In framing his December Budget, the Minister for Finance, Mr McCreevy, will face hard choices in devising a formula that simultaneously keeps the State's finances in the black and keeps his party and the electorate happy in the run-up to a general election.
Over the past few years, spending has been let rip and large-scale tax cuts have been typical, as the Minister loosened the purse strings against a background of record Exchequer surpluses.
Mr McCreevy, previously regarded as tough on spending, presided over day-to-day spending increases of more than 20 per cent. And this was despite a pre-election promise to limit spending to a 4 per cent annual average over his term in office - although this limit did not take account of a convoluted formula including repayments on the national debt. He also had more than enough money to implement an ambitious National Development Plan including new roads, the Luas light rail system and more general infrastructure in a shorter time period than any previous government could have dreamed of.
But all has changed. It is now going to be extremely difficult for the Minister to avoid targeting a deficit next year - even if spending is kept in line with this year and tax growth of 5 per cent is assumed. And even this scenario is optimistic.
Economists from the Economic and Social Research Institute (ESRI), the Central Bank and other financial institutions say that if the Minister needs to run a small deficit because the business cycle has turned down, there should not be a problem. This is known as letting the automatic stabilisers work. But the Government's real fear is likely to be letting loose a hostage to the Opposition in the run up to an election.
Messrs Noonan and Mitchell are likely to be delighted to target a Government that has spent so frivolously that the State is having to borrow once again.
There is likely to be much debate about appropriate priorities for spending in this new environment. The Minister may have made plenty of noises about having to take the new realities into account, but it is not clear what this means. Many observers worry that it could result in cuts in capital rather than current spending.
The Minister admits this is possible. Talking last week, he pointed out that current spending was mostly going to wage increases and increased numbers in the public sector - more nurses and teachers. Wages cannot be touched under the Partnership for Prosperity and Fairness, and any cutback in the numbers employed in key public services is unthinkable. At the same time, large increases in spending are likely to be allocated to roads, health and social welfare, and above-average increases to education.
According to Mr Danny McCoy of the ESRI, which is hosting the fourth Budget perspectives conference next Tuesday, it is important that there is no sharp retrenchment on capital projects. "This would be particularly short-sighted, given that this is likely to be a short-term drop below the economy's trend growth rate."
But Mr Creevy insists it is necessary to be realistic. "Every department is going to say that every one of its proposals is vital, but the National Development Plan is for seven years."
Nevertheless, the estimates battle is likely to be tough. The Minister says he spends as much time on spending plans every year as on the Budget, and this year the economic outlook has made it very clear that times have changed.
Indeed, he has taken over some of the process, drawing up parameters for the other departments and presenting these to Cabinet rather than letting departments negotiate from a completely overstated original position. This means most departments will have to live with the "no policy change" so budgets will only be increased in line with inflation. It will then be up to individual ministers to decide which plans to prioritise.
On the other hand, it was agreed at Cabinet this week that some departments - including health and environment - would have to have an exemption from this rule. These departments have not been given a strict upper limit and the details will be hammered out over the next two weeks in advance of bilateral meetings between Mr McCreevy and the other ministers. The final details are due to be agreed in a month's time, with the Book of Estimates due to be published in mid-November.
