The growth in the economy, unprecedented in the history of the State, has been confirmed by the latest set of economic figures. And the strength of the public finances continues to exceed the expectations of even the most upbeat commentators. The end of July Exchequer returns - the balance of incomings over outgoings - show a surplus of over £900 million, well ahead of forecasts. The strong surge in income tax and VAT receipts are all contributing to an extremely positive picture. There are strong suggestions that the Minister for Finance, Mr McCreevy, could now finance a zero Exchequer Borrowing Requirement. On current trends, the State's finances are poised to be in surplus at the end of this year for the first time in about fifty years.
There is an obvious danger that the almost uniformly positive figures will give rise to complacency. With the annual Estimates round already under way, Mr McCreevy will, in current circumstances, find it difficult to fend off spending demands from his fellow Ministers. The Government will come under intense pressure to deliver on its promise of substantial tax cuts and to assuage the various sectoral interests which can be expected to make their pitch for more money. Mr McCreevy, as he seeks to build on the progress made by the last two administrations, enjoys a very comfortable degree of latitude; on current trends he is in a position to cut tax rates and to reduce the national debt.
The longer-term task - of how to build on the current level of prosperity - represents a more difficult challenge. And recent history provides little in the way of encouragement. When there has been money to spare in the past, short-term political needs usually took priority over any long-term economic objectives of the Department of Finance.
Mr McCreevy will have to demonstrate that he is made of sterner stuff in continuing to make the case for a tight rein on the public finances. The signs are positive. The Minister has moved carefully to lower public expectations of hefty tax cuts. And he has made it abundantly clear that he intends to manage the economy in a prudent way. His measured response to the very healthy Exchequer returns strikes the right note; "The fact that we have a bonanza has a minimal bearing on the future and on future years", he said. There are still immense challenges ahead. There is a debt burden of some £29.5 billion which must be reduced. There is the ongoing difficulty of how to manage the pound's weakness against sterling and its relative strength against the Deutschmark and other European currencies. And there is the delicate task of deciding the precise rate at which the pound should be valued on entry to the proposed European monetary union.
Mr McCreevy will know that a substantial cut in taxation rates could trigger inflationary pressures. He will be conscious of the recent warning from the International Monetary Fund that the economy may be in danger of overheating. Mr McCreevy would be best advised to maintain a tight rein on spending. Otherwise, we could find our policy options have narrowed when the current record levels of growth in the economy begin to slow down - as assuredly they will.