The latest Exchequer returns confirm that tax revenues for the year are likely to be well behind the target set on Budget day.
The Department of Finance is sticking to its estimate that receipts could be up to €500 million less than expected. There was nothing in the July figures to suggest that the trend was getting any worse, with some analysts saying there were some indications of a slight bounce in consumer spending over the summer months.
Data for the next few months will now be closely watched for pointers towards the likely trend in spending and employment over the balance of this year. The tax figures suggest an economy that is fairly stagnant, with activity in the housing market boosting stamp duties and income-tax returns weak, albeit somewhat better in July than in earlier months of the year. Unfortunately another jump in redundancy figures last month suggests that the jobs market remains weak.
However, there have been some mildly encouraging international economic figures in recent weeks and the Government will hope that the deficit for the year can be held to manageable levels of a few hundred million euro. The trend in the months ahead will be vital, not only in terms of the 2003 outturn but also in planning the 2004 budget, as in making projections for next year the Department of Finance will look closely at what happens during the July to December period. A key month will be November, when self-assessment income tax returns are paid.
On the spending side it is clear that a sharp deceleration in expenditure growth has been achieved, with the annual rate of increase slowing from 21 per cent plus in the first seven months of last year to around 6 per cent now. This has been achieved through cutbacks in capital spending and tight control on day-to-day budgets, which has caused difficulties in areas such as the health service.
The challenge in framing the 2004 budget is to put forward a strategic approach to the public finances. Growth prospects for next year will be modest, putting a premium on achieving value for money from current spending. Meanwhile questions remain about the Government's ability to finance and deliver the investment projects outlined in the National Development Plan.
The period of extraordinary revenue buoyancy is over and the Government must choose and outline its priorities. The challenge is to put forward a medium-term strategy for the public finances which acknowledges the more limited growth prospects and details plans for public services and investment - and how the Government proposes to pay for them.