There is a considerable amount of confusion about aspects of our public finances - much of it deliberately generated by a concern on the part of politicians for presentational purposes to minimise the growth of current public spending.
Towards that end, successive governments have jumped around between different classifications of current expenditure. The recent OECD Report on Ireland has drawn critical attention to the Government's attempt to hide the scale of current spending increases by including declining debt interest payments in its spending target.
Governments have also persisted with the presentation of government spending in cash terms rather than accrual terms.
Accrual accounting involves the allocation of revenue and expenditure strictly to the period to which they actually relate. Cash accounting makes it possible at the end of a year in which buoyant revenue has yielded a favourable fiscal balance, to bring forward expenditure from the following year and pay for it in advance.
In this way the base from which the next year's spending increases are to be measured is artificially raised, and simultaneously the size of such increase is artificially reduced - enabling false claims to be made that current spending increases are smaller than is in reality the case.
Fortunately, an independent check on Government financial performance is available. This is the alternative National Accounts presentation of the Exchequer figures, which employs an accrual basis and is not amenable to the same amount of fiddling.
Unhappily, this presentation takes time to prepare, and, to the relief of successive governments, is not available at Budget time. Indeed, it does not appear until four months later, when it is published in the full printed presentation of the annual Budget. The data in this delayed publication of the only objective series on the public finances have never received any attention from the media - a situation that clearly suits the government of the day.
The figures contained in this later-published Budget volume (which reappear in final form in the National Accounts that are published 18 months after the end of the financial year in question), provide material upon which can be based an objective assessment of the fiscal performance of past and present governments.
This publication now also provides material on which to assess future spending plans. From an examination of the recently published National Accounts presentation of the projected 1999 Exchequer finances, two things are very clear.
First, it is evident that the earlier-published Exchequer Accounts present an incomplete and seriously distorted picture of what is really happening. Thus, whereas the current Exchequer presentation shows an increase of 15 per cent in current spending other than debt interest between 1997 and 1999, the National Accounts publication shows that in reality this increase has been one-third greater, viz 19.5 per cent.
BUT, that said, a second point emerges equally clearly from the National Accounts data of the past two decades. This is that enormous progress has been made during the past two decades in getting the overall balance of revenue and expenditure into order.
When I became Taoiseach at the end of June 1981 the breakdown in financial control in the immediately preceding period had been such that the prospective level of borrowing for the following year was a quite astonishing 21 per cent of GNP - over twice the 1977 ratio. By contrast, the level of borrowing required six years later by the outgoing government's Budget proposals, on which the 1987 election was fought and which the incoming Fianna Fail government implemented, was barely 10 per cent of GNP. In the following two Budgets, without raising the tax level, Ray McSharry successfully completed the process of reducing the borrowing ratio, cutting it by 8.5 percentage points to 1.5 per cent of GNP. That was a remarkable achievement in such a short period, and was done primarily by reducing current expenditure exclusive of national debt interest from 41 per cent to 32.5 per cent of GNP. However, the immediately following Fianna Fail/Progressive Democrat government of the 1989-1992 period significantly relaxed control of current spending, with the result that between 1989 and 1992 the share of GNP absorbed by such expenditure had risen by three percentage points. But since then, successive government have all held the annual growth of current spending to a rate several percentage points below the annual increase in GNP, i.e. around 4 per cent to 5 per cent a year for current spending, as against 6 per cent to 9 per cent for economic growth. The result has been that this year, for the first time since 1974, current expenditure exclusive of national debt interest will fall below 30 per cent of GNP.
Since 1992 the proportion of GNP absorbed by taxation has also fallen by three percentage points. However, although since 1989 the level of the national debt has risen by a further one-fifth, lower interest rates have actually reduced the cost of servicing this debt to below its 1989 level. And as during the present decade the value of GNP has risen almost 2 1/2 times, these interest payments now absorb only 3.5 per cent of GNP, as against over 8.5 per cent 10 years ago. It is this reduction of five percentage points in the annual debt interest burden that has turned an overall budget deficit of 2.5 per cent of GNP in 1992 into a surplus of the same amount in the current year - a surplus that the Government currently proposes to increase to about 3 per cent by 2001.
Our fiscal balance is so strong today that in principle the bulk of revenue from future economic growth, together with further funds that will be released by continuing reductions in the share of GNP devoted to debt interest, can henceforth appropriately be applied to infrastructural investment and to improvements in public services.
However, that optimal use of growing resources has to be subject to one important qualification. The timing of such spending increases must be such that they don't contribute to over-heating a rapidly-growing economy. Further cuts in taxation may also be appropriate. However, general government receipts as a proportion of GNP are already one-tenth lower than the EU average. The emphasis in future fiscal policy needs to be primarily on the expenditure side. Such further cuts in taxation as may be appropriate should, I believe, be directed mainly towards a reform of the system to reduce the quite unfair burden of income tax on less well-off people.
But adopting long-term fiscal policies along these lines, attuned to our present and future needs, rather than remaining hung up on a problem of excessive spending that was brought under control many years ago, will require a fairly radical change in the mind-sets of many politicians and other opinion-formers.
While none of the three governments since 1992 has matched the 7.8 per cent annual increase in the volume of public spending exclusive of debt interest that took place under the 1989-1992 Fianna Fail/PD government, all of them have increased the volume of such spending by between 4 per cent and 5 per cent a year.
In current money terms, the two governments of the 1992-1997 Dail increased current spending, exclusive of debt interest, by 6.5 per cent to 7 per cent a year. And, on the basis of this year's current spending plans, under the present Fianna Fail/PD Government the increase in current money terms since 1997 will have averaged an even higher 9.25 per cent a year, largely because of higher underlying inflation. The price component of GNP has recently been rising by over 4 per cent. The time has come for a radical review of our fiscal policy and for the adoption of long-term plans not merely for increased infrastructural investment but also for the improvement and expansion of public services and social transfers directed primarily towards the elimination of poverty. The achievement of that objective by 2010 is now well within our power.