The outlook is for a gradual pick-up in economic growth moving into next year, according to today's forecasts from the Economic and Social Research Institute. Growth in Gross National Product should increase from 1.9 per cent this year to 3.1 per cent next year, it predicts, though this will not be enough to stop the unemployment rate heading over 5 per cent. However, the report warns, key policy issues remain to be tackled.
The Budget is one area highlighted by the ESRI researchers. They call on the Minister for Finance to adopt a "broadly neutral" stance on Budget day, controlling current spending growth and keeping revenue growing in line with expenditure through modest broadening of the tax base. This would keep the current budget in surplus, which together with additional borrowing would leave funds to invest in capital programmes.
It is a common-sense approach, but not one which will be easy to implement. Difficulties in planning and delivering major infrastructural projects are evident. Meanwhile the ESRI itself points to the difficulties in holding down current spending growth, due in particular to pressures on public sector pay. This leaves little scope for real spending increases to improve services, it points out.
The report argues that this means that attaining real productivity returns for the pay increases to the public sector will be essential. It also identifies one other key reason for ensuring that the productivity increases are "verifiable and transparent."
This is because public sector workers, through a combination of benchmarking and the phasing of the basic terms of the national agreement, will be receiving pay increases next year substantially ahead of the private sector. This could make it difficult to hold the wage bargaining process together as negotiations on the second phase of pay increases under Sustaining Progress get underway later in 2004.
This is an important issue, as it is essential that the economy completes the transition to a low inflation rate, if more jobs are not to be put at risk. The latest inflation figures, published yesterday, showed - encouragingly - that the annual rate last month had fallen below 3 per cent and the downward momentum must be maintained.
The difficulty, in terms of getting a productivity return for benchmarking, is that the terms on which the money is being given do not provide a strong mandate for doing this. The negotiations on the verification programmes which must be met before the money is paid are now underway in earnest, but all the indications are that the resulting improvement in services to the public will be limited.