The Minister for Finance, Mr McCreevy, has moved to dampen expectations about a give-away Budget. The Minister yesterday stressed the need for fiscal restraint and warned it would take some years to fully reform the tax system and ease the tax burden on middle income workers.

"The challenge for fiscal policy in present conditions is to act as a restraining influence on domestic demand so as to counteract any inflationary pressures that may emerge. Indeed fiscal policy will have to take on a greater role in this area as the scope for discretionary monetary policy diminishes in the transition to EMU," according to the Minister, who was speaking to the Institute of Directors in Dublin.

Apart from combatting inflationary pressures, he stressed there were also strong arguments for fiscal restraint in the short term. The EU stability and growth pact commits participants in EMU to keep their budgets close to balance or in surplus in normal economic conditions. He noted that it was arguable that economic conditions in Ireland were, if anything, better than normal. The better-than-expected budgetary position for 1997 would allow the achievement of this balanced Budget objective, he said. But he warned that Ireland must take account of the likelihood that EU Structural Funds to Ireland would not be on the same scale as in recent years after 1999.

"It is vital that we should be in a position to maintain from our own resources the necessary infrastructural and other investment which our strongly-growing economy requires, while continuing to respect the fiscal guidelines of EMU."

He also warned that overhaul of the tax system remains an onerous task for the Government and would take some time. "Such was the penalising nature of high levels of personal taxation over these years that it will take many years yet before our reforms are complete and we can successfully relieve the heavy tax burden faced by even moderate income earners."

But the Government was deeply committed to further reform in the area of personal taxation, he said, and progress on a range of measures in this regard would commence with the forthcoming Budget.