The Department of Finance has, not surprisingly, added its voice to the chorus calling on Mr McCreevy to show restraint in his Budget next December. The subtle words of caution contained in the Department's Economic Review and Outlook 2001, published yesterday, follow last week's comments from the International Monetary Fund which urged the Minister for Finance to adopt a neutral stance when framing his Budget.

To a certain extent, the Department and the IMF appear to be pushing at an open door. Prior to his comments yesterday, the Minister had already signalled that he felt under no political pressure to cut taxes because the Government had already honoured its election manifesto obligations. He has now warned that "it will be necessary to adjust expectations to meet the new situation".

The Tβnaiste, Ms Harney, has indicated that she - and by extension junior coalition partners the Progressive Democrats - share Mr McCreevy's sentiments.

Yesterday, the Tβnaiste made the point once again, when she said that any tax changes needed to be seen in the context of the overall economic situation. She also said any cuts would be targeted at the lower paid.

All that is needed is some rumbling to this effect from the Taoiseach, and a fully fledged campaign to dampen down the electorate's expectations will be under way. It is worth noting this has not yet happened, and Mr McCreevy's fondness for confounding the pundits should not be discounted.

If - as it appears - the Minister is of a mind to take his civil servants' advice he will now trim back any spending increases and tax cuts he is contemplating, to reflect the new reality. The levels of economic growth seen in previous years allowed Mr McCreevy to be that creature most beloved of politicians - all things to all men. Average growth rates of 8.7 per cent between 1995 and 2000 gave him scope to cut taxes and increase spending, while still running a large budget surplus.

This luxury will not be available to him if growth falls to 7.2 per cent, as forecast by the Department yesterday.

The £500 million (€635 million) shortfall in taxation, also confirmed in the latest report, is just the first manifestation of this lower growth rate.

Even if Mr McCreevy was to decide to run a smaller Budget surplus than the 3.7 per cent of GDP that is forecast - which would be reasonable given the economic circumstances - he still can't allow Government spending to run ahead at the levels of previous years, and also cut taxes.

Given that next year is an election year, some tax cuts have to be expected in the Budget which implies that the rate of increase in Government spending will have to be cut back from the 20 per cent increase last year.

The looming election also suggest that the Government will try to disguise this by a rebalancing towards vote-getting areas such as health.

The Department would like to see him do the opposite and orientate spending towards those areas where infrastructure bottlenecks are holding up economic progress. In a similar view they suggest that "future tax policy initiatives should focus even more on supply side measures to aid growth potential".

This is the Department's rather oblique way of saying that the Minister should not cut the higher rates of income tax which just puts more money in people's pockets to stimulate demand.

Any tax cuts should be in the lower rate and aimed at encouraging people to work rather than live on benefits, thus increasing the supply of labour, argues the Department.

The Department also advocates that this should be done with some urgency because, if it were not for the euro's weakness the economic situation would be considerably worse than it is at present.

The weakness of the single currency, relative to sterling and the dollar, has helped underpin the competitiveness of Irish exporters despite rising wage costs driven by labour shortages.