While figures contained in the pre-Budget White Paper are not as strong as many had predicted they still paint a very positive picture. The opening exchequer borrowing requirement - before Budget measures - is a £223 million surplus, lower than most commentators had predicted. After the Budget, Mr McCreevy may now have difficulty forecasting a surplus on the running of the Government's finances this year, as both he and the Taoiseach had indicated they would like to do.
At best, Mr McCreevy may be able to forecast a very small overall surplus for 1998. The main reason why the Budget position is tighter than expected is that there has been a sharp rise in capital borrowing, which many commentators had simply not expected. The Department of Finance has also taken a pessimistic view on tax receipts.
When presenting the Estimates, Mr McCreevy blew a hole in his cap of 5 per cent on capital spending, budgeting for a 17 per cent increase. It now appears that he does not have the EU funding to cope with this and is forced to rely more heavily on domestic sources.
Mr McCreevy will stand up with an opening surplus of £223 million; he may then benefit from excess balances left in departmental coffers, which could bring this surplus to £260 million to £280 million. Given the demands on Mr McCreevy and his desire to keep a tight rein on the exchequer finances, this does not leave him much room for manoeuvre.
For example, Mr McCreevy could increase spending by £100 million and produce a tax package worth £300 million - involving income tax reductions of perhaps £350 million and some revenue raising measures. But even allowing for "tax buoyancy" of £100 million - the extra amount written in on Budget day as resulting from the extra activity the Budget will stimulate - this would still leave the Minister struggling to keep the exchequer finances in surplus next year. The Government does not appear to be planning to raise nay money from the sale of state assets and there is no provision made for the sale of companies such as TSB, ACC and ICC banks. However, this could be introduced at a later stage.
The main spending on Budget Day is likely to be over £100 million on social welfare. At the same time, each one percentage point cut in the standard 26 per cent income tax rate will cost £101 million and a 1 percentage point cut in the higher 48 per cent rate will cost £54 million.
However, significant tax reform is also expected in the corporate sector. Mr McCreevy is likely to make a move to bring the standard 36 per cent rate down and probably also the 28 per cent rate - with a view to moving towards single rate of 12.5 per cent for all companies within 10 years. Every one point cut in the higher rate of corporation tax costs £23 million for a full year.
The Government has been in intensive discussions with Brussels on the corporate tax issue with a view to trying to agree a multi-year package of reductions, but it is not clear if this will be tied up by Budget day. And the final details of the income tax package will only be worked out over the weekend.
