The Government is committed to reducing personal taxation despite recent warnings from the ESRI, the Minister for Finance has indicated.

Addressing the Leinster Society of Chartered Accountants, Mr McCreevy did say the Government could not meet all the expectation for tax cuts and spending increases.

But he said it was "committed to reducing the burden of personal taxation to promote growth in employment and to help those in low paid employment".

Last week, the ESRI called for a suspension of tax cuts for two years until the economy begins to slow down.

Mr McCreevy's speech indicates that the Government will consider significant reductions in the December Budget, although he did warn about the dangers of an over-expansionary package.

He did not elaborate on whether he favoured cuts in tax rates which have been proposed by his colleague, the Tanaiste, Ms Harney, or a greater focus on increasing bands and allowances.

Delivering the now traditional pre-Budget speech to the accountants, Mr McCreevy also warned that an expansionary Budget stance brings with it the threat of higher costs and increased imports.

He also insisted that the strong Budget surplus was the result of exceptionally strong economic growth which "clearly cannot continue indefinitely".

He also warned that an expansionary Budget was not in the interests of the booming economy. The Department of Finance is predicting that the Budget surplus of revenue over spending will reach £1.7 billion (€2.2 billion) this year, although some economists think it may be closer to £2 billion. And that is excluding more than £3 billion in proceeds from the Telecom Eireann privatisation which the Minister plans to put into a new pension fund to meet future State liabilities.

According to the Minister, expectations for tax reductions and increases in spending are now "sky high".

But he added that meeting all these expectations would not be consistent with securing a continuation of our economic progress - even if the budgetary position could carry the strain in the short term.

Mr McCreevy said later that, with goodwill, everything could be achieved in reaching an agreement with the nurses. But negotiating a new partnership agreement would require new thinking and "challenge all involved to display the vision required". He added that this would require the Government and the social partners to intensify the flexibility and problem solving approach from previous agreements.

Overall, according to the Minister, the Budget must have two key elements, the maintenance of competitiveness and of investor confidence. The Minister also pointed to the National Development Plan which is due to be published shortly. He said it would place a particular emphasis on infrastructural investment in order to relieve the problems of urban congestion and promote a better regional balance.

According to Mr McCreevy, enhancing public infrastructure and agreeing a successor to Partnership 2000 are crucial. Maintaining confidence means running substantial Budget surpluses to minimise the risk of overheating.

He said the problems of an economy operating at full capacity were becoming increasingly evident with labour shortages, economic congestion and a housing shortage. "Steps have been taken to alleviate some of these problems but there is no magic spell to make them disappear."