The Government's coffers could be in surplus to the tune of £4.7 billion a year by 2003, according to a new report from NCB Stockbrokers.

This fiscal windfall will provide greater scope for choice on spending and taxation, but it will not be open-ended and the Government must be careful not to squander it, the brokers warn.

"We require some medium-term policy planning to decide the balance between debt repayment, tax reductions and infrastructure spending. One of the key priorities is cutting debt or we could end up with a tax regime which is not supportable in the long term," says NCB economist, Mr Dermot O'Brien.

NCB says demographic changes in Ireland have been a key factor in the current economic boom. In addition to sustaining strong growth in the years ahead, the anticipated population changes should contribute to a strong budgetary position.

Underlying prospects for the public finances are intimately connected with shifts in the composition of the population. The number of taxpayers in the system is set to increase, as the total Irish population rises to more than 4.4 million by 2026 and the labour force grows by around 2.5 per cent each year up to 2006.

Expenditure in areas such as education, health and social welfare is also likely to become less of a burden as the number of dependants - those aged under 16 and over 65 - in the population falls.

Unlike many other western economies which face a growing problem in funding pensions as populations age, the proportion of retirees in the Irish population will remain relatively low until 2011 and increase only slowly thereafter.

This provides a background against which the total Exchequer surplus should increase from a forecast £600 million or 1.4 per cent of GNP this year to £4.7 billion or 7.4 per cent of GNP in 2003, NCB says.

These forecasts are based on a trend rate of growth of 6 per cent a year and also assume that public expenditure is kept to the current target of 4 per cent a year. They also allow for an increase in capital spending in response to a substantial tailing off of European Union structural funds.

But NCB says its projections show that the enhanced capacity of the economy to grow and the consequent structural improvement in the public finances will be waning 10 years from now.

"Paying down part of the national debt should rank high among the policy options in order to lower the debt servicing burden for the period when growth in the economy returns to a milder trend," the broker. The sectors most likely to benefit from demographic changes in coming years include pensions and insurance, housing, transport and entertainment and leisure.

The rate of car ownership in Ireland is set to progress toward the EU average, implying new car registration rates of around 100,000 per year for the next 10 years. This would raise the car population in Ireland to at least 1.6 million in 2006 from a little more than one million at present with striking implications for Irish infrastructure, NCB says.