Simon Harris will introduce his first budget next Tuesday and will follow his predecessor Paschal Donohoe in claiming prudence for the measures proposed.

Prudence unfortunately is judged not by ministerial speeches but by those contemplating the credit-worthiness of Governments, the purchasers of Government debt.

Twenty-one years ago as the property bubble simmered to inevitable bust, Brian Cowen introduced the State budget for 2006 which contained a wide range of tax breaks, current spending increases and commitments to a higher capital programme, as will next Tuesday’s speech from minister Harris.

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Total gross voted expenditure was to grow by 11% over 2005. Tax revenue had been strong and Cowen felt able to pledge that the deficit would be just 0.6% of GDP, well below deficit ratios in other EU countries and at a time when outstanding Irish Government debt also looked manageable.

The speech awarded plaudits to Government and to the population at large in the following words: ”We are living in the midst of the longest and strongest era of sustained prosperity in all of Irish history. This didn’t happen by chance. This involved careful planning. It involved investment in infrastructure development where we had considerable ground to make up.

“It involved a commitment to educate our children so that they could be a match for their peers across every discipline. It involved careful fiscal management and the creation of an economic environment that would attract investment. And, of course, it represents the hard work of the Irish people themselves.”

Tax revenue from stamp duties, bloated by the property bubble, had begun to soften as the budget speech was delivered and then collapsed, house prices nosedived and the commercial banks went bust, every single one, to the apparent surprise of their regulator, the Central Bank. The extent of the disaster led Cowen’s successor, the late Brian Lenihan, to guarantee the deposits of the public in the banking system.

He did not, as some TDs continue to assert, ‘rescue the banks’ – their shareholders lost everything and some executives lost their jobs. In November 2010, the new Central Bank governor Patrick Honohan felt compelled to reveal on radio the inevitable resort to emergency borrowing from the IMF.

This was the first time in the State’s history when the Government was unable to borrow, and Honohan intervened because ministers had been reluctant to admit the unfolding reality.

Neither the Central Bank nor the surviving commercial banks are likely to malfunction as they did during the bubble. But the budget surplus is vulnerable to attacks on the transient corporation tax revenues which flatter the figures, which could come from the US tax authorities or from continental EU members who want their share

The bleak period which followed is well remembered. Careless budgetary management during the bubble coincided with the irresponsible extension of credit by banks to deliver a perfect storm. In a small and volatile economy, always at risk of a downturn from external sources, prudence in budget policy delivers its own reward.

A strong State balance sheet provides the cushion to support economic activity through running deficits when they might be needed. The concurrence of a banking bust and poor fiscal management which drove the country into insolvency in 2010 appears unlikely today.

Neither the Central Bank nor the surviving commercial banks are likely to malfunction as they did during the bubble. But the budget surplus is vulnerable to attacks on the transient corporation tax revenues which flatter the figures, which could come from the US tax authorities or from continental EU members who want their share.

As the Fiscal Council has been warning, population ageing will anyway exert upward pressure on State spending for the foreseeable future.

The spending total is also vulnerable to the persistence of weak expenditure controls. There have been serious overshoots on the generous current spending figures provided in recent budgets and the minister’s speech coincides with a renewed Government commitment to the MetroLink rail project in Dublin.

At the recent estimate of around €16 billion, MetroLink is the largest single project ever contemplated here. A few short years ago the estimate was €3 billion. The burgeoning inrush of corporation tax revenue these last few years has created a perception that now is the right time to be ambitious and to undertake long-term capital projects (MetroLink completion is unlikely inside a 15-year horizon) on the basis that a strong State balance sheet is guaranteed indefinitely.

This was also the widespread expectation around the time of Brian Cowen’s budget speech in October 2005 – a ‘soft landing’ was more popular, and more politically convenient, than the widespread warnings about a bubble.

There was no soft landing but it would be premature to rule out the possibility this time round. If an international downturn is avoided and the corporation tax bonanza is sustained, the public finances will support a few years of deficits.

But if not, and the Cassandras are right again, future Governments will struggle to support aggregate demand through borrowing. Big capital commitments on long-horizon projects can turn into a millstone in these circumstances. Has prudence been spurned?