There can be no doubt that the economy is growing very strongly. The latest tax figures show buoyancy across all headings, reflecting rising employment and strong consumer spending. Central Bank data indicates that borrowing to fund house purchases and investment is continuing to rise steadily. And the latest retail sales figures prove that consumer spending, continues to run strongly ahead of last year. Ahead of a general election, the Government could hardly hope for any better.
Buoyant tax revenues have now become a common feature of the exchequer finances. The latest figures show that strong receipts reduced exchequer borrowing in the first three months of the year to just £151 million, compared to £561 million in the same period last year. There were some once off factors at work, notably a change in the timing of VAT payments. But the underlying trend in tax receipts is very strong and the Budget targets for the year in this area already look very cautious.
The strength of tax revenues - up 11.5 per cent on the first three months of 1996 when adjustment is made for the changes in VAT payments - are due to a number of factors. Employment continues to grow strongly. Buoyant consumer spending is boosting VAT receipts and excise duties. And the strong housing, market is helping to increase stamp duties.
The latter trend is of some concern to the authorities. Official figures from the Department of the Environment confirm that second hand house prices rose by 17 per cent on average across the Republic last year, and jumped by more than 20 per cent in Dublin. Meanwhile the latest data from the Central Bank show that borrowing from banks and building societies continues to grow rapidly.
The Government will hope that the latest set of economic figures contribute to the economic "feelgood factor." Growth has been stronger and more sustained than any forecasters had anticipated. Policy makers must now endeavour to maintain economic growth for as long as possible. Controlling inflation must thus be one priority, although the Central Bank has very little room for policy manoeuvre in using its traditional anti inflation weapon - interest rates - because of the planned move to monetary union.
Because the Central Bank is constrained in this way, it is all the more important that the Government plays its part by controlling public spending. Successive administrations have allowed spending to grow faster than necessary. Rapid economic growth and exchequer buoyancy could weaken the Government's resolve, particularly with an election in the offing.
It is imperative that this does not happen. The Minister for Finance, Mr Quinn, is correct when he points out that, with the economy growing so strongly, we should not be borrowing at all. Heading towards monetary union, it is essential that the rate of public spending growth slows, not increases. Otherwise we may find our policy options for economic managements closed off completely if the economy slows as sooner or later it surely will.
