Difficult negotiations between the Department of Finance and the other Government departments on spending for next year are to get under way this month.
Finance officials are expected to seek significant savings on 2004 spending plans in the light of continued weak tax trends.
The latest Exchequer figures, published yesterday, show a deficit of spending over revenue of €892 million for the first eight months of this year, compared to a surplus of €951 million at the same time last year.
The Department of Finance is sticking with its existing forecast that tax revenue will be €500 million below target for the year.
There has been some stabilisation in tax trends in recent months and the August figures, published yesterday, were boosted by income tax payments on recent public-sector benchmarking payments, which included a substantial backdated element.
The Department estimates that in the first eight months, taxes are some €200 million below Budget expectations, but remains cautious of a widening shortfall over the rest of the year.
In terms of framing next year's Budget, much will now depend on the trends over the coming months, particularly in November, when self-employed taxpayers make their returns.
In turn, these trends, and the extent of the international upturn which may now be under way, will be central to forecasting the opening Budget position for 2004.
The budgetary situation is not on the agenda for today's Cabinet meeting, the first for five weeks. The meeting in Emo Court, Co Laois, will discuss plans for Ireland's forthcoming Presidency of the EU and other issues.
However, the run-up to the Budget will dominate much of the political agenda over the coming weeks.
The Minister for Defence, Mr Smith, who commented on yesterday's figures on behalf of the Government, said a projected shortfall of €500 million in tax revenues could not be ignored, but said there was nothing to indicate the shortfall would be any worse than that.
Mr Smith accepted that the negotiations process in framing next year's spending plans (or estimates) would be "difficult".
The latest figures show that Government expenditure has slowed very sharply, with voted spending running just 5.4 per cent ahead of last year, due to a big drop in capital investment spending.
The Department of Finance's recently published mid-year review suggested that it would seek to maintain capital investment spending to underpin growth prospects. To leave revenue for this, it is expected to seek strict control of day-to-day spending.
The Opposition parties, meanwhile, continued to criticise the Government's record.
Fine Gael's finance spokesman, Mr Richard Bruton, said the figures showed that the "meltdown" in tax revenues may be more serious than the Government has admitted.
The Labour spokeswoman, Ms Joan Burton, said workers would bear the brunt of the Budget measures required to balance the books.
The big issue on all Ministers' minds is the shortage of money: page 14; Analysis: page 16; Editorial comment: page 15