THE Government is increasing spending at almost double the rate it promised when it came into office. The Minister for Finance, Mr Quinn, has decided to take advantage of the economic boom by increasing spending in many areas, particularly health, education and security.
Some of the blame for the almost 4 per cent increase in real spending (spending ahead of inflation) next year is blamed by the Government on once off factors over which it says it has little control. These include the BSE crisis, EU beef fines and the anti crime package.
But Mr Quinn also says it is more important to keep the general government deficit low than to keep a tight grip on spending. According to the Minister, staying within the 2 per cent limit his Government set in its programme for government would mean cuts in current services which could hurt the "most vulnerable" in society.
The increase in current spending in 1996 is running at 5.4 per cent in nominal terms, and 3.8 per cent in real terms. So spending growth is set to accelerate in 1997.
The Government has said that after the Budget, total spending next year will be £13.014 billion. This represents a rise of 6.1 per cent in cash terms or 3.9 per cent in real terms (after inflation) from this year. It does not include any allowance for further public sector pay increases. Mr Quinn has said no more public pay increases can be afforded next year - before any new deal the bill is already set to rise by 6 per cent.
"There is no figure hidden anywhere which could be used for further public sector pay rises," he insisted. However, the Minister must obviously take into account that negotiations on this issue have still to conclude.
This year's expenditure is estimated at £12.268 billion compared to a 1997 estimate of £12.874 billion before the Budget is announced. However, Mr Quinn said that the final 1996 figure will probably be lower than £12.268 billion. "It will be lower by as much as half a percentage point," he predicted. However this excludes the special equal payments money from social welfare, which was paid for from a separate fund. So it could be argued that the underlying rise in spending is faster.
Mr Quinn outlined the reasons for overspending this year. He pointed the finger at EU beef fines of £70 million; only £50 million was provided on the capital side in the 1996 Budget.
The "serious BSE crisis" has meant intervention support of £20 million, although 70 per cent of that will be repaid by the EU. Other contributors to the government overspend include £23 million on extra gardai on Border duties, £47 million on health, mostly reflecting increasing costs of the community drug programmes and cutting the length of waiting lists.
The Christmas social welfare bonus of £38 million is offset by savings in increased levels of PRSI payments of around £17 million. This is the first year since 1990 that social welfare has not needed a supplementary estimate, Mr Quinn said.
Special factors will apply again year, Mr Quinn said. As well as continuing extra expenditure on health and education, security will be a special focus, he said, with the anti crime package needing higher spending.
Even before the increases in social welfare expected in the Budget - and despite the recent falls in unemployment - the Department of Social Welfare's costs are set to soar. Social welfare increases account for £127 million of the overall £314 million increase in non pay current spending in 1997.
Of that, £80 million is a carryover from this year's Budget but, with more to come on budget day, Mr De Rossa appears to have a substantial allocation of funds.
Other spending areas also get generous increases. Non wage health spending will increase by £66 million as well as a capital allocation of £108 million for development in hospital services.
State funded investment spending is also rising, partly because the Government needs to spend itself to draw down EU funds. Overall capital spending is set to rise by 10 per cent to £3.427 billion, with the exchequer contribution rising by 6.5 per cent to £1.574 billion. Roads, sanitary services and local authority houses are all set to benefit.
Overall, the strong rate of economic growth has allowed Mr Quinn to push up spending while still leaving room for tax relief on Budget day. Strong tax revenue growth should allow him to introduce an attractive tax package while still holding borrowing down.