Analysis: There's no need for the hairshirt in next week's budget, writes Cliff Taylor, Economics Editor.

With one bound our hero is free - or so it would appear from the pre-Budget White Paper, which estimates the trend in spending and taxes before the Budget.

It sets out the borrowing position facing the Minister when he stands up next Wednesday, which is a good deal lower than looked likely a few weeks ago.

The Exchequer is not awash with spare funds, but nor - according to the trends in the White Paper published today - will there been any need for Mr McCreevy to don the hairshirt.

Weak tax trends in the first half of this year led the Department of Finance to predict that taxes this year would come in €500 million below the target set in the last Budget. They clung to this projection during a pick-up in tax trends later in the year, albeit hedging it with "mights" and "maybes".

No doubt, the Department wanted to keep expectations down as the Budget planning got under way. But not even its forecasters could have anticipated the dramatic surge in capital gains tax, the key factor behind the late improvement. Capital gains tax has to be paid each October and this year a change in payment timings was expected to boost revenues.

This meant that tax due for 2002, as well as the first nine months of 2003, had to be paid together this October. The Department had factored a €250 million one-off boost from this into its sums, but the out-turn was much better than anticipated.

One of the key reasons for this appears to have been fears that the 20 per cent CGT rate would be increased in last December's Budget, leading to heavy asset sales in late 2002, on which the tax liability is now being paid.

Together with buoyancy in the smaller Capital Acquisitions Tax heading, total capital taxes are now expected to come in close to €500 million - or almost 50 per cent - ahead of the Budget target.The other main plus in taxes was strength in stamp duty due to the buoyant housing market.

The combination of strength in capital taxes and stamp duties more than offsets weakness in other tax headings and left total tax revenues €100 million ahead of Budget target.

On spending, we already knew the Department of Finance's view on how the spending of Government Departments would turn out this year and next from the recently published estimates. However, the White Paper gives new information on national debt payment, now estimated to come in €200 million below Budget.

These two boosts to the Exchequer mean total Government borrowing - using the EU general government deficit (GGD) measure - is expected to come to €605 million, a full €280 million below the Budget forecast. With a substantial borrowing overrun signalled for most of the year by the Department, this is quite a turnaround.

The late improvements in the 2003 arithmetic knocks on to brighter prospects for 2004. The pre-Budget borrowing position (GGD) is now estimated at €1,038 million, or 0.7 per cent of GDP. The key question now is how far Mr McCreevy is prepared to let this rise on Budget day.

Projections published with last year's Budget foresaw a GGD of 1.2 per cent of GDP next year. If the Minister accepts this target, then he could add some €700 million to borrowing on Budget day through social welfare increases and tax reductions.

There is strong speculation, however, that Mr McCreevy would like to keep borrowing below 1 per cent of GDP in 2004 - despite sharply higher borrowing elsewhere in the EU.

If Mr McCreevy wants to stick to the sub 1 per cent borrowing target, then his Budget day package is restricted to some €400 million. Either way, it is much better than looked likely earlier this year. And it also points to a more generous Budget than last year, when tax increases of €944 million were introduced.

This year Mr McCreevy has some modest cash to play with. A social welfare package costing a similar amount to last December's €270 million, some indexation of tax credits and the standard band and revenue raising from excise duties looks the likely shape of what could be a very straightforward Budget. But Mr McCreevy can expect a hectic few days of last-minute lobbying for extra spending after these figures.