Large tax reductions are now expected in next month's Budget, with the Government able to plan for cuts of at least £400 million, despite substantial increases in spending planned for next year.
The Minister for Finance, Mr McCreevy, will be able to aim substantial tax cuts at low to middle income earners in next month's package, while still targeting a substantial surplus of Government revenue over spending for 1999.
The spending estimates for next year, announced yesterday, showed that Mr McCreevy is now under pressure to breach his limit of 4 per cent on the annual rise in day-to-day spending in order to increase social welfare payments in the Budget.
Any substantial increase in welfare payments will mean that current spending growth will exceed the 4 per cent annual target for the two Budgets which will have been announced by the Coalition Government. Altogether, an additional £948 million will be spent on running the State, the estimates show.
At the same time, the Government plans a substantial increase in Exchequer-funded investment projects. An additional £288 million will be spent on infra structural projects such as roads, public transport and housing, an increase of almost 27 per cent on this year, as the Government attempts to deal with problems such as road congestion and housing shortage.
On current spending, Mr McCreevy stressed that public pay increases cannot keep running at the same level. He has allowed only a 5 per cent increase in 1999, compared with 9 per cent in 1998 and 10.3 per cent a year earlier.
However, such is the strength of the public finances that the Minister still has room for a £400 million tax package on Budget day, while targeting a £1 billion Budget surplus for the year. He looks set to announce a big increase in personal tax allowances and may also cut the standard 26 per cent income tax rate.
While the Government can afford to provide a generous package for taxpayers, it has little scope for higher spending on Budget Day in three weeks' time, unless Mr McCreevy can find additional savings or is prepared to break his 4 per cent target.
The 1999 Estimates show that overall current spending on Government services is set to increase by 8.6 per cent, or 6.6 per cent when adjusted for an additional £224 million to Environment. But on the Government's own calculations, which take advantage of the falling cost of serving the national debt and booming PRSI receipts, the overall increase falls sharply to 4.9 per cent next year, or 3.9 per cent on average for 1998 and 1999.
Ministers proudly announced substantial increases in spending on health, education and other services. Health spending will rise by 11 per cent, and the Minister for Health, Mr Cowen, promised that all areas of the system would benefit. Out of every £4.50 of public money spent, £1 went to the health services, he pointed out. Education spending is going up by 8.4 per cent, with primary schools receiving an important increase in the capitation grant - up from £50 to £60 per pupil.
A total of £56 million was allocated to improve public transport by providing more buses in Dublin, upgrading mainline rail services, adding extra DART carriages and enhancing the suburban rail network.
However, Opposition spokesmen were scathing in their general reaction to the Estimates.
Fine Gael's finance spokesman, Mr Michael Noonan, said next year would see the taxpayer contributing "significantly more for the same old creaking, inadequate public service".
Labour's finance spokesman, Mr Derek McDowell, said the health services capital funding allocation was "miserable, given the disastrous state of our health services in general".
For Democratic Left, Mr Pat Rabbitte said Mr McCreevy had "resisted the temptation to present the figures honestly and resorted to the old trick of smoke and mirrors" in pretending he had maintained the 4 per cent limit on spending.