McCreevy says Budget to reflect new reality

December's Budget will be framed against a cautious "new reality", with day-to-day spending being squeezed in favour of capital investment, the Minister for Finance, Mr McCreevy, said yesterday.

Mr McCreevy said that, while the economy is "in a healthy state", it was important to take a cautious approach to spending.

The Department of Finance is in the process of cutting its growth forecasts for this year and raising its target for borrowing to reflect an expected €500 million shortfall in tax revenue.

Mr McCreevy said the "simple math" would imply that his Department's projected deficit for this year has risen from €1.87 billion to €2.37 billion but hinted at "savings in other areas" that might reduce this.

He said the Government had shifted its forecast for this year's general government deficit from 0.7 per cent of GDP to between 0.9 and 1 per cent.

"The Budget will be framed against reality," said the Minister, warning that the days where economic growth reached 9-10 per cent had passed.

The Minister was speaking at the launch of the 2002 annual report of the National Treasury Management Agency (NTMA), which showed that the Republic continues to have the second-lowest debt-to-GDP ratio in the European Union.

The Minister said he expected this ratio, which dropped from 36.8 per cent to 33 per cent over the course of 2002, to settle at about 34 per cent over the next few years.

Labour's spokesman on Enterprise, Trade and Employment, Mr Brendan Howlin, yesterday urged the Minister to use this ratio as a basis for borrowing to fund infrastructure rather than "squeezing the life out of public services".

Mr McCreevy reiterated his intention that all Government departments should live within their allocated budgets.

He also ruled out the possibility of diverting payments from the National Pension Reserve Fund into infrastructure, saying the fund was "there for the long term", with pensions "as sure a liability as the ESB bill".

He pointed out, however, that the fund was free to invest in infrastructure if it was judged "prudent" to do so.

NTMA chief executive Dr Michael Somers said that the National Development Finance Agency, which has been established to advise State authorities on financing public investment projects, had, to date, been approached with funding proposals for about 60 projects.

He said, however, that few of these projects were self-financing, pointing out that, unless they could pay for themselves, they would appear on the State's balance sheet for Stability and Growth Pact purposes.

It also emerged yesterday that up to €500 million in dormant life assurance policies could be transferred to the State's Dormant Accounts Fund, which is also administered by the NTMA, next year. A total of €196 million from dormant bank, building society and post office accounts was transferred to the fund last year.