Continued buoyancy in tax revenues is underpinning the favourable outlook for the December Budget, according to new figures. They show that taxes are running €1.77 billion ahead of expectations in the first 10 months of the year, while Government spending continues to run well below target levels.

The Minister for Finance, Mr Cowen, now looks certain to have scope for tax relief and spending increases in the December Budget, while still keeping borrowing at a low level. Last night the Labour finance spokesperson, Ms Joan Burton, said there was now "ample scope to restore a measure of tax justice to PAYE workers while addressing vital expenditure areas such as health, education and social welfare".

The exchequer figures for the first 10 months of the year, published yesterday, show that the exchequer needed to borrow €1.20 billion in the period to bridge the gap between revenue and spending , down from €2.16 billion in the same period last year.

While the borrowing figures tend to be volatile throughout the year, the figures indicate that the revised forecast issued by the Department of Finance will be met comfortably. The Department said last month that it now expects borrowing to be €1.2 billion, well down from the €2.8 billion predicted in the Budget last December.

Borrowing is down because taxes are ahead of target and spending is also below expectations. Taxes, which totalled just over €27 billion in the January to October period - have been boosted by once-off funds of some €640 million from the Revenue scheme on offshore funds. This has given a significant lift to income tax receipts, while other tax revenues are also buoyant. The booming property market, in particular, has boosted stamp duty - running €335 million ahead of schedule. It has also contributed to strength in capital gains tax and VAT, both well ahead of schedule.

Spending remains well below schedule, with voted departmental expenditure totalling €25.428 billion in the first 10 months, €1.4 billion below the Department of Finance's expectations at the start of the year. The bulk of the shortfall is on capital spending, which totalled €3.05 billion in the first 10 months, almost €900 million below the expected level predicted at the start of the year.

IBEC, in a statement on the figures, said that the shortfall was "of some concern" and that it was imperative that no essential capital capital projects fall behind schedule. The Labour spokesperson, Ms Burton, said the shortfall in capital spending, if sustained, represented an "implosion in the public capital programme and clear evidence of Government incompetence in the delivery of key economic infrastructure".

Under new rules some funds allocated for capital spending this year can be carried forward to 2005. However, the Department of Finance said last month that it anticipated that, at most, €55 million might be carried forward.

The latest figures are likely to increase demands on the Minister for Budget day concessions. He has indicated in a number of speeches that he will take a cautious route.

Speaking earlier this week he said that there was a need for "a pretty tight position going forward" with the public finances.