GOVERNMENT SPENDING PROJECIONS FOR 2005 RELEASED

UNCLAS SECTION 01 OF 02 DUBLIN 001704

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON
SUBJECT: GOVERNMENT SPENDING PROJECIONS FOR 2005 RELEASED



1. (SBU) Summary: The annual Book of Estimates released
by Finance Minister Brian Cowen on November 18 projects a
6 percent increase in public spending over 2004 as part
of its forecast for the 2005 government budget, to be
published December 1. Minister Cowen characterized the
expenditure plans as "cautious," noting that a spending
spree could create inflationary pressures and damage
Ireland's economic competitiveness. The Estimates,
however, include noteworthy spending increases for
health, education, and disability services, which will
support Fianna Fail's bid to refashion its image as a
ruling party attuned to social concerns. End summary.


2. (U) In a November 18 press conference, Finance
Minster Brian Cowen presented the annual Book of
Estimates, a summary of government expenditure plans
foreshadowing the final 2005 government budget, to be
published December 1. Minister Cowen noted that a total
of euro 43.6 billion in exchequer funds (or roughly 30
percent of projected 2005 GDP) would be distributed among
the various government departments. The estimates are
subject to revision in the actual budget, with some
spending plans, such as social welfare increases, to be
revealed only on December 1. Minister Cowen said that
his aim in framing the 2005 Estimates and budget was to
ensure continued economic growth and employment, while
generating resources for key social/public services and
investment priorities. He added that annual GDP growth
in 2004 would be roughly 5 percent, but identified a
number of risks that could prompt a slowdown in domestic
economic activity, including oil prices, U.S. dollar
movements, and a possible weakening of the U.S. economy.


3. (U) Minister Cowen announced a spending increase for
2005 of nearly euro 2.5 billion over 2004, a 6 percent
jump, which would bring total public spending to euro
43.6 billion. The main allocations are:

- Euro 11 billion for health, an increase of euro 915
million or 9 percent over 2004;

- Euro 7.1 billion for education, an increase of euro 530
million or 8 percent over 2004;

- Euro 2.8 billion for disability services, an increase
of euro 290 million or 11 percent over 2004;

- Euro 445.7 million for the Department of Arts, Sports
and Tourism;

- Euro 60 million for official development assistance
(ODA),an increase of 15 per cent over 2004, with
promises of further increases in 2006 and 2007;

- Euro 2.1 billion for the Department of Transport, an
increase of 7 percent over 2004, to be allocated mainly
to new roads, integrated ticketing on public transport,
and a new train station in Dublin's docklands;

- A 5 percent increase for the Department of Justice,
Equality and Law Reform, with euro 55.6 million to be
allocated to the Garda (National Police);

- Euro 1 billion for the Department of Defense, earmarked
for the upgrading of equipment and training in the Air
Corps, Army, and Navy.


4. (U) Minister Cowen characterized the government's
2005 expenditure plans as "cautious" and warned that a
spending spree would overheat the economy, damaging
Ireland's economic competitiveness. "We have come too
far to expose ourselves to such a threat," he said. The
Estimates provide latitude for increases in the number of
teachers and health staff, but the Minister cited his
objective to reduce public service employees by 5,000, in
line with previous GOI commitments.


5. (U) Following the publication of the Estimates, a
number of Ministers held press briefings to outline their
respective departments' outlays, based on their expected
2005 allocations. Minister for Health and Children Mary
Harney said that 230,000 additional people would become
eligible for medical cards (the Irish equivalent of
medicare) and that an extra 300 hospital beds would be
provided to hospitals. She announced 10 initiatives
costing euro 70 million to relieve pressure on Accident
and Emergency departments. (A lack of funds and a
shortage of hospital beds account for long patient queues
at Irish hospital emergency wards, a hot-button social
issue.) She also announced an increase of euro 205
million to be spent on services for people with
disabilities, including the recruitment of roughly 1,000
staff for disability care facilities. The Minister for
Justice, Equality and Law Reform, Michael McDowell said
that a new criminal court complex would be built in
Dublin and that 1,000 extra Gardai (National Police)
would be recruited. Minister for Education Mary Hanafin
noted that key features of the additional euro 544
million available to her department were: an additional
euro 47 million to tackle education for the
disadvantaged; an extra euro 67 million for special
education; and a 35 percent increase in library grants.
Almost half of the euro 544 million education allocation
will go to salaries for teachers at the primary and
secondary (high school) level.

6. (U) Opposition party members claimed that the
Estimates marked the beginning of Fianna Fail's campaign
for the 2007 general elections. Richard Bruton, Fine
Gael spokesperson on Finance, said the Estimates were
"big on talk but low on delivery," insofar as they
focused on small changes in individual budgets instead of
fundamental reform of the system. Labour's Finance
spokesperson, Joan Burton, claimed that the medical card
initiative would burden an already dysfunctional health
care system, and she criticized the failure to include
new capital spending in the package.


7. (U) Emboff contacted Dr. Michael Casey, Assistant
Director General, Central Bank of Ireland who noted that
the rate of increase was similar to 2004 and the Book of
Estimates was "roughly what we expected".


8. (SBU) Comment: The Book of Estimates presages a 2005
government budget that will balance the imperative to
avoid inflationary pressures with Fianna Fail's need to
refashion its image as a party attuned to social
concerns. The Estimates are thus a natural follow-on to
the September 29 Cabinet shuffle that was prompted by
Fianna Fail's poor showing in local and European
Parliament elections last June. Noteworthy spending
increases for health, education, and disability services
are aimed to redress perceptions that the ruling party
has created wealth during the Celtic Tiger era, but has
overlooked social needs. The significant jump in
overseas development aid specifically targets criticism
that the Government has fallen behind in its Millennium
commitment to spend 0.7 percent of GNP on ODA (though
with this increase, the target will still not be met).
Given this context, Post and most economic commentators
anticipate that the final 2005 budget will include
additional spending increases for social welfare.
KENNY