The Government will be €655 million (£515 million) in the red next year even before the spending measures due to be announced in next week's Budget are taken into account, according to the Department of Finance. The eventual deficit for 2002 is certain to be substantially higher if, as expected, the Minister for Finance announces spending and tax measures costing €1 billion next week.
The pre-Budget day deficit projection was published last night by the Department as part of the Budget 2002 process. The Department also published its latest estimates of what this year's final Exchequer position will be.
A surplus of €3.2 billion that was predicted for the end of this year by Mr McCreevy on Budget day last year has now shrunk to €324 million. Taxation revenues for this year will be some €2 billion less than expected, while expenditure is about €600 million more than predicted, some of it due to unexpected costs such as the foot-and-mouth epidemic.
The figures also include approximately €500 million in revenue which was raised through the sale of the TSB and ICC Banks this year and not included in the Budget day prediction. Spending will continue to outstrip revenue next year, forcing the Government to borrow money for the first time since 1997.
The extra spending this year also includes some national debt related payments that had not been anticipated, but which will reduce next year's debt bill and give Mr McCreevy more scope for spending in the Budget.
The Minister has already indicated that he wants to include additional spending on infrastructure projects in next Wednesday's Budget. He is not expected to announce any cuts in the tax rates but instead focus on measures aimed at taking more of the lower paid out of the tax net.
The total cost of the spending measures announced in the Budget is expected to be around €1 billion. When this is offset against revenue-generating measures that will also be announced, the net cost will be several hundred million and push the 2001 deficit up to close to €1 billion.
A borrowing figure in this region will have the added attraction to Mr McCreevy of keeping him onside with Europe. The European Commission takes a more flexible view of Government finances and would calculate a considerably smaller deficit figure, because it will give Mr McCreevy credit for the €1 billion he plans to put into the National Pensions Reserve Fund.
The Opposition was quick to criticise Mr McCreevy and his Government colleagues over the scale of the shortfall in the surplus. "The Government have clearly no idea about what is happening in the economy," said Mr Derek McDowell, the Labour finance spokesman.
The Department's estimates for tax revenue in the coming year indicate it expects a significant decline in consumer spending as a consequence of the economic slowdown. Revenues from VAT will be up only 6 per cent, while excise revenue will be unchanged. The projection does not take into account any increase in excise taxation to be announced in the Budget. There has been considerable speculation that there could be significant increases in the duty on cigarettes to help fund the Government's health package. Economists also expect that duty on alcohol and petrol will be increased.
The Government is forecasting a €300 million increase in corporation tax and a €700 million increase in income tax, indicating that it expects the underlying economic story next year to be a positive one.
