Reaction to Estimates is mixed

There has been a mixed reaction from brokers to the 1998 Estimates published on Wednesday. The figures were described as "realistic" and "a fudge" but brokers agreed that they left the Minister for Finance, Mr McCreevy, with scope for substantial tax cuts in his December 3rd Budget.

The healthy state of the Government's finances should also allow Mr McCreevy to aim for an overall surplus on the Exchequer finances next year. Most analysts expect him to target and deliver the first such surplus in years.

Speaking after publication of the Estimates on Wednesday, the Taoiseach, Mr Ahern, strongly indicated the Government would aim for a surplus in 1998, saying the case for doing so was "compelling". The Estimates provide for overall current spending on day-to-day services to increase by 4.1 per cent over the year. But the Government will also benefit from falling national debt payments which will reduce the overall growth in total current spending to 1.8 per cent, well below the 4 per cent ceiling for current spending.

AIB bond economist, Mr Oliver Mangan, said the Estimates, which also brought forward a range of spending items due in 1998, were "a fudge" and accused the Government of breaking its promises on controlling public spending.

"The Government's commitment to limit the rise in net current spending to 4 per cent has turned out to be nothing short of a joke after less than six months in office," he said.

But Bank of Ireland economist, Mr Jim Power, said that although he was concerned about the rapid growth in public sector pay, he thought the figures were realistic.

"The Estimates have been criticised on the basis that Mr McCreevy is engaging in creative accounting by bringing forward expenditure from next year into this year, but I think the bottom line is that you have to be realistic. There are serious political imperatives driving this whole process."

Whatever the method of calculation, the figures leave Mr McCreevy with lots of leeway to cut taxes in the Budget, analysts said.

"He has the wherewithal to deliver between £400 and £500 million in net tax giveaways. I think he'll probably deliver about £400 million," Mr Power said.

Analysts also expect Mr McCreevy to announce additional spending of £100£150 million on Budget Day - mainly on social welfare benefit increases.

But even after tax cuts and extra spending, strong economic growth and continued revenue buoyancy should make an overall budget surplus possible next year.

Forecasts for Mr McCreevy's surplus target range from £50 million to £250 million. However, analysts expect the Department of Finance to take a cautious approach in estimating tax revenue in 1998, making an undershoot of the official target very likely.

Riada economist, Mr Padhraic Garvey, expects revenue to grow by about 8 per cent next year even after tax cuts of £300£400 million in the budget.

"The Government will probably go for revenue growth of 5 to 6 per cent because they will tend to err on the side of caution. If you take those assumptions, you end up with a small surplus next year of between £100£200 million.

"But in reality the surplus is likely to be far higher than that because they tend to be conservative on the tax estimates," he said.