ANALYSIS: Cowen enters Budget Day with small surplus, writes Cliff Taylor

The new Finance Minister, Mr Cowen, has scope to present an upbeat Budget package next Wednesday. That much is clear from the pre-Budget estimates of receipts and expenditure published this morning. The room for manoeuvre is created by continued strength in tax revenue, which has led the Department of Finance to again revise down its borrowing target for this year.

The White Paper sets out Mr Cowen's position when he stands up on Budget day. The key piece of new information is the Department of Finance expectations for tax revenue next year. Continued buoyancy into 2005 will boost the Exchequer position. Together with spending estimates already published for next year and the expected cost of servicing the national debt, these allow the Department to estimate how much the Minister will have to borrow, before he announces any Budget measures.

Here the news is good. Looking first at the general Government balance - the EU borrowing measure - Mr Cowen will start out with a small €318 million surplus. What we don't know is how far he will push this figure into the red on Budget day. This week, Mr Pat McArdle of Ulster Bank estimated that a plausible target after the Budget would be borrowing of €700 million. This would allow Budget measures which added more than €1 billion to borrowing - and plausibly Mr Cowen could even add a couple of hundred million to this and still be seen to be prudent.

The EU borrowing measure excludes the Exchequer contribution to the National Pension Reserve Fund. This means that the actual amount of cash which the State has to borrow - the Exchequer borrowing requirement - is considerably higher.

Next year the opening pre-Budget position is for an Exchequer borrowing requirement of €1.8 billion. This is higher than expected, but only because a change in payment arrangements for EU support to farmers will lead to a cash flow loss of some €900 million to the Exchequer next year. This money will be repaid from Brussels in early 2006, so the position is better than a first glance would suggest.

The tax forecasts pencilled in for 2005 show a 5.7 per cent increase on 2004. However, the underlying picture is much better. The Exchequer received €640 million in once-off receipts this year from the Revenue offshore scheme. It also had a once-off gain from the change in payments arrangements for capital gains tax.

Such has been the strength of CGT that it is not clear how much has been due to this change and how much to sales of property and other assets as investors cash in on strong economic conditions. The underlying increase being anticipated by the Department appears to be close to 8 per cent, about the level at which the economy is expected to grow next year (accounted for by real growth of about 5 per cent and inflation of about 3 per cent.)

The pre-Budget paper shows that the current budget remains in strong surplus, to the tune of about €5.56 billion this year and an estimated €4.88 billion next year, before the Budget. Borrowing is thus undertaken purely to fund Exchequer investment, with capital borrowing next year forecast at €6.7 billion.

Weekend: Mark Brennock assesses Brian Cowen