The Government will be running an Exchequer deficit as early as next year if the Budget this year delivers another large giveaway, according to the latest research from Davy Stock brokers.

Davy's chief economist, Mr Jim O'Leary, also claims that the data showing the economy grew at a record pace last year may be erroneous.

In his latest monthly economic briefing, Mr O'Leary warned that the period of large budget surpluses was coming to an end.

Another £2 billion (#2.54 billion) giveaway in tax cuts and spending increases would mean a deficit of up to £300 million in 2002, he forecasts.

A smaller Budget giveaway of £1 billion would postpone the deficit until 2003, according to his calculations.

A return to Exchequer deficits is likely to be greeted with dismay in Brussels and elsewhere. According to Mr O'Leary, however, the real issue is not whether the surplus disappears but at what levels of taxation and Government spending it occurs.

"There may be rather more grounds for concern in what lies behind the decline in the surplus. It is driven principally by rapid growth in public spending."

He also warned that spending would have to be much more closely monitored in the years ahead.

Large scale spending projects should be based on a sound analysis of cost and benefits. "Sanctioning projects and initiatives purely on the basis that the money is there should be strenuously avoided. If there is one thing that our projections demonstrate conclusively it is that money that is there today can easily be gone tomorrow."

Davy calculations show that tax revenue will be at least £750 million short of the last Budget day target.

As a result the surplus would finish the year at 3.6 per cent of GDP when measured on a EU basis.

Mr O'Leary also warned that there is a possibility that the "Black Hole" in the national accounts of the 1980s may be reappearing. "The revelation that output per person employed in the Irish economy increased by 6.4 per cent last year and that GNP per employee rose by 5.4 per cent stretches credulity.

"Even by the standards of the Celtic Tiger economy this is a very big number and makes one wonder whether measurement errors might not have started to afflict the national accounts again," he said.

A spokesman for the Central Statistics Office declined to comment until he had had an opportunity to study Mr O'Leary's commentary.