On Wednesday, the Minister for Finance, Mr McCreevy, will rise to deliver his sixth budget. He should have three priorities. First, he must ensure that the unsustainable trends evident in the Exchequer finances are halted. Second, having championed reform of the tax system, Mr McCreevy now faces the more difficult task of setting a new framework for Exchequer spending to ensure an end to the profligacy of recent years. And third, in his spending and tax measures, he must protect the vulnerable and the less well-off in our society.
In setting the Exchequer finances back on a sustainable path, Mr McCreevy can take some consolation from the pick-up in tax revenue, apparently evident in November. Also, the Department of Finance says that Government spending this year will come in around the target increase of 14.5 per cent, although this will not be confirmed until later this month.
However the Minister - and his Government colleagues - must realise that the trends remain worrying. After the budgetary measures, spending will still be rising considerably faster than revenue next year. Given the economic slowdown, it is appropriate to plan for some level of borrowing. However it is imperative that the target set for current Government spending growth - likely to be 7-8 per cent - is adhered to. Otherwise a combination of a slowing economy and rising spending could quickly lead to a ballooning Exchequer deficit.
Fortunately, the Minister will not have to plan to borrow to meet current spending commitments. However he will have to borrow to fund investment projects. This is appropriate, given the urgency of infrastructural development. As recognised by the European Commission recently, borrowing can be justified in cases where debt is low and where the money is put towards productive economic purposes.
However there is one crucial caveat. If borrowing is to be justified, then the projects chosen for investment must be capable of generating a significant economic or social return. And the investment must be properly costed, financed and managed. In the case of the National Development Programme (NDP), a number of recent reports have raised serious questions about the way investments are chosen and managed. For this reason, the Minister should move to clarify the State's priorities under the NDP and provide a coherent and credible strategy for the delivery of the programme. He must also apply the similar value for money principles to day-to-day spending.
Finally, in planning extra Budget-day spending, and in proposing how to pay for it, Mr McCreevy must ensure that the burden of adjustment is not on the less well-off. Despite the tight Exchequer position, there should be resources to help the poorest in society, even if this means modestly higher tax bills for the better-off, who have benefited so handsomely from recent budgets.