The latest Exchequer returns for the first two months of the year indicate that the economy remains in the doldrums. Income-tax revenues are weak, indicating weakness in the jobs market, while a decline in customs duty revenue suggests that trade volumes are low, which would be no surprise given the poor international economic backdrop.
It is not all bad news, however, with VAT receipts performing strongly, suggesting some buoyancy in consumer activity in the run-up to Christmas. Overall the figures suggest that economic growth is weak, but they do not point to an economy experiencing a recession.
On the spending side, the figures show that expenditure on the provision of State services continues to rise sharply. For the first time this year, the Government provided in January its expectation for spending month by month. This showed that the Department of Finance expected strong spending growth in the early months and that the annual rate of increase would decline sharply later in the year. We are now seeing the sharp increases; however, there is still a significant task ahead in slowing the growth of spending as the year goes on.
It is vital that this is successfully achieved. The requirement for a sharp slowdown in spending growth requires, in turn, that much more attention is paid to getting value for money from all areas of State spending. Otherwise slower spending growth will lead to an unacceptable decline in the level of Government services and a slowdown in State investment which would seriously hinder growth prospects in the long term.
The Minister for Finance, Mr McCreevy, has promised that value for money will be a key focus this year. However, much remains to be done. In areas such as health, for example, the Government must consider how to act in response to a range of expert studies calling for fundamental reforms. Much work is also required to get the National Development Programme of State investment projects back on track.
It will be later in the year before it will be possible to get an accurate reading on the likely trends in the Exchequer finances for 2003. However, with no sign of an economic upturn in sight, the latest figures suggest that there is no room for complacency. In their management of the public finances, the Minister for Finance and his colleagues must realise that hitting the Budget financial targets for the year is not their only aim. It is also vitally important that progress is made in ensuring greater efficiency in day-to-day spending and much better management of State investment projects.