Teaching Matters: The 2003 OECD Review of Third-level Education in Ireland put it up to the Government in no uncertain terms - if you want to achieve leadership in the Information Age, you need world-class education. And if you want world-class education, you have to pay a lot more for it than you are doing now.

For over a year, it looked very much as if this message had fallen on deaf ears. There seemed to be a marked reluctance in the Department of Education, and across Government generally, to accept the implications of this blunt diagnosis. The 2005 Budget, although it minimally increased provision for third-level, still left the institutions playing catch-up after the damaging cuts they suffered in earlier years.

The third-level establishment lobbied hard against this lack of response, and commentators such as myself repeatedly drew attention to the folly of passing up the opportunity to ensure our future prosperity. Small wonder that my successor as president of DCU was moved in frustration to declare that the OECD Review, as far as the Government was concerned, was effectively dead.

But, it has to be said frankly now, we were all wrong. The Government was listening, after all. The proof of this was given in Minister for Finance Brian Cowen's 2006 Budget speech, which marked a true watershed in the attitude of Government to the central importance of higher education to the country's future.

What was significant about this speech was not the money it provided for third-level, vitally important though that is. Of far greater significance was the signal it gave of a seismic shift in Government strategy. In clear and unmistakable terms, the Minister for Finance (and this was reiterated by the Taoiseach himself in a speech a few days later) was putting the development of higher education at the very centre of our national economic development strategy.

This is, of course, no more than the education sector has been pleading for over a long period. But it is one thing to be making a case to Government for a particular approach; it is quite another to hear the Government play back your own arguments to you while providing the cash to put them into effect. Truly, this was a red letter day for Irish education, and it would be churlish on the part of any of us not to acknowledge the enormity of this change and applaud it.

I was reminded, as I listened to Minister Cowen's speech, of the despair I had felt back in 1997 when hearing President Bill Clinton set out in his second inaugural speech a vision of a land in which "education will be every citizen's most prized possession". His view of the importance of higher education in shaping the future was one I thought unlikely ever to hear from the lips of an Irish politician. I am very happy to have been proved wrong.

Of course, this new alignment of vision between the Government and the higher-education sector does not guarantee us a happy and trouble-free journey into the Information Age.

For one thing, as no shortage of cynics have reminded us, the Government will have to live up to the promises it is now making. The memory of the pause in Government funding for the Programme for Research in Third-Level Institutions (PRTLI), , remains strong. But we must hope that the Government has learned a lesson from that disastrous episode and will never be tempted to repeat it.

For another, it will be a painful and difficult task to get the Government to realise that the new funding, generous though it is by present standards, will not be nearly enough fully to achieve our national objectives. There will, therefore, be no end to the annual wrangling over the Estimates allocation - that battle will go on.

But one thing that has changed, apart from the shift in Government strategy, is that for the first time in many years the third-level sector does not have to battle on its own against the holders of the money-bags in the Department of Finance. As the Budget showed, Minister Hanafin and her secretary-general Bridget McManus have now proved themselves highly effective in persuading the Department of Finance and the rest of the Government to give top priority to education - and this strength will be much needed in the years ahead.

The challenge and the promises are not from or on one side only. The universities must follow through. They have promised in their submission of 2005 to Government a radical transformation of the system. The Strategic Innovation Fund will test that resolve, but I have no doubt that the universities will rise to the challenge. The excellence is there, the innovation is there and the determination to succeed is there.

Reform had already begun - on restructuring and quality assurance, for instance - and those efforts must have encouraged a belief in Government that university reform was seriously on the agenda of the university system itself. Nothing less can now suffice if they are to continue to convince Government that they are serious and to sustain Government backing through the allocation of serious levels of additional funding.

Danny O'Hare is a former president of Dublin City University