IT IS now commonplace for ministers for finance to recite the Maastricht mantra on Budget day. Borrowing must be kept under 3 per cent of national output and the debt ratio must continue to fall. Ireland must remain one course" to qualify for Economic and Monetary Union by meeting the rules set down in the Maastricht Treaty.
However, the budgetary stance should not only be judged on the basis of EU rules. It is necessary to look both at the overall economic direction taken by the Budge and at whether the specific measures cane improve the way the economy operates.
In setting his Exchequer borrowing figure, Mr Quinn took what, on the face of it looked a fairly conservative approach, aiming at £729 million, or 2 per cent of Gross National Product. He might have gone higher but for the restraints of the Maastricht Treaty.
Get used to hearing about the formerly obscure concept of the General Government Deficit (GGD) - the measure the Treaty uses for borrowing. It is higher than Exchequer borrowing this year because it treats the various money shuffles on current spending and debt servicing costs differently from the normal Exchequer borrowing measure.
The GGD this year will be around 2.6 per cent of Gross Domestic Product (the Maastricht Treaty uses the GDP measure of national output rather than the GNP more commonly used in Ireland). Any higher would have been too close for comfort to the 3 per cent Maastricht barrier.
There is an argument that, given the strength of economic growth, borrowing, should be set even lower. One measure calculated by Davy Stockbrokers in its Budget commentary is that of the primary "Budget surplus, which uses the General Government Deficit and subtracts interest payments on the national debt. This corrects for the year to year money switching which affects the EBR and for the ups and downs of interest payments. This calculation shows a fall in the primary surplus from 3.4 per cent of national output lasts year to 2.7 per cent this year.
Such a fall is probably reasonable enough in a year when economic growth is expected to slow from last year's record pace. However, the key message is that if the Government wants to deliver its preelection Budget package next year and remain within the Maastricht rules, then economic growth must continue.
This is where the other Maastricht rule, stipulating that the ratio of debt to Gross Domestic Product must fall at a satisfactory rate towards 60 per cent, becomes important. This year, the ratio should tall from 85 per cent to 81 per cent. However if, growth slows and interest rates start to edge up, public finances will have to be tightened to keep the ratio on a firm downward trend.
The booming economy has given the Government something of a free lunch in dealing with the public finances and ministerial fingers are firmly crossed that this will continue.
Within its limited constraints this year's package did continue some useful reforms. The Cabinet may not all agree, with Richard Bruton's proposals to reduced employers' PRSI to British levels, but the reforms in the last three Budgets mean a "substantial numbers of employers now pay employers' PRSI at 8.5 per cent, compared to the former 12.2 per cent standard rate, which has been reduced fractionally to 12 per cent. The 30 per cent rate of corporation tax on the first £50,000 of profits will also lead to a lower effective tax rate for the bulk of small businesses.
Tighter control and better assessment of Government spending in recent years would have allowed both sharper reductions in debt and more progress in cutting income and business taxes. But like its predecessors, this Government will hope that strong growth will allow it to avoid the tough decisions and dispense an election winning package next year. While still keeping on course for Maastricht, naturally.
