Taken at face value, the 2003 Exchequer returns suggest the economy is on the turn and that recovery is taking hold.

Department of Finance forecasts of a tax shortfall of up to €500 million were confounded by a late pick-up, which left revenue at the end of the year some €450 million ahead of Budget. As a result borrowing came in well below target.

The main tax headings all recovered in the later months of last year and the only reason for caution is that much of the revenue surge appeared to relate to activity in the property market, which may ease this year.

The other side of last year's final Exchequer returns, published yesterday evening, is that voted Government spending came in bang on target. There was a small overspend of €126 million on current spending and an undershoot of €140 million on capital, but in an annual budget of €30 billion these sums are insignificant. After the pre-election spending spree, it now appears that the Department of Finance is in the ascendant again.

Mr McCreevy's formula for this year is likely to be "more of the same".

Keep spending within budget and any bounce in tax revenue will feed through to a lower borrowing level. Some of his Cabinet colleagues may feel their spending programmes were squeezed too tightly on the basis of budgetary forecasts that were overly-pessimistic.

And no doubt Mr McCreevy would have avoided some of the painful €900 million tax increases in Budget 2003, if he had realised that by the end of the year taxes would be €450 million ahead of Budget, that €200 million would be saved on debt interest and that we would save €175 million on our contribution to the EU budget.

The economic picture, however, has changed significantly over the past year as international recovery builds. And in fairness to the Department, the tax trends were poor in the early part of 2003.

But the Department stuck with its forecast of a tax shortfall of up to €500 million up to the end of October, even when trends were starting to improve. Whether this was due to an underestimation of tax receipts in the last couple of months or a desire to keep spending expectations in check for 2004 - or a combination of both - is an open question.

A difficulty for all forecasters is that a high proportion of tax revenue now comes in late in the year . For example more than half of capital taxes is paid in November and December, while self-assessed income tax returns are due in November.

Capital taxes were a key area of buoyancy last year. Revenue from capital gains tax and the smaller capital acquisitions tax rose by 113 per cent, compared to a 37 per cent forecast. This may be partly due to an underestimate of the impact of changed payment arrangements for CGT. But it appears also to reflect the sale of a large number of assets spurred by fears that the CGT rate would increase, or by changed rules which will hit taxpayers who hold on to assets for long periods.

The other factor pushing up capital taxes may have been a decision by many investors to cash in on rising property prices by selling properties. The buoyant property market was also reflected in a 45 per cent jump in stamp duty revenue

Elsewhere, tax trends were less dramatic, though still encouraging. Corporation tax performed strongly, while weakness in the key VAT and income tax headings in the early months was largely reversed later in the year. This suggests some pick-up in consumer spending and in the jobs market. In the latter area, it is significant that PAYE returns came in on target and that what weakness there was in income tax was due to lower profits from some schedule D self-employed taxpayers and weak DIRT revenues due to low interest rates.

What does it mean for this year? First, it appears that spending is now under control and there is no reason to expect major deviations. Second, the tax forecasts in the Budget - of a 5 per cent increase in 2004 over 2003 - should be comfortably achieved and may be overshot substantially if growth picks up.

Already the Exchequer gets a boost from the 2003 outturn, as the base from which it starts this year is higher than expected on Budget day. As we saw last year, it is very dangerous to predict Budgetary trends even a few months in advance, but the outlook for this year appears reasonably good.