The Minister for Finance, Mr McCreevy will have substantial amounts to "give away" in tax reductions when he presents his first Budget. Of course the actual value of the "givebacks" will be limited in calendar year 1998 because the tax year doesn't commence until April next and since tax concessions will partly pay for themselves through buoyancy. The true cost next year will be about half the headline figure.

Many commentators have speculated on an income tax package worth £500 million on a full-year cost basis - or around £300 million in 1998.

There has been much ill-informed comment about the potential for overheating the economy through tax cuts of this kind and thus fuelling inflation. But the fact of the matter is that inflation is almost exclusively driven by currency factors and thus imported into our economy. Moreover, much of the growth we've been experiencing is supply driven meaning that the continued advances in the economy's productive capacity is putting downward pressure on inflation. There may be some overheating risk but it is not substantial.

Unfortunately, it deflects focus from a debate which deserves a far greater airing, namely, the most appropriate way for our economy and society to share out the largesse of growth. The revenue dividend from growth can be distributed in three ways: tax "givebacks"; additional spending on public services and reductions in debt. The balance between these options is fundamentally a political decision but it is a balance which requires much greater debate than it has been afforded up to now.

As to the Minister's options on Budget Day, we set out below three possibilities from what is admittedly an infinity of options.

The rates option: Cut the standard income tax rate to 24 per cent and the top rate to 46 per cent (a two point cut in each) and introduce a new introductory rate of 20 per cent on the first £1,500 of income.

Bands and allowances option: Increase personal tax allowances by £750 (£1,500 for a married couple). Widen the standard income tax band by £1,400.

Rates,bands and allowances op- tion: Cut the top rate to 46 per cent. Introduce a new introductory rate of 20 per cent on the first £2,700 of income (£5,400 for married). Increase personal allowances by £250 (£500) and the standard band by £300 (£600). The Government is likely to assess the impact of these changes on the basis of what they mean to after-tax income. However strategic reform objectives must also be considered.

These include the need to make it easier to move from welfare to work, to phase out the 2.25 per cent health and employment levies, to reform the PRSI system and to cut the tax burden on low incomes.

Each of these packages amount to an estimated full-year value or cost in terms of revenue foregone of about £500 million. No wage increase is factored into these calculations so as to highlight the exclusive role of tax adjustments on changes in after-tax income. The fairest judgement on these three options is that overall they yield broadly similar outcomes. The two "rates" options produce the expected increase in gains as income rises. Simply, the more income you have the more you benefit from a tax rate cut. The "bands and allowances" option produces the characteristic steptype curve.

For instance, at all income levels from £35,000, the after-tax income gain is similar. The nature of the bands and allowances option is that it inevitably produces sharp step effects as portions of income previously taxed at the top rate now become liable only at the standard rate. This is evident in moving from £30,000 for married taxpayers and from £15,000 for single taxpayers. As to details, there are two groups of income worth highlighting: £10,000 to £15,000 and £35,000 to £60,000. Taking the £10,000 to £15,000 bracket first, we note that for married taxpayers the "rates and bands/allowances" package dominates the other two. For single taxpayers there is little difference between the three packages.

If we look now at income levels between £35,000 and £60,000 we can see that married taxpayers would be better off under the "bands and allowances" option up to £60,000 of gross income. Single taxpayers would, however, be better off under either of the "rates" packages.

The message from this analysis is that a balances package of adjustments in rates, allowances and bands will deliver the best outcome for most taxpayers relative to most feasible alternative options. Moreover awkward step effects are avoided.

Mr Gerry Boyle is professor of economics at the University of Maynooth. He was an adviser to the former Taoiseach, Mr Bruton.