The exchequer deficit for 2006 was just over €1.6 billion . This was more than three times Government projections. Stamp duty receipts for 2006 were €700+ million below Government expectations, while VAT receipts were almost €400m below the level anticipated by Brian Cowen. In addition public expenditure rose by 13% in 2006. The Government was determined to win the 2006 General Election and the massive rise in public expenditure contributed to a feel good factor. This provided a harvest of votes for FF at the ballot box. The rise in public expenditure was unsustainable.
The Celtic Tiger is no more. It has floated on a sea of excessive government spending and private borrowing. It has grown flabby. The government must take the scalpel to public expenditure. The withdrawal symptoms will be severe. The growth rate for the economy will drop to around 2%. Unemployment may rise quite sharply due to the down turn in building and construction. The electorate will now pay for the good times. This is the same scenario as unfolded in 2002 in the immediate aftermath of the general election.
The rise in the value of the euro against the dollar has insulated the economy somewhat against rising international oil prices and served to depress inflation. Nevertheless the governments record on inflation is poor. Inflation currently stands at 5%. Recently on RTE Tom McGurk stated that Brian Cowen left FG flat on the floor in debates on the economy in the run up to the 2006 General Election. Not for the first time McGurk's analysis was fatally flawed.
The next massive rise in government expenditure is anticipated to occur in the run in to the next general election-expected in 2011. After all the electorate has short memories.