The surge in current spending in the revised Exchequer estimates for this year, published this week, is worrying. The Government has now comprehensively abandoned its commitment to limit the growth in current spending to four per cent per annum. Even when the figures are averaged out over the whole period of the Government's term of office, the rise in expenditure is running at seven per cent. And current spending this year is projected to run at a massive 21 per cent over last year. Rises in day-to-day spending may be understandable when the economy is growing at breakneck speed - all the indications are that 2000 was the fastest growing yet - but now that the economy is coming under pressure from a number of sources more caution is called for. The Government also appears to have substituted current spending for expenditure on capital projects - the budget for which has been reduced by more than £300 million. This is a dangerous precedent and one which the current administration should be cognisant of given our disastrous public finances in the 1970s. This substitution may not alarm the European Commission in Brussels which said yesterday it will be examining the figures before it reports again on Ireland's finances at the end of April. However, the Commission, unlike many domestic commentators, does not differentiate much between current and capital spending. The Government is still pressing ahead with major structural programmes involving roads, public transport and local authority housing. However, there are many cutbacks, in education, health and childcare as well as roads, water and housing. These are areas which need to be improved. The economy may be roaring ahead, but the citizens of this State are still denied the kind of child-care, education and social facilities that the rest of the European Union takes for granted. One of the unforeseen costs now included in the Estimates is the £235 million which will be needed to deal with BSE. This figure was not known when the Estimates were first published last November. However, the latest calculations still take no account of the impact of foot and mouth disease. Earlier this week the Central Bank warned that the disease could knock £1 billion off GDP this year, while the cost to the Exchequer could run to hundreds of million of pounds. But still the Bank remained optimistic. "Tigers cannot get foot and mouth," one director quipped.
The Bank also warned that that the State could be hurt by excessive demands for large pay rises. It has estimated that wage increases will be 10 per cent in 2001 compared with 7.5 per cent in 2000. It warned that the escalation in wages signaled that "expectations are exceeding resources" at a time when economic growth is beginning to slow. The revised Exchequer estimates underline this, showing that the public sector pay bill is set to rise by 17 per cent this year. Nevertheless, as the Central Bank pointed out, we are talking now of a modest slowing down rather than a recession. We must hope that foot and mouth does not become an epidemic and that economic conditions in the US do not conspire to undermine this relatively benign outlook in the months ahead.
