Before the Exchequer's new-found riches begin to burn a hole in the pockets of politicians, it is worth reminding ourselves that outstanding Government debt still stands at a little matter of £29 billion. But it is falling rapidly, and will continue to fall over the next few years. During 1999, it looks as if the Exchequer surplus could be about £1.8 billion, with something similar in prospect for the year 2000. In addition, the Government has taken in £3.5 billion for Telecom shares, and will net a further £1.2 billion next year, from the clawback provisions relating to the stakes purchased by the Dutch and Danish telecoms companies.

The Government is planning to dispose of ACC, TSB Bank, and the Industrial Credit Company (ICC). Both Aer Rianta and Aer Lingus may also be sold. Between them, these companies are worth at least £2 billion, perhaps closer to £3 billion depending on how markets develop, and on how much the staff get for free.

So at least £10 billion could be knocked off Government debt by the end of next year, bringing it down to about 40 per cent of GDP, the second lowest figure in the EU.

There is no doubt that the Government can afford a giveaway Budget next December.

There is a presumption that tax cuts, plus a boost to capital spending, is the right formula. The economy is, however, running flat out, and capacity constraints are being reached, especially in the labour market. Great care needs to be exercised in the design of tax cuts, and in the selection of capital projects, in these circumstances. Outlets for the States' surplus cash identified in recent weeks have include a Georgian mansion in Dublin, a national stadium (to add to those already under construction) and a variety of Millennium wheezes. None of these helps to relax resource constraints.

The design of a tax package should be aimed principally at improving labour supply, but also at reducing demand in areas of capacity shortage, while the expansion of the capital programme needs to single out those infrastructure projects which help to ease the same capacity shortages.

Labour force participation rates in the Republic are still somewhat below those typically found in economically advanced countries. This is particularly the case for women, despite the sharp increases of recent years. Comparing the Republic and the UK, the overall participation rate for men is roughly the same. But for women, the overall rate is notably lower, particularly in the middle and older age groups.

If the Republic had the UK's pattern of female participation, the labour force would be larger by about 150,000.

Why is it that middle-aged and older women in the Republic participate less in the labour market than their counterparts elsewhere? Lower educational participation in the past, and larger families, are part of the answer although both factors are declining in significance. For younger women, educational attainment in Ireland is now actually higher than in the UK, and family size much the same.

Another part of the answer, I suspect, is the tax system. In the UK, couples are taxed more or less separately, and the allowance for a non-working spouse is negligible. In Ireland, because of the double tax bands and allowances, a non-working spouse confers a large tax benefit on the income earner. But the other side of the same coin is that, when the second person goes to work, the marginal tax rates can be punitive.

If the Government would like to encourage female participation in the middle and older age groups, there are several things that could be done in the next Budget.

The double bands and allowances could be phased out, to be replaced by generous tax allowances for children. This would mean that non-working spouses whose children were grown up would have stronger incentives to re-enter the labour market.

In addition, individual earned-income allowances, such as the PAYE and (rashly abolished) PRSI allowance, could be made more generous. This would lessen the negative perceptions on the part of married women about the value, in net pay, of earning a second income.

It is inevitable that female participation rates will be lower than those for men, but the Irish tax code seems designed to discourage labour force re-entry to a quite unnecessary degree.

The strong Exchequer position creates the opportunity to make changes this year.

The Government has made it clear that the public capital programme will be expanded in the years immediately ahead. Water supply and waste disposal, as well as major road improvement, are high on everybody's agenda. But some of the minor road networks in rural areas have been neglected, and public transport needs more investment, particularly in the larger cities.

The zoning and servicing of development land, as close as possible to existing urban centres, is another priority, if the rampant sprawl of urban Ireland is to be arrested. With the local elections out of the way some overdue decisions can surely be addressed in this area. The labour supply shortages now in evidence are being exacerbated by the sharp increase in commuting times and the escalation cost of housing. In Dublin, there are still working farms inside the M50, not to mention abandoned racecourses. But young couples are being asked to live further and further from the city, thus intensifying the transport gridlock. The same pattern is being repeated, on a smaller scale, in Cork and other cities.

Dealing with these problems requires political decisions, particularly in planning policy. The public capital cash to accompany these decisions is now plentifully available, and the opportunity is there to relax those constraints which would hinder the continuation of economic expansion.

But lay off on the stadiums.

Colm McCarthy is Managing Director of DKM Economic Consultants