The Exchequer's coffers are set for a huge boost in 1998 with tax revenue for the year on course to be around £500 million higher than budgeted for, according to the latest figures from the Department of Finance.

Figures released yesterday showed that the Exchequer has collected more than £6 billion in tax in the first five months of the year, up from less than £5.5 billion in the same period last year.

As a result, the Government ran a £300 million surplus of revenue over spending for the first five months, compared with a Budget projection of an £89 million deficit for the entire year.

The large surplus compares with a £40 million deficit at the end of April. The Department does not provide any breakdown on the various tax categories in its monthly figures. But analysts expect that all the main categories including stamp duty, VAT and excise receipts will show strong growth. It is also possible that the timing of EU receipts boosted the figures somewhat.

Government spending is running at about 3.6 per cent ahead of the same time last year.

The buoyant Exchequer finances reflect the continued strength of the economy. Mr Jim Power, chief economist at Bank of Ireland, said he was now revising upwards his growth estimate for this year to 10.5 per cent.

The Minister for Finance, Mr McCreevy, has repeatedly pledged to use the extra money to boost the surplus and thus pay off debt rather than in tax breaks or extra spending.

The release of the latest figures coincided with a warning from the Central Bank governor, Mr Maurice O'Connell, that any extra given away in public sector pay would have to be taken from spending on services.

Speaking at the Oireachtas joint committee on European Affairs, Mr O'Connell warned that the rigours of the single currency would mean a whole new way of looking at Exchequer finances.

The European Monetary Institute and the European Commission have already warned that all revenue must be used to boost the budget surplus.