The politics of economic upturn

As the economy recovers strongly, the pressures that developed after the local elections between Fianna Fáil and the Progressive…

As the economy recovers strongly, the pressures that developed after the local elections between Fianna Fáil and the Progressive Democrats are likely to resurface. This time, however, Fianna Fáil backbenchers will have to address complaints to their own ministers.

For, with the Minister for Finance, Mr McCreevy, determined to retain his position in any Cabinet reshuffle and the Taoiseach, Mr Ahern, telling the Dáil he will continue with "the present excellent policies", that is where most of the power in relation to future Government spending will lie.

Yesterday's figures from the Central Statistics Office paint a glowing picture of economic growth rising by more than 5 per cent of GNP in the first quarter of this year, while consumer spending was up 2 per cent. The fastest rate of growth in three years has been accompanied by a rise in capital investment of 12.4 per cent and a jump in net exports of 20 per cent. The surge in economic activity, which is now generating a surplus of 3 billion a month in external trade - and rising - promises continuing growth and higher levels of employment as world trade improves.

Later today the Department of Finance will publish Exchequer returns for the first six months of the year which are expected to offer the prospect of a budgetary surplus in 2004, rather than the projected deficit of €2 billion. Even if the €650 million raised by the Revenue from hot off-shore accounts fails to close the gap, there will be no disguising the transformation that has occurred in the Government's finances.

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Such a benign outlook will permit the Cabinet to revisit the more contentious and unpopular decisions it took in relation to social spending during the past two years. But demands for increased funding can be expected from all Departments and there is no certainty that the most vulnerable sections of society will receive priority.

The Taoiseach approved a speech by the Minister for Communications, Mr Ahern, two weeks ago, in which he rejected the neo-liberal economic approach of the Progressive Democrats citing it as an active driver of the alienation which has corroded social cohesion and encouraged higher crime rates. Now, with Government revenues charging towards the black, the time for action, rather than fine words, has arrived.

The Economic and Social Research Institute has advised against large-scale tax cuts or a new round of public service benchmarking. Instead, it has suggested that tax bands be increased to bolster take-home pay, especially for those people on the average industrial wage who pay tax at a rate of 42 per cent. That is a sensible approach, provided it is linked to action to improve the quality of life of the least well-off.

In his defence of Government cutbacks, Mr McCreevy frequently observed that if he had the money, he would spend it. This excuse is now passing its sell-by date. The latest figures would indicate that the Tiger has returned.