Minister for Finance Brian Cowen can afford to "give away" almost €2 billion on Budget day because tax receipts are running well ahead of target and spending is lower, the latest report from Davy suggests.
An analysis of the Minister's options by economist Robbie Kelleher says Mr Cowen "will have plenty of room for manoeuvre" when he announces his Budget on the first Wednesday in December.
"Once again tax revenues are running well ahead of target in 2005. If the Minister was to set a similar target as last year . . . then he could afford to have a net 'give away' of almost €2 billion on the day," claims Mr Kelleher.
"The gross 'give away' could be even larger in that a significant portion of any tax reliefs and extra spending flows back to the Exchequer in higher tax revenues. That could amount to an injection into the economy of the equivalent of 1.5 per cent of GDP," he adds.
While concern has grown among some economists about the impact of the SSIAs on the economy in 2006, Mr Kelleher speculates that even more funds may flow into the economy in either 2006 or 2007.
"In addition there may be the beginning of the release of the €1 billion that is due for the refund of illegally gathered nursing home charges," he suggests.
He says Davy's guess is that this will be taken as a liability in the 2005 accounts and will not affect the arithmetic of the 2006 Budget. "But if it is paid in 2006 it will of course represent a real additional flow of money into the economy," says the economist.
The Davy survey is extremely upbeat about the state of Ireland's economy when placed in an international context. For example, based on what it calls the General Government Balance (GGB) the Government will be able to show a small surplus and its debt/GDP ratio should decline from 30 per cent to 28 per cent of GDP.
"The GGB is the internationally accepted measure of accounting for Government revenue and expenditure and the one used for assessing adherence to the criteria of the Stability and Growth Pact. Ireland will be one of only a handful of EMU members to run such a surplus and the debt/GDP ratio is the lowest in the EU, apart from Luxembourg," Mr Kelleher points out.
"We have also done some calculations on how the opening position for the 2006 Budget will look. Our guess is that the GGB will be showing a surplus of €600 million when the Minister stands up to present his Budget in a few weeks time", says Mr Kelleher.
Mr Cowen has not given any detailed indications of what his Budget might contain, although a childcare package is expected. He has also vowed to use the Budget to address the "abuse" of tax incentives by Ireland's wealthiest people.
Speaking recently at Fianna Fáil's ardfheis in Killarney, Mr Cowen said it was "unacceptable" that the "wealthiest residents in Irish society could use property and other tax incentives to avoid paying any income tax while at the same time enjoying the services provided by the State".
"In the forthcoming Budget I therefore intend to address any abuse of such property and other tax incentives," he told delegates.
While tax incentives can make a positive contribution to development, Mr Cowen added, he would be "ensuring that this positive element continues to play its proper role".
Addressing the theme of "rip-off" Ireland Mr Cowen said: "Businesses who use consumers only for their own short term enhancement are less likely to build sustainable companies."
