HAVING FAILED to respond in a sufficiently assertive manner to the economic downturn in its special October Budget, the Government is now facing the unpalatable prospect of having to cut public spending.
November exchequer figures are even worse than pessimists had predicted, with income tax returns from the self-employed and capital gains taxes seriously down on official predictions. Compared to a surplus of €1.58 billion for the first 11 months of last year, a shortfall of €7.89 billion has now emerged and the overall deficit for the year is likely to exceed €8 billion.
In spite of such dismal news, the Government is still reluctant to take action because exchequer spending is one of the few elements providing buoyancy in the economy, with gross current spending expected to rise by 12 per cent this year. Fine Gael's criticism of pay awards amounting to an additional €2 billion for public servants in secure employment during the coming year has, however, begun to resonate with voters. And Taoiseach Brian Cowen told the Dáil yesterday the Government will consider taking further measures to deal with the situation. When introducing the Finance Bill last month, Minister for Finance Brian Lenihan ruled out further tax increases for 2009. Instead, he suggested the Cabinet would await the outcome of the December exchequer returns before deciding whether cuts in expenditure would be required. On the basis of these figures, the Government would seem to have little option.
Gloom is pervasive. The overall value of shares traded on the Dublin Stock Exchange has fallen by more than 60 per cent within a year. Defined pension schemes are experiencing acute problems and those nearing pension age face uncertain and uncomfortable retirements. New car sales have dropped precipitously. There is a considerable overhang in a falling property market. And consumers, many of them already heavily in debt, are behaving with extreme caution. On top of all that, it seems that the banking system has to be recapitalised and measures put in place to ensure that funding is made available to viable businesses.
The public is awaiting signs that the Taoiseach is on top of these problems. At a weekend meeting with Fianna Fáil councillors, he cautioned them to prepare for a relentless wave of attacks arising from difficult decisions the Government would have to take. No quick fixes or soft options were available, he said. Next year's local elections would take place in "far from ideal economic circumstances".
November exchequer figures traditionally reflect the state of economic activity. Yesterday's statistics do not paint a pretty picture with reductions in all categories of taxation receipts. On the basis of these returns, the recession is likely to be longer and deeper than had been anticipated. The prospect of economic recovery taking place next year seems remote. Mr Cowen's Government has been presented with unprecedented problems on all fronts. The public is withholding judgment on their capacity to confront them.