Later this week the Minister for Finance, Mr McCreevy, will present the Government spending plans for 2003. It is a crucial moment for the Government.
Despite all the tough talk about fiscal prudence over the years from Mr McCreevy and his Progressive Democrat colleagues, the two parties in Government have lost control of spending over the last few years. Now the price of profligacy must be paid.
The situation now is not analogous to the late 1980s, when overall spending was cut sharply. This time the situation is less critical, but unless the Government gets to grips with spending, the public finances could quickly move heavily into deficit.
The recipe for Budget 2003 is, at one level, quite simple. Overall tax levels should be held fairly steady. If the Minister is seeking any extra revenue, he should get it by closing off some tax loopholes and allowances, as recommended in the unpublished report of the National Economic and Social Council (NESC), reported in Saturday's newspaper.
Meanwhile, the growth of current spending must be slowed sharply from its current level of close to 20 per cent. Worryingly, despite the "adjustments" announced since the election, spending has shown no sign of slowing down. This augurs badly for the Government's ability to slow spending growth to a sustainable level of six to eight per cent next year.
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While the overall challenge is clear enough, the key underlying issue is much more complex. As highlighted in the NESC study, the Government must urgently focus on securing much greater value for money from Government expenditure.
In the area of investment spending, there must now be concerns about the value obtained from the money being spent under the National Development Programme. There is a case for modest borrowing to pay for this infrastructural investment, but if an economic return is not secured, then the borrowing will soon become a heavy burden. For example, in the case of road building, much of the increased spending has been eaten up by soaring construction inflation and the rising cost of buying land. Much better management of this area is now required.
Similarly, in day-to-day spending, the amount of money spent on areas such as health has soared, without a matching rise in service levels to the public. Now the Government is faced with substantial pay claims for public servants under the benchmarking process, with no apparent guarantee that these will lead to substantially better service levels to the public.
After years of boom-time laxity, it will be no easy task to improve the management of the public finances quickly. But unless this can be achieved, the required adjustment to a sustainable position will only be achieved at the expense of poorer service levels to the public and falling investment which will be very costly in terms of future economic growth.