The Minister for Finance, Mr McCreevy, has put the best possible gloss on deeply worrying first quarter exchequer figures by predicting that the economy is on the road to recovery and that this is likely to be reflected in higher tax revenues during the remainder of the year.
Tax measures contained in the Budget had not yet been reflected in extra revenue, he said, and spending by Government Departments was being carefully monitored. With a general election campaign effectively underway, Fine Gael and the Labour Party accused the Minister of "cooking the books" in his presentation of the figures and of presiding over a crisis in the public finances that had been generated by overspending and lower than expected revenues.
The Minister's confidence that an economic up-turn would transform the Government's finances was not fully shared by his officials who noted the economy had slowed rapidly in the last six months of 2001 and it was still unclear whether it had recovered. Rising oil prices, because of events in the Middle East, were also mentioned - a factor that could inhibit economic recovery. In spite of such reservations, Department officials believe budgetary targets for revenue and expenditure will be met for the year as a whole.
At the heart of the Government's difficulties was a fall of almost 3 per cent in tax revenues for the first three months of the year. Income tax receipts fell by 3.8 per cent, compared to the same period in 2001, against a predicted growth rate of 1.1 per cent. At the same time, current Government spending rose by 16.5 per cent, more than 2 per cent higher than anticipated in the Budget, but a reduction of almost 6 per cent on the January/February figures. It is clear from the precipitous drop in spending that projects have been put on hold across a range of Departments.
The figures would be considerably worse if Mr McCreevy had not chosen to include more than €1 billion in non-recurring revenue in accounts for the first quarter. Transfers to the Exchequer for the period included €635m from the Social Insurance Fund; €250m from the Central Bank for the issue of euro coinage and €153m from the sale of ACC Bank. And while a provision of €150m has been made for benchmarking payments that fall due next June, it may not be enough to satisfy the growing militancy of public- sector workers.
Last February, Goodbody Stockbrokers argued that, because of the worsening public finances, Government spending would have to be cut to 6 per cent in 2003 if taxes were not to be raised. Since then, both Fine Gael and the Progressive Democrats have spoken of reducing the rate of expenditure while the Labour Party has opted for borrowing and using part of the money that would otherwise go to the national pension fund. Last night, Fianna Fáil was challenged to say where the money would come from to pay for its election promises.