during the years since 1997, and, second, a huge over-estimation of revenue in his budget for last year, writes Garret FitzGerald.
Between them, these two factors reduced the predicted current surplus for 2001 by no less than £2.6 billion, and cut our overall budget surplus by four-fifths, from an estimated £2.5billion to less than £300 million.
Ever-accelerating over-runs in spending have been a striking feature of the McCreevy budgets, climbing from £200 million in 1998 to over £450 million in 2000. Then in 2001, overspending almost doubled to reach an alarming £800 million, only a part of which was accounted for by the foot-and-mouth outbreak.
During those four years, cumulative over-spending above its annual allocations by the Department of Health alone added up to a total of £850 million. There were also cumulative overspends of £400 million in the case of the department of education. Had the Ministers for Health, Education and Finance been working in the private sector, their combined improvidence during this period would assuredly have cost them their jobs.
But that's not how it works in the public sector. Against that background of loss of control of spending by the Minister for Finance, we should not be surprised if his planned increase of £2.75 million (11.5 per cent) in current spending in the current year eventually rises to something nearer £3.25 billion.
The revenue side of the budget equation is equally alarming. Last year's tax revenue was over-estimated by £2 billion, or 10 per cent - a spectacular error. And this was not due to the slower growth of the economy, because higher inflation seems to have largely offset this. Last year's Gross National Product in current money terms fell short of the Department of Finance's figure by only about 1 per cent, (Central Bank and Economic and Social Research Institute estimates), and that would account for only £200 million, or one-tenth of the £2 billion shortfall.
It is astonishing that the outgoing Dáil does not seem to have been exercised about the question of how all this came about. Nor in the run-up to this election has any party made these matters an issue, although they go to the root of the credibility of the present Government.
Could it be that all parties prefer to fight the election with competing promises of big spending increases, the realism of which would be put in doubt if any of them drew attention to our present public finance crisis?
So far as I am aware, no adequate explanation has been vouchsafed for this extraordinary financial miscalculation which, in conjunction with the deplorable loss of control over spending, has within the space of single year converted a huge budget surplus into what would have been a deficit had the Government not succeeded in selling off two State-owned banks, TSB and ICC.
In the absence of any explanation for these errors, the electorate may be forgiven for wondering about the reliability of the estimates of revenue for the current year 2002. The vulnerability of our public finances is starkly demonstrated by a table in this year's budget documentation which contrasts current projections for the budget balance in 2003 with those made at the end of the year 2000.
This table shows that whereas 16 months ago the department of finance was projecting an overall surplus of 4.6 per cent of GDP for next year, 12 months later it had had to revise this estimate drastically downwards, and is now expecting an overall budget deficit of 0.5 per cent of Gross Domestic Product in 2003.
Whoever wins this election is going to wake up with a headache similar to - if not on quite the same scale as - that with which I woke up in 1981.
Of course, the next government does not face a threatened borrowing rate of 21 per cent of Gross National Product in the year ahead, as I was faced with 21 years years ago. Even when one discounts the creative accountancy measures that a frantic Charlie McCreevy felt he had to adopt last December - bringing in several once-off windfalls from the Central Bank as well as bringing forward to the current year corporation tax payments that were due next year - the scale of this year's underlying budget deficit as traditionally measured would be 2.25 per cent of GNP.
On the basis employed by the European Union when monitoring our finances, this year's underlying General Government Deficit is 1.25 per cent of GNP - if, that is, one makes the optimistic assumption that there will be no further over-spending this year, and that this year's revenue has been correctly calculated. But an overall deficit of 1.25 per cent is at a level from which we could rapidly get into very difficult territory indeed. It would not take much further uncontrolled spending to bring us close to the 3 per cent General Government Deficit figure which can activate EU penalty measures, to which we agreed when we and our partners signed up for European Monetary Union some years ago.
What is particularly worrying is that we should find ourselves so precariously placed financially just as we are approaching the end of the present national pay agreement, at a time when our inflation rate is already higher than anywhere else in the EU, with fresh wage claims and bench-marking awards imminent.
Many will, no doubt, proclaim hand on heart that they will not seek extra resources in this way. But now that our prolonged run of fast growth has come to an end, to be replaced after our recovery from the present downturn by a lesser rate of economic expansion we will have to abandon some of our illusions.
In particular, we shall have to abandon the illusion that, while keeping our tax level below that of every other Western European country, we can at the same time increase public-service pay all round, reform our health and education services, house those who cannot afford to house themselves, and provide childcare services for all who seek them - to mention only some of the things that are currently being promised by enthusiastic politicians.
Reality day for whoever wins this election will be Monday morning, May 20th.