Despite any gloss that may be spun at the margins, the story underpinning Budget 2005 demonstrates once again that Irish public finances remain strong.

The economy is expected to run a current budget surplus of €4 billion in 2005, which although overturned into a rather significant looking overall Exchequer deficit of €3 billion, it is financing a significant proportion of the €6 billion spending for necessary infrastructural investment along with a €1.3 billion contribution to the National Pension Reserve Fund. The more appropriate fiscal measure is the General Government Balance (GGB), which is expected to show a deficit of €1.2 billion in 2005 or 0.8 of GDP, well within our international commitments under the Stability and Growth Pact.

The deterioration in this GGB measure from a surplus this year will be quite substantial at an estimated €2.5 billion. However, this is significantly affected by one-off factors boosting revenue in 2004 unlikely to be repeated next year and delayed compensatory payments for expenditure to be made on behalf of the EU in 2005. Accounting for these factors, the overall stance is stimulatory given an anticipated real economic growth of 5 per cent next year. The growth in net current expenditure is estimated at 10 per cent, somewhat ahead of expectations.

Given recent currency movements and the avoidance of indirect tax hikes in the Budget, inflation in the Irish economy may be lower than forecasted next year which will make the underlying expected tax buoyancy more difficult to achieve.