Tax revenues are running well ahead of target, due to a strong rise in capital gains tax and continued buoyancy in stamp duties. This led to a 21 per cent rise in tax receipts in the first two months of the year, compared to the same period last year, well above the 14 per cent targeted by the Revenue Commissioners for the period.

More than €5.35 billion in taxes was collected in the first two months of the year, €300 million more than expected, according to the February Exchequer returns, published yesterday.

Spending, meanwhile, remains well below target, particularly on investment projects.

Overall, the Exchequer surplus was €430 million for the first two months of 2004, compared to a deficit of €127.5 million for the same period last year, with early indications that the Budget borrowing target for the year may be comfortably met.

The tax buoyancy is due to a surge in capital gains tax, where €367 million was collected in the first two months, €200 million ahead of the Revenue target in its forecast of monthly receipts for 2004.

Other strong performers in the first two months were corporation tax, where receipts of €314 million were more than €50 million ahead of target, and stamp duty, where revenue of €304 million was €34 million ahead.

The strong housing market was a major contributor to buoyant stamp duties last year and this appears to be continuing in 2004, while sales of investment properties may be a factor behind the strong performance of capital gains tax.

Changed payment dates have also boosted capital gains tax, but the strong performance in the first two months suggests that the level of sale of a range of assets remains high.

In other areas, however, tax revenues were close to or, in the case of excises, below target. In the key area of income tax, receipts of €1.617 billion were almost exactly on target, while VAT revenue of €1.929 billion was just fractionally lower than anticipated.

The main weakness remains excise duties, which performed poorly last year and, at less than €700 million in the first two months, are already 4 per cent below target. Weak sales of alcohol and tobacco appear to be continuing and the tobacco ban due later this month may exacerbate this trend.

While it is early in the year to assess spending trends, total spending of €4.679 billion for the first two months was just 0.9 per cent ahead of the same period of 2003, compared to a Department of Finance forecast of a 9 per cent annual increase for the period. There was a particularly sharp fall in capital spending, which at €400 million is running 14.7 per cent below 2003 levels.

Market analysts believe that the figures leave the Minister for Finance, Mr McCreevy, on target to meet or undershoot his Budget borrowing target, which is for an Exchequer borrowing requirement (EBR) of €2.8 billion.

Davy Stockbrokers warns that the early spending figures need to be treated with caution and do not necessarily indicate an expenditure undershoot for the year. However, it expects the buoyancy in capital gains tax and stamp duty to be maintained and says that, overall, the early indications were that borrowing should be "within" the €2.8 billion target.

Mr Jim Power, economist with Friends First, struck a more optimistic note, saying that it appeared the assumptions underlying the Budget were overly conservative and "it appears that the EBR could come in up to €1.5 billion below the €2.8 billion borrowing target for the year".

This was consistent with a "gradual rather than strong economic recovery for the year", he said.