Harney says economy faces 'major challenges' in 2009

Minister for Health Mary Harney has signaled the Government’s intention to keep public spending as low as possible next year and warned that the economy faces “major, major challenges”.

In the wake of the July exchequer figures which showed a €776 million shortfall in revenues and a projected €3 billion shortfall for the year, the Minister insisted however that the “real economy” is in good shape.

“Our economy has gone from €130 billion five years ago to one worth €160 billion today and that hasn’t gone. That’s still there. The real economy continues to perform well.”

But in an interview on RTÉ 1 radio’s Morning Ireland programme she said “the one thing we need to do is not to have a kneejerk reaction by cutting left right and centre or by increase taxes, but by being focused on what keeps jobs and investment in this economy”.

She did not anticipate further cuts this year, but warned that next year the economy would face “major, major challenges” particularly in spending department such as Health which accounts for 25 per cent of Government expenditure.

She had warned the Health Service Executive (HSE) and others of this and “we certainly won’t be able to see the kind of spending increases we’ve seen in the health area over the last decade”.

Fine Gael TD Olivia Mitchell described the deterioration in the public finances as the “worst in the State’s history”, that there had been no attempt to “put money aside for the bad years, no attempt to control spending” and that since 2001 Ireland has had the highest inflation rates in the EU.

She pointed out that against all international advice the Taoiseach, during his term as minister for finance in the face of an overheated property market, increased public spending by two-and-a-half times the growth in the economy.

But Ms Harney rejected the criticism and said that during Brian Cowen’s three-year tenure in finance there had been a €30 billion surplus, €20 billion had been invested in the pension fund and €8 billion in the national development plan.

Pensions had risen from €3.5 billion to €6 billion, making them higher than in the UK while a further €800 million had been invested in child benefit.

Raising taxes or borrowing money were not options because of EU rules that borrowing should not run at more than 3 per cent of Government deficits, and Ms Mitchell said “there is huge fat across every department that can be cut” and “in each department there is at least 1 per cent that every Minister could cut”.

She said the Government should immediately cancel Ministerial pay increases and there were hundreds of quangos – independent organisations funded by Government – whose functions were now redundant, which should be abolished.

Speaking on the same programme, Ms Mitchell also highlighted Fine Gael’s strategy to reduce the 13.5 per cent Vat rate by 1 per cent, which would assist the hotel and tourist industry and the funds could be recouped by a tax on the windfall gains by energy companies.

She also called for reform in budgets pointing out that every Government department and agency received funding based on the existing level of service “plus an annual increase which means every year we spend more money but do not necessarily get better services or even the right services.”