Analysis: With the tax take running ahead of expectations, the Government has a chance to fashion a politically advantageous Budget, writes Marc Coleman, Economics Editor.

Like some broken slot machine, the economy continues to spew out money in the Government's direction. Exchequer returns for November show that tax revenues so far this year are running €3.567 billion ahead of the same period last year. And they are running €1.722 billion ahead of budgetary expectations last year.

What luck for Brian Cowen. Next week he frames his most significant Budget before the next election.

(His subsequent budget will have limited impact on the economy before the election campaign gets going.)

There are three elements to the budgetary process. The estimates campaign results in a figure for the Government's planned spending requirements next year. These requirements do not account for various measures announced on Budget day such as welfare increases, public sector pay agreements and other obligations.

This year's estimates concluded on November 17th last with a planned spending increase for 2006 of 6.7 per cent, on a no-change basis.

Yesterday, the Government published the second element of the budgetary jigsaw. The budgetary white paper compares Government estimates for spending next year with the outlook for revenue. The Government expects revenue to grow by 6.7 per cent next year, almost identical to the planned rise of 6.6 per cent in spending contained in the estimates. Total net voted spending, which reflects the discretionary spending of Government, will grow by 8.2 per cent.

On the plus side, the Government's revenue growth forecasts may turn out to be conservative. Growth in nominal gross domestic product (GDP) - which measures the value of goods and services produced in the economy each year - offers a good guide to likely revenue growth next year.

Nominal GDP growth is likely to run about 8 per cent. SSIAs and strength in the construction sector will last until at least into next year. The slot machine will continue to dish it out for a while yet and revenue growth may even hit 10 per cent.

But on the negative side, the estimated expenditure growth figure does not account for Budget day tax giveaways, social welfare increases or for the impact of public sector pay increases next year. The Government will try, and probably succeed, in keeping spending below 10 per cent. In these days of public cynicism about public sector efficiency, double-digit spending growth can be bad for one's political image.

For instance, the lion's share of the cost of compensation for nursing home charges has been knocked forward to 2007. Only €400 million will be paid in compensation next year. So, although spending will rise by more than the planned 6.6 per cent, growth of more than 9 per cent seems unlikely.

Budget day optics aside, the Government will receive and spend more of our taxes than it says it plans to. But the exchequer position should be close to balance next year.

The exchequer figures tell the government how much money it can rely on next year. But they do more than that. They also indicate that the burden of tax continues to shift. The shifts between 2004 and 2005 are not large in absolute terms. In 2004 income tax accounted for 29.9 per cent of total tax revenue. So far in 2005 it is accounting for 28.6 per cent and will fall slightly by the end of the year.

In contrast, VAT receipts last year were 30.1 per cent of total tax revenue. In the year so far that share has risen to 31.8 per cent - almost one-third of the total tax revenue.

And, between them, capital taxes and stamp duties have increased their share of total taxation by a combined 1.4 percentage points. By contrast the share of income tax and corporation taxes have together fallen by two percentage points.

These changes are small because they reflect moves over a short space of time. But they are significant in the longer-term. If linked to voter concern over the cost of living, not to mention the misery inflicted on house buyers by stamp duty, these little numbers could become politically powerful next year.