US embassy cable - 04DUBLIN1704

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