BUDGETS are odd, or at least the current process is, as practised by the Government. What household would sit down in December and decide how much it was going to spend next year, and then decide in late January how it was going to finance this spending? Moreover, most households would take account of whether its current income was above or below the normal trend before adjusting spending, but few governments, Irish included, adjust the numbers to address this factor.

What is also striking about recent Budget trends is how inexorable is the annual rise in Government spending, or as the Minister for Finance, Mr Quinn, put it in last year's Estimate, "public expenditure can develop a momentum of its own which tends to be compounded by the expectations of improved services".

In truth, few would agree there has been a noticeable increase in the quality of public services in the 1990s, despite a £4.6 billion rise in current Government spending since 1989. In percentage terms this amounts to 57.5 per cent from 1989 to the end of 1996, or a yearly average 6.8 per cent rise against average inflation of only 2.5 per cent.

Surprisingly, perhaps, this expenditure surge has not increased the proportion of national resources spent by the Government current spending as a proportion of every pound of national income is likely to end 1996 at 34p, compared with 35p in 1990. However, this understates the true position, as falling interest rates in the 1990s resulted in a significant fall in the debt burden. So, for example, in 1996 central fund spending (largely debt interest), is likely to amount to 8.3 per cent of GNP, a fall of 2.5 percentage points compared with 1990. In contrast, supply services (or non debt spending), amounts to 25.7 per cent of GNP, some 1.5 percentage points above the 1990 figure.

IN money terms this means that the Government is now saving over £900 million on debt spending, relative to 1990, and spending an extra £525 million.

To return to our analogy of the household, this change in spending has occurred over a prolonged period of above trend growth in revenue, and Irish national output is now arguably some 1 per cent above its long run potential. Above trend growth puts downward pressure on spending (via lower unemployment benefits), and boosts taxation (via higher employment), and on our estimates the Budget deficit in 1996 (which may equal 1 per cent of GNP), is some 1.5 percentage points below the structural, or underlying deficit, which would occur if Ireland had grown consistently at trend level (say 4.5 per cent per annum).

Does the trend in spending matter? Every £1 spent by the Government requires £1 extra in tax, either now or in the future (via increased borrowing), but the electorate may well prefer higher spending to lower taxes. As it happens, the broadening and deepening of the tax base in the 1990s has meant tax rates have not risen to pay for the higher spending.

However, public sector pay accounts for 50p for every £1 spent by the Government, and there is little evidence to suggest the public sector has difficulty in recruiting staff.

So we have an arbitrary transfer of income from one group of workers (via higher tax), to another, which one doubts the electorate has explicitly sanctioned. Moreover, if the economy returns to below trend growth, as it inevitably will, there is little evidence that governments in Ireland have the political will to curb spending growth, which means more taxes or a rise in borrowing.

What are the prospects for the 1997 Budget against this spending juggernaut? Looking at the Estimates it is clear little has changed. The Minister is projecting gross spending post Budget at £13 billion, a 6.1 per cent rise on the likely 1996 out turn equivalent to 3.9 per cent in real terms (inflation is assumed at 2.1 per cent). However, the 1996 out turn is itself expected to overshoot the original target by £181 million, so the 1997 projected rise should really be compared with the original Budget target in 1996 of £12.1 billion. This brings the projected 1997 rise in gross spending 7.7 per cent or 5.4 per cent in real terms, well above the average of the 1990s - what happened to the commitment to limit the real spending rise to 2 per cent?

REMEMBER this 7.7 per cent increase does not make any provision for any public sector pay increases in 1997, as the carryover costs of this year's awards will add 5 per cent to the pay bill. Moreover, the numbers presented are gross spending figures and on Budget day the Exchequer borrowing requirement is the difference between revenue and net spending (gross less PRSI receipts). Last year, the Minister cut PRSI rates so net spending rose faster than gross spending, a situation likely to re occur in 1997.

What are the implications for borrowing and tax cuts? It now looks as if net current spending this year will be around £12.6 billion and revenue; will be £12.85 billion, giving a current Budget surplus of £250 million. With capital borrowing of around £600 million, the EBR out turn could be £350 million, or less than 1 per cent of GNP.

For 1997, net spending may rise by around 6 per cent and tax revenue by a similar amount, which leaves the projected current Budget surplus at around £260 million and an EBR of £390 million assuming £650 million capital borrowing. If the Government wants an EBR of 2 per cent of GNP or £800 million, this gives room for tax cuts or PRSI reductions of £410 million.

So, once again, we have the authorities having their cake and eating it - chunky spending hikes, but strong revenue growth sufficient to keep borrowing low and to cut tax rates. In the longer term the worry is - that if the economic engine splutters there is not the political will to cut State spending. As Mr Quinn puts it "the Estimates reflect the cost of running existing policies and programmes a sobering thought, as this seems to require a 5.4 per cent real rise in spending, even without any public sector pay increases.

The main cause of poverty in Ireland is unemployment and the best cure for this is lower tax rates, not higher State spending.