With the economy in such robust good health there might be a temptation to understate the importance of the Government spending Estimates published yesterday. But while the prospects for continued strong economic growth look good, the Estimates underline how the Government's management of the economy has become markedly less sure footed. The Estimates show that day to day Government spending will increase by 6 per cent - a full four percentage points above the rate of inflation.
To compound the picture, the projections make no provision for any additional negotiated increase in public service pay - despite the intense pressure already building up for substantial increases. There are some disturbing signs that the good housekeeping habits of recent years are being slowly abandoned; current spending will reach almost £13 billion and the 4 per cent increase in spending is well above the 2 per cent limit that the Government had set for itself.
In its defence, the Government will point to the additional and unexpected spending on the counter BSE measures, the beef fines, the anti crime programme and the hepatitis C payments. It is, of course, also the case that the State's economic indices remain well inside the Maastricht convergence criteria; in itself a tribute to the sound management of the economy. But there are danger signals in the current Estimates which cannot be obscured. They underline that the Government is taking a more relaxed approach to public spending and postponing the difficult decisions. The Minister for Finance, Mr Quinn, may sound a tough, uncompromising note on public service pay but the Estimates tell another story; that this is a Government that increasingly likes to postpone the difficult decisions - and take the soft option.
Despite the inexorable rise in public spending, the Government still enjoys plenty of room for manoeuvre as it frames next month's Budget. The buoyant revenue figures from all forms of taxation and the decline in the cost of servicing the national debt mean that the Government has enough room for reductions of at least one percentage point in both the 27 per cent standard income tax rate and the 5.5 per cent employees' PRSI rate. Such tax reform is long overdue; the level of personal taxation on PAYE workers, in particular, remains punitive.
The challenge facing the Government is to identify the areas in which public spending can be trimmed back. The need for more vigilance on public service pay is paramount. But there is also a need to challenge the Big Government mentality, the notion that the State can throw money at every problem.
The Government is entitled to be upbeat about the state of the economy and our prospects in the short to medium term are encouraging. But the initially near panic market reaction last week to some relatively harmless remarks by Mr Alan Greenspan, the US Federal Reserve chairman, underlines the fragility of the boom and the interdependence of the world's economies. Ireland's current economic well being may not last forever. An economic boom does not obviate the need for sound and prudent management of the public finances.