`Ireland is closer to Boston than Berlin," Mary Harney has said, meaning that Ireland is moving closer to the US economic model than the European social model.

Judged by its low level of public spending, Ireland has gone way beyond Boston, is now in Las Vegas and heading for Manila. Current, or day-to-day, public spending in Ireland is now at the same level as the US and falling. The size of the State has been shrunk to anorexic proportions.

There has been an extraordinary reduction in public spending over the past 15 years. The accompanying graph shows that, in the mid to late 1980s, Irish current public spending as a proportion of GDP was the same as the EU average at 45 per cent, but is now below 30 per cent. Government forecasts show that this will be further reduced to just 23.5 per cent by 2003.

Current public spending in Ireland has been cut to one of the lowest levels in the industrialised world. It is 29 per cent here compared with 46.6 per cent in France, 51.5 per cent in Denmark, 52.2 per cent in Sweden and 28.4 per cent in the US in 2001.

Simultaneously, Irish Exchequer surpluses are among the highest in the industrialised world, while taxes and other Government revenues are among the lowest.

Capital spending on the National Development Plan is at an all-time high. Average living standards in Ireland have reached the EU average and soon will be amongst the highest in the EU. Therefore there are no financial obstacles to improving public services substantially through increased spending over the next few years.

The distribution of our average national income is among the most unequal in Europe. The question is why current public spending is so low when there is such need for better public services.

Most citizens will happily pay a few pence more in tax to get good public transport, and access to healthcare and decent schooling for their children. With the surpluses, increased taxes are not required.

It is well recognised that public spending can and does have a remarkable impact on the distribution of income and lifetime opportunities. Public spending is a key policy instrument in defining the kind of society we wish to develop.

Society is being reshaped profoundly in ways which many find uncomfortable. Change has been so rapid that many people, including some policy-makers and shapers, may have lost sight of the bigger picture on public spending and taxation.

It is worth teasing out why public spending has been reduced to such a low level of national income just as Irish society becomes rich. The Government, on taking office, aimed at holding the growth in public spending at 4 per cent a year.

The unexpectedly high growth rates meant the Government increased current spending by over 7 per cent a year over the past four.

However, accompanying the high growth in GDP public spending, although rising in absolute terms, fell and fell dramatically, as a proportion of rising GDP.

EVEN when the disparity between Irish GDP and GNP is taken into account, the Government's own figures forecast that general government spending as a percentage of GNP will be just 30.5 per cent this year and will be further reduced to 28.5 per cent by 2003.

Simultaneously, the surpluses will rise and capital spending will also be increased.

The Government has been running extremely large surpluses for several years now. The current budget surplus for Ireland will amount to a staggering £6.1 billion in 2001. Total tax and other revenue flowing into the Exchequer will amount to £24.5 billion but spending will be a far lower £18.4 billion.

A large amount of the difference will be invested in infrastructure under the National Development Plan and some will be saved in the Pension Fund. The Government plans to increase this surplus to over £8 billion by 2003, while reducing public spending as a proportion of national income.

(Sources: CSO, Budget 2001, European Economy No 70. Own adjustments on EU and Government Projections.)

A good case can be made for a reduction in public spending from 1980s levels. A fair proportion of public spending in the 1980s was interest on the national debt, and the reduction of the debt to the lowest level in the Union means that more money can be spent on improving services.

The huge reduction in unemployment and the reduction in the dependency ratio have meant that far less money is required for welfare and other services.

However, on the other side, population has grown by a quarter of a million since 1990, stretching the demand for public services. These, in health, education and welfare, were already poor compared with most countries in Europe.

Total employment growth has been a staggering 50 per cent in the 1990s and, while many of the new workers can buy private services, the increased economic activity of such a large increase in the workforce has put additional pressure on public services.

Furthermore, every survey and poll is telling of dissatisfaction with many public services and of increasing demands for new services which are often not forthcoming. The growth in the numbers in the public services has been only 10 per cent in the decade, dramatically below growth in the economy and in total employment.

There is a "public services deficit" in Ireland, according to SIPTU's submission to the Benchmarking Body on public remuneration. Irish economic development has been deeply unbalanced, with the private sector surging ahead while public services are seriously lagging behind.

While a case can be made for some reduction in current spending from 1980s levels, the level we are at today is far too low. The contrast between the US and European social model may be the wrong one. Judged by public spending as a proportion of GDP, Ireland is rapidly heading into the Third World category.

Boston will look good compared to this.

Paul Sweeney in an economic and financial adviser. He assisted SIPTU in its submission to the Bench marking Body. He is the author of The Celtic Tiger: Ireland's continuing economic miracle, published by Oak Tree Press