A "very sharp slowdown" in the growth rate of current Government spending to around 6 per cent per annum will be required to stabilise the Government finances, according to an assessment by the National Economic and Social Council (NESC), writes Cliff Taylor, Economics Editor
The Minister for Finance, Mr McCreevy, is due to announce the Government's spending plans for 2003 next Thursday, but achieving the kind of target favoured by the NESC would mean a substantial slowdown from the current rate of almost 20 per cent. Whatever spending plans are published on Thursday will need to allow for further increases in social welfare and other areas on Budget day.
The unpublished document, being prepared by the social partners as a basis for talks on a new national agreement, calls strongly for spending control. "A very sharp slowdown in the growth of current expenditure will be required to initially stabilise the deficit at its current levels," the report says.
The report, the main conclusions of which were reported in Saturday's Irish Times, will be published shortly, after it is signed off by a council comprising representatives of the Government, employers, unions, farmers and social and community organisations.
In a significant section on spending it says that "the council ... supports the immediate adjustments necessary in the light of the shortfall in revenue. These are necessary in order to achieve a transition to lower expenditure growth."
This indication will be welcome to the Government as it struggles to get spending under control, although the council warns that "in making the transition to a lower rate of expenditure growth ... those on the lowest incomes should not bear the burden of adjustment".
This view - and calls in the report for substantially higher welfare and old age pension rates and a new system of child support - will put pressure on the Government to deliver a significant "social inclusion" package in the Budget.
On the benchmarking report, the NESC says that the average 8.9 per cent increases recommended for public servants "can only be regarded as sustainable if they are matched on an ongoing basis with high standards of verifiable performance ... A large step-adjustment in public pay warrants a step-increase in flexibility and step-adjustment towards new systems." Next Thursday's spending estimates for 2003 are not expected to account for benchmarking, as this is still subject to negotiation.
The NESC calculations are based on gross national product (GNP) growth of 3 per cent next year and 4.3 per cent in 2004 and 2005. The council believes that the two priorities for the public finances must be investment spending - which it argues should be held at 5 per cent of GNP per annum - and current spending on key social services. Against this backdrop it sees no prospect for a fall in the overall level of taxation and says that a small rise next year should not be ruled out.
