The exchequer finances are entering the New Year in a healthy position, with the final figures for 2003 showing a lower deficit than forecast. For this year, much will now depend on the course of the economy in the months ahead. However the returns for last year suggest that the Budget tax forecasts for 2004 are conservative.
Following the surge in spending before the last election, the exchequer finances are now back in a sustainable position. Spending growth has slowed dramatically and tax revenues showed surprising buoyancy in the latter months of 2003. Estimates from the Department of Finance that revenue would fall short last year were proved incorrect, due largely to a late surge in capital taxes and a recovery in other tax headings.
Forecasting tax receipts is a difficult business, but as recently as last month the Department was predicting an exchequer borrowing requirement of €1,500 million for last year, when the final figure was below €1,000 million. The Department must naturally be prudent, but equally it is important that budgetary decisions are based on a realistic assessment of the exchequer finances. On the other side of the equation, the Department and the Minister for Finance, Mr McCreevy, deserve some credit for bringing spending back under control. It now appears that departments are learning to live within their budgets and the deviations last year were very small in most areas.
While the outlook for the exchequer finances is reasonably stable, there is little chance of a return to the kind of soaring tax revenues which were evident in the late 1990s. As Mr McCreevy has made clear, spending in future must rise in line with revenue, meaning that 5-7 per cent annual increases will become the norm.
In this environment, the key challenge for the Government is to get better value for the money it spends both on providing day to day services and investing in major infrastructure projects. Proper evaluation and control of spending programmes was notably lacking in the spending spree which preceded the last election. This has made it all the more difficult to impose proper disciplines now.
There are signs that the Government is now taking this issue seriously. However it has still to show that it can deliver on this agenda. It will not be easy. The proposed reforms of the health service, for example, are proving highly controversial. There is the threat of industrial action from employees protesting against the proposed break-up of CIE. And the future of transport in Dublin remains problematic as the Government faces decisions on issues such as the Port tunnel and the proposed Metro system.
In its handling of these issues, the Government faces some of its most important challenges. The task is to set forward a thought-through strategy in the key areas and to implement it. The danger is that opposition to change in different areas leads to a kind of paralysis where the issues are endlessly debated, but little gets done.