The Minister for Finance will be able to deliver a £1 billion surplus, tax cuts of £500 million and spending increases of up to 9 per cent in some Government departments in next month's Budget, new Exchequer figures indicate.
It is understood that expenditure in the Departments of Health and Education will rise by up to 9 per cent while overall capital spending will be increased by 20 per cent. Mr McCreevy will also have room to boost social welfare payments by more than the rate of inflation.
The figures released yesterday show the Exchequer had a surplus at the end of October of £1.338 billion. It now appears the Minister will come in under his 4 per cent target for spending this year, allowing day-to-day spending to rise above that figure in 1999.
However, the bulk of the additional spending in many Departments, including health and education, will be used to meet the costs of pay increases agreed last year.
The Minister for Health, Mr Cowen, and his counterpart at Education, Mr Martin, are said to be disappointed that they did not win substantial additional sums to fund new projects. Both had looked for extra finance of more than £100 million for new initiatives but in the end the Department of Education won in excess of £10 million and the Department of Health not much more.
The sheer cost of running these departments and paying the staff means that a spending increase of more than 7 per cent is needed to maintain existing services. However, Mr Martin did get agreement for funds for a new primary school building scheme through the Public Capital Programme.
Overall, Mr McCreevy will announce a 20 per cent increase in capital projects, including substantial funds to ease Dublin's traffic problem - with significant finance going to Dublin Bus.
Yesterday's Exchequer figures show that tax revenues continue to pour into the Government's coffers and are running around 12 per cent ahead of last year. At the same time PRSI receipts are also increasing as employment continues to grow. This will enable the Minister to announce the first targeted Budget surplus since 1948.
The buoyant tax revenues mean the Government will take in over £900 million more than it has been expecting, according to Dr Dan McLaughlin, chief economist at ABN Amro. That will be the surplus, or the amount which Mr McCreevy is likely to pay off the national debt. However, Dr McLaughlin cautions that these estimates are on the basis of one month's Exchequer figures.
On the spending side, things are also looking very good for Mr McCreevy. As of now, all areas look to be coming in under target. Expenditure from the central fund, which is mostly made up of repayments on the national debt, is significantly below target. At the end of October it was actually running about 12 per cent below last year.
The main reason for this undershoot is the drop in interest rates and the decline in the actual amount of debt for the first time in recent history. Even last year, when the economy was booming, the actual level of debt still rose by £777 million to £30.7 billion. But it is now understood to have fallen to around £28.5 billion.
According to Dr McLaughlin, day-to-day spending also looks as if it may come in below target, partly due to the fall in unemployment. Spending currently appears to be running below 6 per cent compared with a Budget target of 6.7 per cent.
The latest figures are likely to put more pressure on the Government to deliver on further public sector pay rises.