The Exchequer finances have surpassed Government expectations by posting a surplus for 2004, new figures are expected to reveal today.

The surplus is, however, expected to be smaller than some commentators were forecasting at the start of last month.

At that stage, the Exchequer had been buoyed by a huge boost in tax revenues and spending was below target. This resulted in a surplus of €1.9 billion for the first 11 months of 2004.

It is believed that this has declined to less than €500 million by the end of December, as the pace of Government spending quickened.

Two factors are thought to lie behind the late surge in spending, with the main driver likely to have been a range of chunky outlays in capital expenditure across Government departments such as transport, education, environment and health.

This type of spending tends to be "lumpy" in nature since the projects concerned are so large. It also tends to be skewed towards the end of the year.

A secondary factor is thought to have been Government departments' ability to carry over unspent funding from 2004 to 2005 under a system of multi-annual "envelopes".

Use of this mechanism would reduce any surplus for 2004, while easing pressure on the public finances for this year.

Spending ran below the Department of Finance's projections for much of the year, although Department officials consistently predicted that it would come in on target. By October, it was running about €700 million behind target, principally because of underspending by the Department of Education and the Department of the Environment.

The Exchequer surplus for 2004 marks a turnaround from 2003, when Exchequer borrowing approached €1 billion.

The Department of Finance had initially expected a deficit of €2.8 billion for this year.

However, it cut this projection on a number of occasions throughout the year as tax revenues surged ahead.

At the end of the third quarter, the Department was expecting a deficit of €1.2 billion to fund expenditure but, by the end of November, this had fallen again to €200 million.

The actual out-turn - a surplus of a few hundred million - will offer an excellent cushion to the Minister for Finance, Mr Cowen, as he begins his first full year of managing the public finances.

While much of the improvement has been due to an upturn in economic activity, the Minister must also thank the Revenue Commissioners, who delivered an unexpected gain of more than €700 million from investigations into undeclared offshore funds last year.

Another such bonanza is likely to come this year, as the Revenue turns its attention to undeclared money invested in single premium life policies.

The Department of Finance pencilled in a €200 million gain from Revenue investigations in the 2005 Budget announced last month.