FF remains shy about spending control plans

 

The programme is silent on the key issue of controlling government spending, writes John McManus

Fianna Fáil assiduously avoided committing itself to economic targets during the election campaign and has reprised the tactic in the Programme for Government produced yesterday.

The absence of any target for government spending is the most surprising aspect of the Budgetary and Economic Policy section of the document. It had been expected that a tough target would be set as an indication of the new government's determination to deal with the holes that are appearing in the Exchequer finances; the most significant of which is the mismatch between revenue and expenditure.

Tax revenues are well below the levels predicted in the Budget, while spending is significantly ahead. An end-of-year deficit in excess of €1 billion is forecast if the trends that have emerged continue. Getting government spending back under control is the number one economic issue facing the new government, yet the programme is effectively silent on the issue.

There is no mention of any cutbacks - or even a review of - government spending. Measures that could boost revenues are also absent. The only commitments given on taxation are for further reductions in both the number of people paying tax and the amount they will pay. Business taxes will also be reduced.

Similarly, there is no discussion of how the coalition plans to deal with the issue of public sector pay.

The report of the body charged with benchmarking public sector pay against the private sector is due at the end of the month. Pay increases of 20 per cent or more for some State sector workers are forecast. Implementing the 25 per cent of the awards that are due for payment immediately will put tremendous pressure on the public finances, yet the issue is ignored.

Progressive Democrat sources were keen to stress last night that the lack of any firm targets in the document should not be blown out of proportion. They acknowledged that the decision to avoid any parameters was driven by Fianna Fáil, but there is agreement on both sides as to what must be done, they stress.

Both parties worked on the assumption that the economy will grow by around 5 per cent a year over the next five years and that inflation will average 3 per cent a year.

Much will hinge on the attitude of the next minister for finance. The key dynamic in the framing of budgetary policy is between the Taoiseach, Tánaiste and Minister for Finance. The identity of the first two is a given, but there are no guarantees that Mr Charlie McCreevy will be returned to the Department of Finance.

However, the vague nature of the economic parameters set out in the programme suggest that the Progressive Democrats must anticipate Mr McCreevy's return. Without Mr McCreevy in Finance, the junior partners would have much less reason to be confident that the hard economic issues will be tackled. In any event, failure to get the Exchequer finances under control will render most of the other commitments in the Budgetary and Economic Policy section redundant.

Taxation reform will remain at the heart of the coalition's economic policies, but a much less radical programme is proposed than the one implemented over the past five years.

The main commitments are to take all those on the minimum wage out of the tax net and ensure that 80 per cent of all earners pay tax only at the standard rate. Any "improvements" in the income tax regime will come if economic resources permit.

There is a commitment to keep down taxes on work, which is seen as an indirect commitment not to raise employers' PRSI.

Addressing the "infrastructural deficit" will be another priority, according to the document. The two parties had different views on how to raise the money to fund investment. The document is silent on the issue of a return to borrowing, but both parties made it clear during the election campaign that they will borrow, subject to the limits imposed by the EU growth and stability pact.

Fianna Fáil proposed topping up this debt with additional borrowing routed through a new government agency. The attraction of this was that up to half of the money borrowed by the agency would not count towards the EU limit. The Progressive Democrats favoured selling off State assets and raiding the reserves of the Central Bank and create a national development fund.

The compromise deal involves the establishment of the National Development Finance Agency that Fianna Fáil wants, but there will also be the PDs' National Development Fund. However, there is no commitment to actually activate the fund by selling any State companies.

It remains to be seen how the rather cumbersome structure that has been arrived at will work in practice.