Is there any end to the bullish economic statistics? Thursday's exceptionally good Exchequer Returns for the third quarter of the year pointed to buoyant tax revenue, as certain an indicator as one can get that the economy is powering along. Yesterday it was the latest unemployment figures. The Live Register recorded a drop of more than 9,000 last month. There is usually a drop in September but this is the largest September decline on record. In the last year unemployment has fallen by more than 29,000.
Hopefully, these rosy statistics will continue to keep coming but, ironically, they can pose a threat to our economic well-being. Quite quickly, they build up a sense of security which is not completely justified and they fuel people's expectations. The Tanaiste's remarks yesterday that the Exchequer Returns justify "drastic tax cuts" is a good example. The returns do not justify "drastic tax cuts". Granted she is the leader of a party which likes to think that it invented tax cuts but it was an unhelpful and incautious remark. Fortunately, her good friend, the Minister for Finance, Mr McCreevy has a better grip on reality.
The reality includes the fact that unemployment figures are not dropping as much as might be expected, given the exceptional growth rate of more than 7 per cent. In addition, much of the past year's decline has been caused by the squeeze on dole spongers. Unemployment actually increased in June and July and fell only slightly in August. The situation for the long-term unemployed remains bleak and while youth unemployment overall is falling, the spread is uneven; there are many pockets where it is at crisis levels.
The task facing the Government is not to create jobs. In large measure, the economy and the IDA will see to that. There were over 50,000 extra jobs created last year and the figure this year will be closer to 60,000. The Government needs to translate economic growth into employment opportunities for the long-term unemployed and, in particular, for disadvantaged youth who otherwise will be the long-term unemployed of tomorrow.
Economists will argue that governments cannot create jobs, that they can only foster the conditions in which jobs are created. Strictly speaking, this is not so. Governments create employment through increasing the size of the public service, by hiring more nurses, civil servants, gardai. Such action however pushes up the public sector pay bill and it is perilously close to an unsustainable level already. There was an expansion of the public sector in the early 1980s which nearly ruined the public finances. In the main, the economists are right; responsible governments must create the right conditions but it must ensure that the employment opportunities are manifesting themselves across a broad spectrum and where they are most needed.
Undoubtedly there is a pent-up demand for reduced taxation and it is justified. The top rate of income tax is too high and, more importantly, it kicks in at very low income levels. Mr McCreevy however must balance conflicting ambitions; substantial tax reductions would risk fuelling inflation. The last thing the economy needs as we head into monetary union, is to impair competitiveness. And undermining our competitiveness would almost guarantee that our long-term unemployed remained unemployed.