Figures published today indicate that the way is clear for a significant tax package aimed at lower earners in next week's Budget. The Minister for Finance, Mr Cowen, is also expected to announce the largest social welfare package of recent years.
The Department of Finance figures indicate that Mr Cowen will be able to push up borrowing by at least €1 billion on Budget day. He is expected to focus his Budget on the disadvantaged and lower earners through social welfare rises and increases in tax credits.
However, excise duty increases are likely to be kept to a minimum in an effort to hold down inflation.
The pre-Budget White Paper, which was published at midnight, shows that taxes have remained exceptionally buoyant, leading the Department of Finance to revise down again its borrowing target.
Continued strength in capital gains tax in particular means that the general Government balance - the EU borrowing measure - will end the year in surplus to the tune of €1.35 billion.
This is an extraordinary turnaround from the €1.6 billion deficit forecast at the start of the year.
With taxes set to remain strong next year, the Minister will stand up on Budget day with an opening general Government surplus of €318 million.
He is likely to be prepared to forecast a small deficit of €700 million to €800 million after Budget measures, leaving him leeway of more than €1 billion.
Budget measures themselves will provide a further "buoyancy" boost to the finances on Budget day.
This means that the Minister can afford a social welfare package of at least €800 million. General social welfare increases are likely to be ahead of last year's €10 per week.
The Minister will also move old-age pensions - where the contributory rate is now €167.30 per week - towards the €200-per-week Government target, and there is the prospect of a significant improvement in support to carers.
In this area there is expectation of a significant increase in the annual respite grant - now €835 - designed to help pay for replacement care when the main carer takes a break.
Looking at tax, Mr Cowen is expected to have enough funds to adjust the standard-rate band to ensure that a higher proportion of taxpayers do not get pulled into the higher 42 per cent rate next year.
However, the bulk of the tax package is expected to go on increasing tax credits, to ensure a significant move towards the goal of excluding all those on the minimum wage from the tax net.
Increasing credits benefit all taxpayers, but give the biggest proportional gains to lower earners.
Mr Cowen is expected to announce another increase in tobacco excise despite figures this week showing a 17.6 per cent fall in excise clearance of tobacco so far this year, pointing to a significant fall in sales.
However, most other excise duties are likely to remain unchanged.
There will be some extra burden on taxpayers, with an increase of €2,200 to €44,180 in the employee PRSI ceiling already signalled - which will increase the payment for anyone earning above this level of income - and the possibility of a further rise in motor tax.
The White Paper shows that the Minister "has ample scope for a reforming Budget" , according to Labour's spokeswoman, Ms Joan Burton, who called for a substantial increase in the standard-rate income-tax band and further spending on public services.
Speaking for Fine Gael, Mr Richard Bruton called for a 10 per cent increase in tax bands and credits, and reversal of the announced increase in the employee PRSI ceiling.