High spending by the State, and lower than expected tax income, meant the Minister for Finance had no choice but to acknowledge the end of the Celtic Tiger, writes Una McCaffrey
It is at last official: the Minister for Finance, Mr McCreevy, has said the boom is over and the time has come for everybody to deal with new, more modest, financial realities.
The news in itself is hardly shocking, coming as it does after months of similar commentary from almost every other interested party in the State.
But when the man who holds the key to the public coffers says the game is up, it is time to listen and, more importantly, ask what finally made the tiger falter.
The Minister himself offered a reasonably well-stocked book of evidence to back up his statement. He said economic growth had "slowed markedly", and he could identify no reason for it to pick up in the near future.
He said projections for growth of 3 per cent this year may now be "over-optimistic", moving well back from the prediction of 3.9 per cent he himself made on Budget day almost a year ago.
Mr McCreevy also acknowledged that growth in public spending had been running at rates which are unsustainable.
Last December, he said spending would grow by 14.3 per cent this year. At the end of September, current spending was up by about 20 per cent. Undoubtedly, this is a key contributing factor to the end of the boom, and must be stemmed if a crisis is to be avoided.
The Minister previously insisted his original target would be met by the end of December. Whether this will be achieved simply by pushing some spending into 2003 is as yet unclear; whatever happens, the problems associated with high spending will not disappear with the turn of the year.
Public spending only becomes a concern when money does not flow into the State's coffers as fast as it is flowing out.
This, more than anything else, is an indication of an economy on the edge of faltering. Tax revenue, the money which allows the State to fund projects such as road-building and hospitals, is expected to run no less than €1.3 billion below target for the year.
This shortfall is easy to blame on the deeper-than-expected global economic slowdown, a reasoning which is suitably vague to explain almost anything away.
The Minister's last budget was prepared on the basis that tax revenue would rise by 8.6 per cent this year, but by the end of September, this increase was just 2.6 per cent. Detailed figures show that revenue from income tax had declined by 10.7 per cent, compared to a target for the year of a 1.1 per cent increase. Corporation tax receipts had increased by 8.7 per cent, well down on a target of 29.5 per cent expansion.
The basis for such a dismal tax take is more hazy, with limited statistical evidence available. Unemployment has been slowly rising, on and off, for the past 18 months, but not to a sufficient extent to justify such a massive fall-off in income tax revenue.
A more significant factor may be the Special Savings Incentive Scheme, which will, amid much opposition from economists, drain €425 million from income tax receipts this year.
As for corporation tax, industry evidence suggests that conditions are significantly tighter than a year ago, with job creation likely to be stalled as a consequence. Again though, a clear picture is difficult to find.
A deficit, or State borrowing, of €750 million for this year has already been well flagged. In 2003, this is set to rise to at least €3 billion. Behind this, as Mr McCreevy said yesterday, is the issue of competitiveness - in other words, the chances of achieving sustainable economic health.
Inflation, at 4.5 per cent, double the euro-zone average, represents another factor in the balancing act facing the Minister on Budget day next month. If yesterday's address is anything to go by, "realistic expectations" will be the prevailing theme on December 4th.