The Government has acknowledged it faces "hard choices" in the run-up to next year's Budget as it prepares to borrow at least €500 million more than expected to balance the books this year, write Arthur Beesley and Cliff Taylor.
The Taoiseach warned ministers at a nine-hour Cabinet meeting yesterday that they could not deviate in any way from their spending plans this year.
Underlining the difficulties facing the Government as it drafts the Budget estimates, Mr Ahern decided to cancel the purchase of a new 40-seater business jet for the Government. While this will save more than €50 million, the Cabinet decided to press ahead with a purchase of a smaller jet at a cost to the Exchequer of €10 million.
The Cabinet was briefed on the early conclusions of the latest Economic Review and Outlook from the Department of Finance, to be published next month.This document is expected to illustrate in greater detail the extent of financial difficulties now faced by the Government.
While Ministers were told Government spending is in line with expectations, a €500 million shortfall in taxation revenue demands increased borrowing to maintain expenditure.
The Government spokeswoman said: "The Government recognises that we need to make hard choices and we will be prepared to do that."
The Budget discussion was one of 65 items on the Cabinet agenda in the final meeting before the summer break. These included plans for a major reform of the Garda, which are expected to be published next week.
The Government chose not to ask the Minister for Health to exercise his veto over an application for a price rise by the VHI. Premiums are set to increase by 8.5 per cent in September. In addition, the Minister for the Environment, Mr Cullen, is expected to publish a report on carbon taxes in the coming weeks.
This will outline proposals to levy a new tax on motorists and other fuel-users based on the "polluter pays" principle - a requirement under the Kyoto agreement.
The Cabinet deferred a decision on proposals by the Hanly review to downgrade some regional hospital services as the part of the wider package of reform the Government agreed last month.
The Central Bank predicted yesterday that the amount the Exchequer will have to borrow to bridge the gap between spending and revenue this year would approach €2.5 billion - some €600 million more than the Budget target.
Such an increase would push borrowing as a percentage of national income to 1.1 per cent.This is signficantly greater than the 0.7 per cent projected on Budget day, but well clear of the 3 per cent limit set out in the EU growth and stability pact.
However, the bank predicted the economy will benefit from an international recovery, with Gross National Product growth forecast to rise to 3.5 per cent next year from 1.5 per cent this year.
Employment will only rise marginally in the event of an upswing, meaning income tax growth will remain sluggish, while consumers will await signs of international recovery before pushing up spending, limiting the rise in VAT and other spending taxes, the bank predicted.
With the Government facing a sharp increase in public sector pay under the Benchmarking process, slow income tax growth would place significant restrictions on the opportunities to increase expenditure. The bank recognised this by warning that sluggish revenue growth meant that spending growth will have to be "more modest than in the recent past".