Along with a chill wind, autumn has brought the first suggestion of a change in the economy. Exchequer returns for the first nine months of the year, released last week, show the Government's tax take rising at a rate of 12 per cent. But words like strong, robust or healthy are best avoided when describing the performance. Compared with 19 per cent growth in the first quarter and 14 per cent in the second, these figures point to a marked deceleration in the rate of increase in tax revenue.
The three tax elements most closely related to the property market - stamp duty, capital gains tax and capital acquisition tax - have produced bumper harvests for several years in a row. In the year to September alone, they accounted for some €1 billion of the €1.8 billion in tax collected by the Government in excess of its expectations. Goodbody stockbrokers calculated last week that a mild downturn in the construction sector will occur after 2007. Economic growth is forecast to slow to a more normal rate of 3 per cent by 2008, from a likely average of 6 per cent this year. Tax revenue growth is likely to slow as a result. And given the more volatile nature of the construction sector and property market, the slowdown in that sphere may be sharper than in the economy as a whole.
Mercifully, this year's tax overshoot has not yet been met with any commensurate increase in current spending by the Government. In the year to September, spending rose by 9.8 per cent, high in itself but below the growth rate targeted by Brian Cowen at the last Budget. It will test Mr Cowen's mettle to maintain this prudent approach as he delivers his pre-election budget.
As the chairman of the Small Firms' Association Pat Crotty has pointed out, Government spending has for several years been assisted by a credit-fuelled boom that has boosted personal consumption, speculation and Government coffers. And the ESRI has identified where a significant chunk of that spending has gone. In a paper entitled "Does it pay to go public?" examining wage differentials between the public and private sector, ESRI economists Phillip O'Connell and Helen Russell found that public sector workers earn 20 per cent more for an hour's work than equivalently qualified counterparts in the private sector.
There are legitimate questions for the Government in all of this. Why has it allowed itself to lean so heavily on the property market, in particular on house buyers, so much so that two thirds of this year's tax buoyancy has been generated by three taxes that together make up less than one fifth of all taxation?
Is the Government prepared for the worst case economic scenario in which a downturn in the property market and construction sector cause a reversal of the present situation? And if differentials between public and private sector workers do indeed exist, what real improvements in public services can be identified in justification?