ANALYSIS:'Stability Pact Update' paints a downbeat economic picture

THE GOVERNMENT is gloomier about the economy’s near-term prospects. It joins a large and growing club.

There was never any doubt that yesterday’s bi-annual report on economic growth, the public finances and more besides was going to be more downbeat about the near-term outlook. Although sprinkled through its 53 pages are efforts to be positive – none of which were, in fairness, fantastical – there was no hiding the fragility of the situation.

While this is for many reasons one of the most important documents the Department of Finance publishes, the Stability Pact Update is most enlightening in what its figures say about the public finances. Unlike the antiquated cash-basis Exchequer Returns, the general government figures give the real picture. These figures add together all public spending and revenues, including those which the exchequer has nothing to do with (such as social insurance).

And the differences are not piddling. For instance, on an exchequer basis, the Government took in €34 billion last year; on a general government basis, the figure was almost €56 billion. The latter figures are also different in that they are calculated on an accruals basis and are EU-harmonised, which allows meaningful comparison with other countries.

On the spending side, the biggest outlay – social expenditure – came in at €28.1 billion last year, down a smidgen (€100 million) on 2010. The second-largest outlay is public sector pay. Last year it stood at €17.9 billion, down by more than €400 million on a year earlier. Depressingly, the two savings combined were gobbled up by higher debt-servicing costs, which hit €5.4 billion.

On the revenue side, the Government dipped deeper into peoples’ pockets. Last year, €47.4 billion was squeezed out of taxpayers, up €1.2 billion on 2010 (that includes social insurance contributions).

Yesterday’s figures also show that despite the Government having had a plan to balance the books since it came to office, the composition of the plan has changed over the past year, as the chart shows. A year ago, the Government had very ambitious plans for revenues, believing it could return to the bubble-era peak of €70 billion by 2014.

Now its revenue-raising ambitions are much more modest, with the expectation the take will be €8 billion lower than anticipated in 2014. That has meant less cash to play with.

While in April last year, the Coalition thought it would spend €75 billion in 2014, now it is targeting €70 billion. With such large changes being made beneath the mostly steady headline figures, one might wonder about the rigour of the exercise.