Analysis: McCreevy can take some comfort from Exchequer Returns.Is it possible that the housing market is the only buoyant part of the economy?

The latest Exchequer Returns suggest that this is possible. They also indicate that weak revenues could put pressure on the Exchequer borrowing target for 2003, although the Minister for Finance, Mr McCreevy, will take some comfort that the pluses and minuses have roughly cancelled out in the first quarter.

Much will now depend on how the economy performs over the year, but there is no reason at this stage to sound the alarm about a major borrowing overrun.

The figures have moved into deficit - to the total of €205 milion in the first quarter. However with a borrowing target of 0.7 per cent of gross domestic product (GDP) this year, the picture here is healthier than most other EU countries, with the EU Commission yesterday warning France that it must act to stop its deficit climbing to 3.7 per cent of GDP.

Generally, the first quarter figures, published yesterday, indicate a weak economy - with the exception of stamp duties and VAT, which are both being supported by the housing market. Income tax is down 6.8 per cent on the same period last year and is 6 per cent down on what the Revenue Commissioners had expected for the first quarter. This points to difficult conditions in the jobs market, with income tax receipts hit by factors such as falling bonuses and overtime and possibly a small drop in total employment.

Corporation tax receipts were running well ahead of last year, but this is entirely due to changes in the rules governing when businesses must pay. Corporation tax revenues are actually down 31 per cent on what the Revenue Commissioners had expected for the first quarter, indicating continued weakness in profitability.

Excise duties - mainly levied on tobacco, alcohol and fuel - are up just 1.7 per cent in the first quarter. Total receipts in this area are 2 per cent lower than expected, with the Budgetary increases appearing to lead to some fall off in consumption. Many years ago a previous Fianna Fáil government government put forward the concept of "self-financing tax cuts"; the experience in excises so far this year suggests that we may have "self-defeating tax increases", at least in terms of the impact on the exchequer finances.

The only major area where revenues are buoyant is VAT, where receipts are running 21.8 per cent ahead of the first quarter in 2002 and 8 per cent above what was expected. Increases in VAT rates in the 2002 and 2003 budgets are pushing up receipts, but what is responsible for the rest of the increase? According to Department of Finance officials, VAT on new house sales may be a significant element, though it is not possible to say for definite.

Buoyancy in overall consumer spending is the only other possible explanation. In the current economic environment the best guess is probably that consumer spending is hanging in, or increasing slightly, but that much of the buoyancy in VAT is due to new house sales. The strong rise in mortgage lending - up almost 23 per cent in the first two months on an annual basis - would support this.

The overall balance of ups and down in the tax area balance out to leave total receipts for the first three months broadly on target.

The worry for the rest of the year would be that if weakness in income tax and corporation tax continues, Mr McCreevy will be reliant on continued buoyancy in VAT receipts. Weakness in consumer spending - or the housing market - could undermine this.

In fairness, in this area the Department of Finance officials are subject to the same uncertainties as other economies in predicting the outlook for the rest of the year.

They took a conservative view at the start of the year, partly due to fears of the war that is now underway, and predicted Gross National Product growth of just 2.2 per cent. When officials revises their forecasts this summer, it should be clear whether this forecast needs to be trimmed back.

On the spending side, the total amount of money spent in the first quarter was 11.8 per cent up on the same period last year. The forecast for the whole year is a 6.7 per cent increase. However the Department of Finance had predicted that spending in the early months would be well ahead of the same period last year and the amount of expenditure in the first quarter is actually somewhat below expectations.

The question now is whether the sharp slowdown in spending growth expected for the rest of the year can be achieved. Department of Finance officials say that there is some spending pressure in social welfare, in the medical card (GMS) services in health and in the Department of Justice.

Ministers have been warned that any overspending must be made up for by savings in other areas of their own department, so cutbacks in some areas may yet be required later in the year.

Equally, if taxes overall are weak and exchequer borrowing is heading above the €1.869 billion target , the Government will have to decide whether to cut spending to hold down the deficit.

All the evidence suggests that Mr McCreevy will try to hold to the borrowing target at all costs. How challenging this will be will depend on the way the economy evolves in the months ahead.