The buoyancy of the Irish economy has been confirmed once again by the half-year Exchequer returns released yesterday.
The Exchequer surplus at more than £2.9 billion is the highest in the history of the State, tax revenue is up 14.5 per cent but corporate tax receipts are only up 8.3 per cent.
The figures highlight the continuing extraordinary performance of the Irish economy but as Mr Jim Power, chief economist at Bank of Ireland points out, they will also put intense pressure on the Minister for Finance Mr McCreevy.
The problems facing the economy in maintaining this performance have been well rehearsed. Inflation is running at almost three times the EU average, the recently negotiated Partnership for Prosperity and Fairness (PPF) is under pressure, house prices are still rising rapidly, firms are finding it difficult to get workers and traffic jams are endemic.
The Economic and Social Research Institute has recently advocated putting off further tax cuts for a number of years to allow demand to cool and this is backed by Mr Power.
"Last December's tax cuts fuelled demand and thus inflation. The Minister will have to be very selective and, if there are any tax cuts, they should be delivered to the lower paid," he said.
He added that the key area which needed to be addressed was childcare, which would allow more women to re-enter the workforce.
A more immediate concern for the Government will be that the huge surpluses will generate further pressure for hefty wage demands, as pressure mounts on the PPF. According to some economists, this does not matter.
Mr Jim O'Leary, chief economist at Davy Stockbrokers, has argued that rising wages will bring the supply and demand for labour into equilibrium and should be welcomed. Others argue that higher wage rises here than those among our competitors will erode the competitiveness of Irish firms, eventually leading to job losses.
One surprise in the figures was the low rate of corporation tax payment so far this year. Corporation tax is only up 8.3 per cent from a Budget day target of 16.4 per cent. Officials said yesterday that the rate of payment had speeded up in June. Nevertheless, according to Mr Michael Tutty, second secretary at the Department of Finance, revenue under this heading may come in just below target.
He pointed to some companies, about which he could not go into detail, which might account for the difference. Corporation tax has come down form 32 per cent to 28 per cent and is due to fall to 24 per cent this year but he said this did not account for the difference.
Capital spending is up some 23.4 per cent on last year at £459 million. The rate of capital expenditure is rising, although the Department was not able to say how far phase one of the National Development Plan had progressed. Spending on this area is, of course, crucial if infrastructure and transport shortages are to begin to be addressed.
