The Minister for Finance, who has up to €2.5 billion to give away in the Budget should focus on maintaining economic stability, maximizing employment creation and childcare provision, according to Friends First.

In its quarterly economic outlook, chief economist Jim Power said Mr Cowen can afford to have a very generous Budget day package and should make minimal changes to indirect taxes, full indexation of tax bands and allowances in order to offer much needed assistance to low and middle income workers.

"Childcare is likely to be the headline grabber this year, just as disability was last year and decentralisation was the previous year. How much the minister gives away in increased spending will be determined by his targeted deficit," Mr Power said.

"A significant spending package would be required to address areas of social concern and to improve the quality of public services," he said.

"However from a political perspective the top priority has got to be a significant package aimed at relieving the burden of childcare."

Mr Power suggests that childcare must be made a fully tax allowable expense at the marginal rates.

He said the individualisation of the tax system succeeded in encouraging many women back into the work force with numbers increasing by 300,000 in the last decade.

"Many of these women are now under pressure. As families struggle with high mortgages and high childcare costs, measures must be taken immediately to make childcare more affordable," he said.

Mr Power also called for the continuation of capital grants for the sector but added that Government must also take a role in price regulation to ensure that tax incentives do not lead to price inflation.

Job creation in the Irish economy remains strong with the Quarterly National Household Survey reporting 93,000 jobs created in the second quarter, up 5.2 per cent.

Employment is now at record levels and Ireland's unemployment rate is the lowest in Europe, he said.

"Momentum remains reasonably good but the challenges to future prosperity are becoming more evident at a rapid pace," he said.

In relation to the housing market, it is clear that demand has continued unabated in 2005 with mortgage credit growing strongly. It appears that house prices will grow by 8 per cent this year.

"Looking to 2006 the market seems set to remain very vibrant with prices expected to increase by at least 5 per cent," he said.