Coveney warns of need for restraint in Budget

THIS years's Budget will have to take account of Ireland's economic prospects, not just in 1997, but for the next three years, the Minister of State at the Department of Finance Mr Hugh Coveney has warned.

He said all the indications are that economic growth in Ireland will continue to outperform the EU over the next few years.

"However, while this favourable outlook is partly dependent on continued growth in our main trading partners, it also assumes that, domestically, the policy of fiscal discipline and wage moderation will continue.

Mr Coveney said if this did not happen there would be negative consequences for business and consumer confidence, interest rates, investment and economic activity.

"Therefore, next week's Budget will be based on a continuation of this prudent management of the Government finances," he said.

Mr Coveney said that, although very positive, the economic outlook would also argue for caution regarding fiscal policy this year.

"Given the buoyancy of domestic demand at present, an expansionary Budget could give rise to inflationary pressures followed by a further tightening of monetary policy through higher interest rates," he said.

Mr Coveney said such an outcome must be avoided. "It is important for our overall employment and growth strategy that Ireland fulfills the EMU inflation criterion as well as the budgetary criteria.

Mr Coveney said the Budget's main objective would be to strike a balance between addressing spending commitments and needs and to provide for continued progress in reducing tax and State borrowing.

Mr Coveney, who was addressing the Leinster Society of Chartered Accountants in Dublin yesterday in place of the Minister for Finance Mr Quinn, added that the EMU was not being formed "to satisfy an economist's model", but because member states committing themselves to it saw advantages in it.

He said these advantages included low and fairly uniform interest rates across the EMU area, the elimination of transaction costs and exchange rate risk for trade tourism and investment, continuing price stability, sound public finances and sustainable low inflation growth.

He rejected suggestions that policy-makers and the main interest groups were moving towards EMU with a virtual closed mind.