Mr McCreevy has unveiled a range of measures aimed at turning a projected exchequer deficit next year of €654 million into a surplus of €170 million. But the Minister for Finance may be forced to backtrack on his Budget day commitment not to borrow in 2002.
The small size of the Exchequer surplus forecast for next year means that even a small economic shock could force the Government finances into the red. The economy has suffered two such shocks this year; the outbreak of foot & mouth disease this spring followed by the terrorist attacks on New York and Washington last September.
The measures announced yesterday include once off transfers of cash from the Central Bank and raids on funds set aside to repay the national debt and meet social welfare payments.
The extent to which these transfers have distorted the Budget day arithmetic were revealed in supplementary documents published by the Department of Finance yesterday.
These show that the Department of Finance is predicting substantial deficits in both 2003 and 2004, when the Government will not be able to repeat the measures. The General Government Deficit in 2003 and 2004 will be 0.5 per cent and 0.6 per cent of Gross Domestic Product respectively , according to the department. General Government Deficit's of this magnitude imply even larger underlying Exchequer deficits.
Yesterday, Mr McCreevy forecast a General Government Surplus of 0.7 per cent next year, achieved via the once off contributions. With out the €2.5 billion raised through these measures the Minister would have been forced to run a deficit next year that would be comparable to those forecast for 2003 and 2004.
The Fine Gael spokesman on Finance, Mr Jim Mitchel has branded the moves "creative accounting". The labour party spokesman, Mr Derek McDowell, accused Mr McCreevy of "taking money disgracefully and illegaly".
Some €610 million takes the form of a once off transfer of funds from the Central Bank's reserves. It is made up of €370 million in profits accumulated from the issue of Irish coinage since 1948. Legislation will now be brought forward to transfer the right to this profit, known as "seigniorage" to the Department of Finance. The move brings Ireland in line with other European states, according to Mr McCreevy.
The other €240 million is the value in euros of the Irish bank notes the Bank does not believe will ever be exchanged for euro notes. The bank is effectively taking this sum out out of its cash reserves and handing it over to the Government. Mr McCreevy called this money as a "windfall boost".
Mr McCreevy has also decided to withdraw €500 million from the Capital Services Redemption Account. This account contains spare cash that the Government has put aside during the relative prosperity of the last few years to repay some of the national debt. Mr McCreevy will instead use this money to meet the interest bill on the national debt next year.
The final tranche comes from the Social Insurance Fund that tax payers fund via PRSI and which is used to meet social welfare payments. The huge rise in employment and associated drop in unemployment in recent years put the fund into surplus. Yesterday the minister said he was going to transfer some €635 million of the current €1.4 billion surplus into the Exchequer.
The minister defended the move in his speech saying, the fund will still have €1.2 billion in hand at the end of 2002. Legislation will be required to allow the transfer of the cash from the fund. The minister has also improved next year's Exchequer position by bringing forward the date on which companies must pay tax.
