The Minister for Finance has run a even smaller surplus than necessary this year to give himself more room to manoeuvre in the Budget. Mr McCreevy had been expected to meet this year's bill for servicing the national debt from a special account known as the Capital Services Redemption Account in which the Government salts away any surplus cash.

Instead Mr McCreevy chose to meet most of this year's debt servicing cost out of the Government's current account which contributed to the €600 million overrun in spending this year.

The spending overrun, together with a €2 billion shortfall in tax revenues, is a contributory factor to the shrinkage of the projected surplus for 2001 from €3.2 billion on last Budget day to the €324 million predicted yesterday.

The decision to meet debt servicing costs from the current account has two benefits for Mr McCreevy. Firstly it gives him a artificially inflated spending base going into 2002 and as a result a cushion against further overuns. The second benefit is that the money earmarked in the Capital Services Redemption Account for spending this year, can now be spent next year reducing the strain on the current account in 2002.

The expenditure and receipts projections published last night by the Department of Finance assume that €292 million will be drawn down from this account next year for debt servicing.

If this money had to come from the current account next year it would push Mr McCreevy's pre-budget deficit up by another €292 million to €947 million.

If Mr McCreevy is determined to keep his borrowing requirement for next year at the €1 billion mark that most commentators suggest, he would be forced - under these circumstances - to run a completely neutral budget next Wednesday.

Instead he can now let his spending measures run some €300 million ahead of revenue generating measures such as increased taxation on cigarettes and other luxury goods.

Apart from prudence, the main argument for Mr McCreevy keeping next year's deficit at around €1 billion is that it would hardly look like a deficit at all to the European Commission. Under EU accounting rules the €1 billion that Mr McCreevy plans to put into the National Pension Reserves Fund is still credited against the deficit in the current account. The same goes for the surplus on the social welfare fund.