The exchequer returns for the first quarter of the year point, not surprisingly, to an economy which is weakening . It is clear that the jobs market is in poor shape and that corporate profitability is under pressure.
The only bright spot is buoyancy in VAT receipts. It is not clear what is behind this, though strong sales of new houses appear to be an important factor. Spending, meanwhile, is broadly in line with what the Department of Finance had expected for the first quarter , but the rate of growth will have to slow sharply later in the year, if the Budget targets are to be met.
It is always a mistake to read too much into the figures for one quarter, as the timing of spending and revenue can seriously affect the picture. This year, the outlook for the remaining nine months is even more uncertain than usual, due to the war in Iraq and the generally poor international economic outlook. If the annual Budget targets are to be met, then some economic recovery will be needed later this year. If conditions remain depressed, then borrowing will come under upward pressure.
The Minister for Finance, Mr McCreevy, must ensure that the exchequer finances are returned to a stable trend and that any economic weakness does not throw them completely off course. The Budget target is to hold the increase in overall spending this year to 6.7 per cent and it is important that this is broadly met. Government ministers have been told that if any part of their department is running above budget, then they must make savings elsewhere to compensate. It is to be hoped that this will encourage a culture of efficient spending management, which has been lacking in recent years.
The only way to ensure that public services can be improved at a time of tight exchequer finances is to ensure better value for money. Much remains to be done in this area. It is clear from a variety of reports being presented to the Government on the health service, for example, that serious structural issues must be addressed if higher spending is to translate into better care for patients. Meanwhile much remains to be done to ensure that the benchmarking pay increases to public servants translate into a higher level of service to the public.
Similar considerations apply to major investment projects. Detailed planning and cost-benefit analysis are required to choose where best to invest and top-class project management is required to deliver on this. Again, these attributes have been lacking in recent years and the task now is all the greater at a time when resources are scarce.
The challenge facing the Government is thus a significant one. Unless it can succeed, the pressure on exchequer finances will inevitably translate into poorer public services and a fall-off in badly needed investment. Meeting the Budget targets is important, but will not be enough. After years of loose management, the Fianna Fáil/Progressive Democrat government must deliver better value for the money it raises from taxpayers.
