The Government has eight months until the next Budget to devise a spending formula which will satisfy its European critics after the EU Commission dropped its demand for significant changes to December's giveaway Budget.
The Commission sought yesterday to play down its disagreement with Ireland over tax and spending. It also emerged that the Commission had dropped its proposal that the Government should reverse £400 million in tax cuts - or reduce spending by an equivalent amount - over the coming months.
Figures released last night indicated that the Government could have an excess of revenue over spending at the end of this year which would easily allow it to meet the Commission's sole existing demand - that the Exchequer surplus be maintained at existing levels this year.
Overall tax receipts were up 19.1 per cent in January from the same month last year. If that was to continue for the rest of the year it would be enough to boost the surplus of income over spending to 4.7 per cent of Gross Domestic Product, the same level as in 2000.
The Taoiseach, Mr Ahern, yesterday accused the Commission of being excessively difficult with the Government, but he insisted that Ireland had not fallen out with its EU partners. "I think we will try to resolve this, but the Budget will not be changed," he said.
The Minister for Finance earlier said that he would go ahead with his spending plans in spite of the criticism. The Labour Party's finance spokesman, Mr Derek McDowell, called for an immediate statement from Mr McCreevy: "It is time the Minister addressed this situation. His previous efforts have all failed."
The Commission has estimated that Ireland needs to raise taxes or cut spending by £400 million to neutralise this year's Budget. It had initially suggested that Ireland pursue this course of action in the wording of a proposed censure to be considered by EU finance ministers in Brussels on February 12th. But the suggestion has since been dropped from the recommendation and is now only referred to in the preamble to it.
The proposed wording which will go before the ministers was agreed by senior finance and central bank officials from all 15 member-states earlier this week. Proposals for further remedial action have also been deleted following a strong campaign by Irish officials and by Mr David Byrne, Ireland's EU Commissioner.
The net effect is that the Government is no longer required to curb spending until at least the next Budget - in September or October - rather than make changes to last December's Budget. Nevertheless, the finance ministers are likely to proceed with issuing an unprecedented rebuke over a member-state's economic policies.
A spokesman for the Economic Affairs Commissioner, Mr Pedro Solbes, claimed yesterday that the dispute between Ireland and Brussels was about tactics rather than principles. "The Commission does not think there is a fundamental disagreement about the principle. There is a disagreement about the impact of Ireland's budgetary policy on inflation and about the expansionary effect of the Budget. But there is no disagreement about the prin ciple that budgetary policy should support price stability within Economic and Monetary Union," he said.
Officials hope, however, that the formal reprimand which EU finance ministers are expected to endorse will encourage the Government to introduce a less expansionary Budget at the end of this year.
The Commission has been surprised by the intensity of the public response in Ireland to its reprimand and is at pains to emphasise that its assessment of the Irish economy included praise as well as criticism.