Public spending may yet haunt

RUAIRI Quinn will know that he can happily ignore most of the learned commentary on the Budget. The public will decide when paypackets arrive at the end of April and other issues such as the abolition of residential property tax are included.

The reaction may well beta key factor in deciding on the timing of the election - it is too early to write off the possibility of the Government opting to deliver the 1998 package in early November and then calling an election.

Are the tax reductions in this week's Budget enough to register with the electorate? The cash benefits for some will be significant in comparison with recent Budgets, particularly those who benefit from the abolition of residential property tax (RPT). Whether £8 a week for a single person or £15 for married couple - the average gains for middle income earners - is enough to register with the electorate is a moot point.

Arguably measures such as the abolition of RPT and water charges and the extension of treatment benefits in areas like dental and optical treatment may actually have a bigger impact on some of the electorate than the few extra pounds in the pocket.

It was Mr Quinn's third Budget - although the first one was largely inherited from Mr Bertie Ahern. Reflecting back on his period, the Minister observed in the Budget speech that one area of failure has been the control on spending. If the Government does not return to office, its members might have even more time to reflect on this failure.

Government budget policy cannot be accused of being imprudent - after all borrowing is just 1.5 per cent of GNP - although a lower level of borrowing would be appropriate at a time of such strong growth. But the point about the lack of control of spending is that it has limited the Government's options.

In a Budget analysis by Goodbody stockbrokers yesterday, economist Mr Oliver Mangan pointed out that if Mr Quinn had adhered to his own spending ceiling over the past three Budgets, then it would have freed £530 million more in resources.

This would have allowed either more imaginative and far reaching tax reform, a faster reduction in borrowing or a more determined assault on poverty.

It would, of course, also have meant lower spending, but the point is that much of the extra money is going to the public pay bill. And this is not leading to a commensurate improvement in the quality of services provided to the public.

Poor control of spending, of course, is nothing new. The Fianna Fail and Progressive Democrat criticisms in this area ring a bit hollow, given their own record in office. And within the constraints with which he has worked, Mr Quinn has done much that is useful is his three Budgets.

In the area of personal taxation, progress has been made - albeit limited - in lowering the tax burden on income. Some consideration has also been given to the complicated measures needed to attack the traps which make it not worth many people's time to take a job. There has also been a tentative move to lower the PRSI burden.

Recent Budgets have also shown some consideration of the business agenda, reflecting Mr Quinn's own commitment to the area and the efforts of Enterprise and Employment Minister Richard Bruton. The headlines may be grabbed by the reduction in the corporation tax rate but measures such as the gradual reform of capital acquisitions tax which would greatly ease the transfer of a business from one generation to the next are also important. Apart from anything else, this signals a realisation that business is important.

For the future, tighter control on spending will become even more important. This is because economic growth is likely to be more subdued, leaving less buoyancy in the exchequer revenues. Mr Quinn's move to multi annual budgeting is welcome, as it will make Governments more aware of the long term impact of their actions.

The move to introduce a contingency reserve - a cash fund to meet unexpected events - is also a good one. But it contains a danger, in that it may become just another source of ministerial funding. Also, the next Government is now committed to further public spending increases under the terms of the Partnership 2000 agreement.

What does the Budget mean for the economy? There has been a lot of talk of overheating and rising inflation and there is certainly a risk that inflation may start to pick up. The Budget itself will add to the economy's impetus, but so far there are few signs of an inflationary bubble.

So far Mr Quinn has been a lucky general" in that the economy continues to boom and inflation remains subdued. He will now hope that this happy combination will last until the next election.