Room for manoeuvre as Exchequer surplus hits record £1.9bn

Pre-budget figures confirm the Minister for Finance has significant room for manoeuvre and even more resources at his disposal than most analysts had expected. The opening 2000 Exchequer surplus - the expected excess of revenue over spending - is a massive £1.9 billion (€2.4 billion), yet another record. This is £200 million to £300 million higher than most economists had predicted.

This pre-Budget surplus is after the Minister has allowed for contributions of £1.8 billion into the new Exchequer pension fund next year, on top of a £4.2 billion contribution this year. On a similar basis to last year, the pre-Budget surplus figure has risen from £925 million to £2.5 billion in 2000, excluding privatisation receipts and the pension fund.

The £1.8 billion pension fund contribution next year includes £1.1 billion more for Telecom - in relation to money due from its strategic partners KPN and Telia - plus a £625 million contribution as a percentage of GNP.

The funds do not include any amounts for the privatisation of ICC this year or the future privatisations of ACC and TSB and possibly Aer Lingus.

Even without these additional monies, after the Budget the Minister is likely to be able to target a surplus in 2000 of up to £1.5 billion and still deliver a Budget which meets most people's expectations.

The pre-Budget surplus is now targeted to run at some 2.5 per cent of gross domestic product, well above all other euro-zone states. When measured in the fashion of our euro-zone partners - as a general Government surplus - the surplus is even higher as this does not include social insurance liabilities.

The figures are also helped on the spending side by falling debt service costs, as interest rates remain low and the overall amount of debt outstanding falls.

For the first time in recent years, the Department may not be significantly underestimating tax revenue, with a forecast 11 per cent rise compared to this year.

In 1999, for example it started with an estimate of growth of 7.5 per cent which turned out to be 14 per cent. Its 2000 Estimates point to a very buoyant economy next year, with growth of about 8 per cent.

On Budget day, Mr McCreevy will start out with an opening surplus of £1.9 billion. His options could include a tax package costing around £800 million in a full year.

Social welfare increases are likely to paid for out of the surplus on the social fund and will not affect net spending.

The cost in the 2000 Budget of taxation measures will be lower, as tax cuts do not come into effect until April and welfare increases until the middle of the year.

The figures will also benefit from tax buoyancy of up to £200 million, the extra amount raised as a result of the activity the Budget will stimulate. This means Mr McCreevy could still target a surplus of close to £1.5 billion. An even more generous package is possible.

The main spending on Budget day is likely to be indexing of welfare allowances as well as a move to bring pensioners up towards £100 a week.

A significant package aimed at childcare, including payments into a children's allowance for the under-fives and measures to make working in the childcare industry more attractive, is also expected.

Significant changes are expected in personal taxes, including a substantial rise in the PAYE allowance to attract more married women back to work, a one percentage point reduction in the top and standard rates, increases in the standard band as well as increases in personal allowances.