Charlie McCreevy must hardly be able to believe his luck. As he sits down to frame his Budget for next year, his only problem is going to be persuading Cabinet colleagues to keep their spending plans in check. He has ample scope to produce the most generous tax-cutting package in years, including most of the "goodies" promised by the Government parties in their election package.
The Minister's warnings that caution is needed have to be "seasonally adjusted". Every year in the run up to the Budget, the Minister of the day engages in the tradition of dampening expectations in the hope of ensuring a favourable reception for the package itself.
But the trends in tax revenues are so strong this year that it is now inevitable that they will carry through into 1998 and provide Mr McCreevy with ample scope to reduce taxes for the PAYE sector and business. There will be plenty of headlines about Christmas bonuses in the weeks ahead, as speculation intensifies on what the package will include. This weight of expectations, fuelled by the Government parties themselves in the election campaign, will combine with pressure from the trade union movement to ensure that the Government will have no choice but to deliver a generous package.
Such is the strength of tax revenue growth that Mr McCreevy should be able to meet these demands, while still aiming to end next year with no Exchequer borrowing. The 1998 Budget will thus be presented as generous but responsible. Is there a danger that a generous Budget could "overheat" the economy and stoke up inflation? Certainly a give-away Budget at a time when the economy could be growing as rapidly as 10 per cent will carry some risks. But, for the moment, inflationary pressures remain subdued. And the latest Central Bank figures will provide some comfort, with underlying credit growth slowing for the second month in a row to 19.7 per cent in August from 20.2 per cent the previous month.
If credit growth continues to slow, concerns about inflation will ease. But the Minister for Finance will still realise that he cannot throw caution to the wind on Budget day. He must strike a balance between rewarding the PAYE sector, which has seen low increases in nominal wages, while at the same time not doing too much to fuel consumer spending.
The key question for the Minister is whether the current mix of high growth and low inflation will continue. For the moment the omens are good but, with monetary union on the horizon, Mr McCreevy would also do well to leave some room for budgetary manoeuvre in 1999, the year when we are due to enter monetary union.
