The boom is over. The pace of economic growth is slipping. In his Budget yesterday, the Tánaiste and Minister for Finance, Brian Cowen, cut next year's forecast for the growth rate in real Gross National Product to 2.8 per cent. On this basis, the economy in 2008 will experience its slowest rate of economic expansion since 1993.
Budgeting in a boom is easy work. Budgeting in tougher times is a much more demanding business. Mr Cowen's over-arching concern in the Budget speech he delivered yesterday was to strengthen confidence in the economy's future performance.
On the credit side, Mr Cowen performed the basic budgetary tasks well. He has attempted to counteract the construction-led downturn in private sector investment by adding substantially to the volume of public capital spending next year. In the prevailing circumstances, recourse to borrowing to finance additional public capital spending is not only justifiable, it is commendable.
The Minister has increased weekly social welfare payments by between 6 and 7 per cent, well ahead of the estimated inflation rate of 4.9 per cent over the past year. These increases are particularly important at a time when the living standards of the poor and disadvantaged are being undermined by recent steep rises in the prices of basic necessities, most notably food and heating.
He has raised basic tax credits and broadened the standard rate tax band by some 4 per cent. While not quite providing full indexation to average increases in earnings over the past year, Mr Cowen has broadly honoured his commitment to keeping low-paid workers out of the income tax net and middle-income earners out of the top tax band.
On the debit side, the restructuring of stamp duties for second-time home buyers and investors could be both ill-timed and ill-judged. If not too little, it is certainly too late. If the case for restructuring stamp duties warranted support, it should have been done long ago when it might have improved sentiment in the property market. Alternatively, if the case for the restructuring of stamp duty does not stand up on economic and financial grounds, it should not have been introduced even now.
But taken in the round, Mr Cowen's Budget yesterday merits at least two cheers. He must now proceed to implement it effectively. For ultimately, the 2008 Budget will be judged not by the increased spending it has sanctioned, but by the economic and social results that extra spending achieves.
The Minister must ensure that the resources he has provided to finance additional investment under the National Development Plan 2007-2013 are used efficiently to improve the economy's productive capacity. At the same time, he must reinforce his efforts to secure better value for taxpayers' money in the provision of public services, most notably health.