The Minister for Finance and the Government are likely to welcome the latest review of the economy by the International Monetary Fund (IMF), details of which were reported by the Wall Street Bureau of The Irish Times last week. The report, which is due to be published later this month, is expected to note that there are risks to achieving a smooth transition to lower growth levels but the overall chances of recession or serious overheating are not significant.
The overall tone of the report is positive and its likely description of the Government's tax reforms as "commendable" - a position which puts it at odds with the European Commission - is likely to be seized on in upcoming negotiations with Brussels.
The central message of the IMF report is likely to be that the economy can continue to prosper provided the correct policy options are chosen. The Government should take note of the conclusion that fiscal policy this year should have been neutral and that Government spending should now be tightly controlled. This is particularly apt in the light of the latest Exchequer figures which show that day to day spending by the Government is now running 23 per cent ahead of last year. With tax revenues only up by just under 6 per cent, this is simply not sustainable over the longer term.
The IMF is likely to suggest that increasing public resources to health and education should be accompanied by a study of alternative funding, including private-sector services. This process is under way in Britain but it is clear that there are concerns about adopting public-private partnerships in the core services sector.
The IMF's latest assessment does not criticise the current direction of economic policy but does argue for a radical rethink of social partnership. The IMF appears to believe that the traditional trade off between moderate wage rises and tax cuts has run its course and unnecessarily hinders the Minister for Finance.
The IMF report is also expected to identify wage growth as a key risk for the economy in the medium term, along with the risk that industrial unrest will grow because workers feel they are not getting a fair share of the gains from growth. Interestingly, however, it does not identify wage growth as an immediate concern and is expected to note that competitiveness is unlikely to be seriously eroded this year.
The Government's job in the months ahead is to do what it can to ensure the economy comes in for a soft landing without overshooting in a downward direction. It is facing widescale demands for extra tax reductions and spending. Some of these, particularly in health and education, will be necessary, but value for money must be sought.