Having marched public spending up to the top of the hill in the pre-election splurge of 2001, the Government has now marched it down again to more sustainable levels, writes Cliff Taylor, Economics Editor.
It hasn't been easy, however, and the Estimates for 2004 show that there won't be much cash to throw around next year, either on running Government Departments or on investment projects.
The Estimates indicate there will be a 5 per cent rise in spending in 2004, a little below this year's 7 per cent.
Add Budget Day increases in social welfare - probably in the €250 million region - and a bit extra in other areas, and the total increase in spending next year is likely to come in around the 6 per cent mark.
This, argues the Minister for Finance, Mr McCreevy, brings spending growth into line with the increase in tax revenues and is the kind of picture we will have to learn to live with.
The difficulty for Government Departments is that the sharp deceleration in spending growth - from 20 per cent plus in 2001 to around 6 per cent next year - has disrupted services to the public in many areas since the last election. Like when a bus is forced to slam on the brakes, it is inevitable that some of the passengers get shaken around.
The breakdown of the Estimates, however, provides the real evidence of why service levels will remain under pressure. The vast bulk of the extra money is going on increases in public sector pay. This will account for €1.1 billion of the overall €1.9 billion rise in all spending next year.
Public pay is being pushed up by increases under the national programme, costing €540 million extra. Benchmarking rises will cost €305 million, and other pay increases around €265 million.
The big increase in pay costs has led to cutbacks, or very small increases, in that part of non-pay-related, day-to-day Government spending.
On average, this part of spending will increase by 3.5 per cent next year, not far above the expected inflation rate of 2.5 per cent. In many areas administrative budgets have been slashed. And to help balance the books, the number of public servants is due to be cut by 2,000 next year, mainly through non-replacement of those leaving.
What will this mean for service levels to the public? We will have fewer, but better-paid, public servants, working with budgets that are under pressure. The only way that this could deliver better public services would be if the productivity of the remaining public servants were to increase sharply.
Extra productivity is due to be delivered in return for benchmarking, under a process involving special verification groups, due to complete their work by the end of this year. However, from what we know so far, it seems most unlikely that the extra productivity will match the increased cost.
In turn, this means that the Government will remain under pressure to drive through reform plans in areas such as health to try to ensure better value for the money spent.
Mr McCreevy signalled - correctly - that the likely rate of economic growth would not lead to a return to Celtic Tiger-style revenue growth. This means spending growth will have to remain around current levels and the key issue for the Government will be to try to ensure a bigger bang from the spending buck.
Similar considerations apply in State capital spending, an area which unfortunately is being forced to take a lot of the pressure from the scarcity of resources. Capital spending was cut this year, and the allocation for next year - while it is 2 per cent up on the expected outturn for this year - is actually down on the initial allocation for 2003, all of which will not now be spent.
Mr McCreevy has said he wants to keep spending in this area at 5 per cent of Gross National Product.
However, next year it will fall to about 4.7 per cent of GNP. This suggests that the delivery of the National Development Plan will fall further behind schedule. It is also contrary to advice in the recent ESRI review, which recommended that spending in this area be maintained.
In terms of the detail, the Government has accepted many of the recommendations of the mid-term review, while rejecting its call to give less to the productive sector.
What will be more important, and a point to which the Minister alluded in his press briefing, is the ability to improve the choice and management of projects. In this regard his announcement that he was putting in place a five-year funding envelope for investment spending is very welcome, as it will remove the current year-to-year uncertainty.
Part of the gap from the low level of State funding will be made up next year by higher State company borrowing and by extra private funds under public-private partnership programmes. More is expected to be heard of this in the Budget, but it is not yet clear precisely how the Government sees this PPP concept - which has been very slow to get off the ground - developing and how it can be used to deliver projects at reasonable cost.
Looking at the overall picture, economic recovery would help, of course, by providing some pick-up in revenue. Fortunately for the Government the economy appears to have weathered the international downturn well. And if the recovery does gather pace maybe the purse-strings will be able to loosen just a little again before the next election.