A series of internal Department of Finance forecasts and the latest OECD view, confirm the buoyancy of the Irish economy. The Department forecasts, reported in this newspaper yesterday, indicate that the economy is growing much more rapidly than expected; it also signals that another year of record growth will yield substantial improvements in job creation. The OECD presents a similarly upbeat picture - although it also cautions about possible inflationary pressures in the economy and it advises a tight rein on public spending.
The Department forecasts also underline the continued surge in Exchequer finances. The forecast by the Minister for Finance, Mr Quinn, during the election campaign that tax receipts would come in at £400 million ahead of target, already looks like a conservative estimate. The strength of tax revenues is due to the boom in consumer spending which, in turn, is producing healthier VAT receipts and excise duties and to increasing employment, which is boosting income taxes. The strong housing market is also leading to a substantial increase in stamp duties.
It is already clear that the new Minister for Finance will be in a position to announce a very strong budgetary position at the end of 1997, which should augur well for the 1998 Budget.
Policy makers must now endeavour to maintain economic growth for as long as possible. There are several interlocking challenges; the need to dampen any inflationary pressure; the need to control public expenditure and an overriding need to smooth the path for monetary union.
The inflation figures published yesterday which show the consumer price index rising at an annual rate of just 1.5 per cent in May could scarcely be better, given the strong `feelgood' factor in the economy. The Central Bank raised interest rates last month, primarily because of concern that the spending boom would trigger inflationary pressures. But, perhaps surprisingly, inflation has remained at a remarkably subdued level.
The new Government will thus inherit a very strong economic position. It has promised to help lay the foundation for further growth by maintaining tight control of public spending. And both the Government and the Central Bank will remain wary in the months ahead that despite the latest figures, the rate of inflation could start to pick up.
Much will now be determined by the run up to monetary union. At this weekend's Amsterdam summit, EU leaders will attempt to get the process back on track, by agreeing the rules which will apply to those, who join the single currency. One way or another, the monetary union issue will demand the immediate attention of the new administration. The latest inflation and growth forecasts show that Ireland is well placed to qualify under the Maastricht rules. But, notwithstanding the uncertainties now surrounding the single currency, we should now be turning our minds to what happens after monetary union commences.