Cowen to unveil new spending of €2.5bn in budget

Mark Hennessy, Political Correspondent and Una McCaffrey

The Minister for Finance will announce new spending measures totalling just under €2.52 billion in next month's Budget.

Mr Cowen last night gave his targets for growth in day-to-day Government spending and investment in infrastructure while ruling out income tax cuts.

He also appeared to reject cuts to stamp duty rates, despite calls for a drop in the top 9 per cent band.

He said that day-to-day or current spending will rise by 8 per cent next year.

Capital spending however will increase by 12.5 per cent, he told a meeting in Dublin last night.

Based on figures given by the Minister in his pre-budget outlook last month, the spending growth figures given yesterday indicate Mr Cowen will announce net new spending measures totalling around €2.52 billion in next month's Budget.

Some €1.56 billion of this will be in the area of current spending including pensions and social welfare increases.

This will come on top of the €2.3 billion increase in current spending in 2008 announced last October to cover increases in public sector wages and other ongoing costs.

Capital spending measures totalling €958 million will be announced on budget day according to the growth figures given yesterday by the Minister.

The increase in current spending of 8 per cent represents a significant deceleration from the 12 per cent increase expected to be the outcome for this year.

"Increases in current government expenditure will have to be lower than in the recent past," Mr Cowen said, when delivering the Indecon public policy lecture in the Royal Irish Academy in Dublin.

"The percentage increases which we have been accustomed to will not be feasible," he said, adding that the Government had to protect "vulnerable groups".

The Minister made clear that he is willing to increase the national debt beyond 2008 to pay for infrastructure projects that can show a clear net return. However, Mr Cowen's spokesman last night indicated that the Exchequer would not need to borrow extra next year for the National Development Plan, "but, perhaps, for the following years".

The 8 per cent current spending target indicates Mr Cowen will have little scope to cut taxes. "In a tighter economic environment it is unrealistic to expect the type of tax cuts which have been a feature of recent years.

"Only taxation reductions which are consistent with the prudent management of the economy will be considered," he said, insisting that the Government would "target its efforts where the need is greatest".

The Government, he claimed, "has not in the past and will not in the future" base its plans on a belief that taxes from construction and house sales would continue to grow.

Replying to questions, Mr Cowen said intending homebuyers had been more affected by interest rate rises, and a fall now would help to reinvigorate the market.

Dismissing the Green Party's preference for refundable tax credits, Mr Cowen said they can have "significant problems" and "may not be the most efficient" way of creating social equity.

Continuing with day-to-day increases of the scale of recent years would be "damaging for the economy and will not be accepted" in a "more difficult" year.

Still involved in budget negotiations with fellow Cabinet ministers, Mr Cowen said health and education spending would be "protected" to "the extent feasible within public finance constraints".

Mr Cowen warned that the tough spending rein will not just be confined to next year - set to be one of the toughest economic years globally for a decade.

"It is my intention to moderate the level of increase in current expenditure in a planned way," he said, though next year's 8 per cent rise would be but "a staging cut" en route to more modest rises. Making it clear that State spending rises would have to match the economy's growth rate, he said: "Even in that scenario, we will still be able to increase government spending by a number measured in billions every year."

Ministers will have to "continuously consider" their spending plans.