BECAUSE our experience of the disastrous consequences of irresponsible budgetary policy in the late 1970s and early 1980s remains vivid in our minds, and in those of our political leaders, there is no danger of a renewal of that kind of economic insanity. Nevertheless, it seems to me a little disturbing that there has been so little public discussion of the economic aspect of our forthcoming Budget.
Week after week, the papers have been full of speculation about just how much the Minister for Finance will have available to "give away" on Budget Day - with virtually no discussion of the ultimately more crucial question of how much it would be economically prudent for him to "give away" at this time.
There are in fact at least five strong economic arguments for a Budget this year that would reduce the current deficit, even at the expense of limiting the scale of tax cuts.
First, there is the fact that with our present phenomenal growth rate, economic prudence would suggest that the last thing we need at the moment is a Budget that would stimulate a still faster expansion of the economy. Indeed in any other developed country, a growth rate such as that which we are now experiencing would have led to a rash of discussions in the media about just how much budgetary action was required to damp it down lest it have inflationary effects.
Now it is fair to say that because inflationary pressures in Ireland are currently under such good control, even our present record growth rate may not, as would be the case in most other countries, require to be dampened down by deflationary budgetary measures. Nevertheless, it is surely obvious that we should be slow to adopt a Budget that would be actively expansionary.
The second reason for holding back at this point is that it seems likely that our growth will decelerate somewhat during the course of this year, and in that event it would be useful to have extra resources available to restimulate the economy in 1997.
The third reason is based on more long-term considerations. At some point in the future there is bound to be a further European and/or global recession and if we are to ride out such a recession we will need to have effectively eliminated our budget deficit and our borrowing, so as to have the leeway available to give our economy a really major boost at that stage.
There is, moreover, a fourth reason, peculiar to this country, for moving our public authorities' finances into an actual surplus. At present we depend heavily on EU Structural Funds to supplement our own capital resources for infrastructural investment. As recently explained in this column, the rapidity with which we have been catching up on our EU partners' levels of output and income per head means that when the next round of Structural Funds comes to be negotiated at the end of this decade, our entitlement will be greatly reduced. This is because the region currently constituted by our State will no longer qualify for the Category 1 treatment, which accounts for a significant proportion of current EU transfers.
IN its medium-term review, the Economic and Social Research Institute has assumed that on this account Structural Fund payments will be halved in 2000. This is necessarily a somewhat arbitrary assumption, but one way or the other prudence requires that we assume a significant drop in the flow of EU Structural Funds in 2000.
Unless we are contemplating a sharp decline in our infrastructural investment needs in that year, which does not seem to be the case, to replace this capital shortfall from our domestic resources we would need to have moved our budget into surplus by 1999 - and that is only three years away.
Finally, a fifth consideration is that within the overall budgetary framework there is a need in any event to shift the balance in favour of capital spending in the years between now and the end of the decade. The ESRI medium-term review posits an increase of over £500 million in capital spending between 1995 and 2000. To achieve this without unbalancing the public finances would require a further reduction in the current deficit over and above that needed to replace the likely reduction in EU Structural Funds in that year.
Taken together, the ESRI sees these considerations as suggesting a need to turn our present public authorities' current deficit into a surplus of some £800 million by 2000. This implies an annual average improvement of £200 million in the ratio between the current revenue and expenditure of the public authorities - including for this purpose local as well as central government.
But this target must be subject to the obvious proviso that in years of exceptionally rapid growth, such as we are currently experiencing, we should clearly improve our revenue/expenditure ratio by more than this average amount.
It should perhaps be added that a target of a £200 million average annual improvement in our public authorities' fiscal balance is not as onerous as it may sound. Even at a significantly lower growth rate than we are currently achieving - the ESRI medium-term review assumes a 4.8 per cent annual growth rate for the 1995-2000 period - and with an inflation rate of below 2.5 per cent a year, there would be considerable revenue buoyancy.
So much so that even if, while reducing the deficit by £200 million a year, we aimed simultaneously to cut the overall tax burden from 39.5 to 37.5 per cent of GNP, on the basis of the ESRI growth and inflation assumptions, this would still allow a £650-£700 million annual increase in public spending, viz. about 2 per cent a year in real terms, or in line with the present Government's 1996 and 1997 targets.
What is disturbing is the extent to which both media discussion and indeed political comments by the Opposition on the forthcoming Budget seem to be taking place in a kind of economic vacuum - without apparent regard to any of these fundamental economic considerations. Yet these considerations are, of course, what will ultimately determine our medium-term economic and social prospects.
One must hope that within Government the level of discussion is rather more serious. But if that is in fact the case, one, would have expected a much greater dampening down of speculation on Budget "give-aways" than seems to have taken place.
Finally, I would add two further quite, distinct reasons for holding back Budget concessions until 1997.
The first relates to the fact that an overdue radical reform of our tax and social welfare code, designed to eliminate poverty traps, which the Government will presumably want to effect before the next election, would require the availability of an exceptional amount of resources in the particular year in which such a major restructuring of the two codes took place.
This would be necessary to cushion the impact of such a radical shake-up of the system upon certain groups which would otherwise lose out significantly. That seems to me to be a powerful additional reason for holding back resources this year to facilitate such a reform in 1997.
And the other reason for holding back now is non-economic. Quite simply, it would in my view be good politics. There is already quite enough of a "feel-good" factor around to make an artificial economic boost superfluous at this time. But a really major boost in January 1997 could create a "feel-even-better" mood by the time an election takes place later next year. And when economics and politics point in the same direction, politicians should surely take the hint!