Budget 2003 is totally divorced from reality

IT would be good to believe that Budget 2003 got all the bad news out of the way and that things are on the up and up.

With the cut of 0.5% in ECB rates the outlook has brightened might seem a reasonable jumping of point as we face towards 2003.

As obsession with the Budget wanes and we start to look again at the bigger picture, the case for renewed optimism is difficult to justify.

From an economic perspective, Charlie McCreevy did what was required.

He defied analysts by getting spending down close to 14.5% in 2002 proving that he could deliver.

After Budget 2003, some fear he has over-delivered on the cut-backs announced Wednesday that brings the boost to gross spending next year to 5.7%, or €2 billion, up on last year.

In figures, this means that, since 1997, the state will have more than doubled total gross spending on public services to €38bn.

That’s a lot of money, but very bad value for money when the state of health and other services are taken into account.

It is hard to shake off the feeling that much of the Celtic Tiger gains were squandered through rip-offs by the construction sector and money misdirected across a whole range of services including health.

Looking ahead, benchmarking and the outcome of the next round of wage talks will be crucial to how the Budget arithmetic works out.

With all the talk about current spending, due to rise by 6.9% next year, people forget that the pay element, at €12bn in 2002, accounts for much of what the government spends day-to-day running the economy.

By the time the pay issue is out of the way, the government could end up borrowing well over €2.5bn instead of the €1.86bn outlined in the Budget.

That borrowing level wold keep us well within EU guidelines of a General Government Deficit of €1.6bn.

Add to that the genuine fears that the Budget is seen as anti-business, the picture emerging is far from pretty.

If the pay issue comes unstuck, inflation may be fuelled further and the competitiveness of the economy severely undermined.

Workers have been used to a rising standard of living met in part by good tax and better wages, and while the view still persists that another national wage deal is still deliverable, the Budget will not have helped the situation.

Heftier borrowing of €3bn in the following two years will keep pressure on the national finances and limit what needs to be done in terms of infrastructure and other key initiatives.

Taking the broader economic picture into consideration, the light at the end of the tunnel is pretty faint.

Next year the US economy faces a second full year of sluggish economic growth.

Nobody knows what the short-term impact of war in Iraq will be.

With most international experts assuming war is a given, oil prices will be affected and global economic growth undermined.

Europe is grinding to a halt and fears are mounting that Germany, the third largest economy in the world, accounting for 30% of total European output, is shaping up to be the next victim of economic catatonia.

Not only have we bid farewell to the Celtic Tiger, but the harsh reality is GNP growth this year and next will be just one third of what it was three years ago.

Globally, we are looking at uncertainty across the US, Europe and Japan in terms of further economic growth.

Yesterday, the Central Statistics Office issued figures showing a 28% rise in redundancies in the 12 months ending November.

Add to that the reduction of US inward investment and the overall picture is nothing to get excited about.

Just one point to highlight a specific challenge. Planners costed the National Development Plan at €50 billion, only to find now that, with adjustments and inflation, the cost has doubled to €100bn and will continue to rise as delays to projects and inflationary pressures add to the final bill.

One final point. The political manifestos from all the major parties should be entered for next year’s Booker Prize under a new category: Fiction Totally Divorced from Reality.