McCreevy may have more than 4% to spend

Opposition parties are likely to criticise Mr McCreevy's spending increases and to claim he has only met the 4 per cent limit…

Opposition parties are likely to criticise Mr McCreevy's spending increases and to claim he has only met the 4 per cent limit through a sleight of hand.In fact, in real terms Mr McCreevy is likely to be able to announce spending rises of more than 4 per cent next Wednesday. Such is the buoyancy of the Exchequer finances, that he can add about another percentage point or even two on Budget day for social welfare and other spending and still come in around the 4 per cent limit.There are several reasons for this. The Minister was careful to announce that the spending target was for net spending. According to Dr Dan McLaughlin, chief economist at ABN Amro, this effectively means that PRSI receipts are knocked off the spending total. As employment and indeed wages grow rapidly, PRSI receipts are flowing into the Exchequer coffers faster than before. This money can effectively be spent by Mr McCreevy without affecting his 4 per cent limit.The other major factor is the inclusion in the figure of the central fund which is mostly made up of repayments on the national debt. This move, widely creditedto the Fianna Fail and Government adviser, Dr Martin Mansergh, delivers extra benefits as debt service costs have fallen significantly.Even if the level of debt remained unchanged falling interest rates would mean a quite substantial fall in our repayments. In any event, the actual level of debt will have fallen in 1998 for the first time in recent years.According to Dr McLaughlin's calculations, the fall in interest rates gives Mr McCreevy about £400 million which he otherwise would not have to spend. PRSI receipts will add more. "The Minister is effectively getting a double bonus which allows him to spend much more and still keep within his 4 per cent target," says Dr McLaughlin.However, the central fund also includes EU budget contributions and these have been rising. Eventually the two may even cancel one another out which is not what the Minister originally intended.There are other factors which will make Mr McCreevy's task more simple. The fall in the Live Register has been even faster than assumed in the last budget. This means that the amount awarded to Social Welfare could be substantially lower then expected.