Crucial pre-Budget figures published today show the Minister for Finance has less money than expected to spend in his Budget next Wednesday. The latest figures, contained in the pre-Budget White Paper of the Government's finances, show that before any Budget changes the Exchequer is set to be in surplus by £223 million next year. Forecasters had expected a higher pre-Budget surplus. The Minister, Mr McCreevy, now looks likely to offer a more modest package of tax reductions and increases in spending than expected.
The main reason for the tighter position in the State's finances is that the Exchequer is borrowing more than expected to fund capital spending. The Department of Finance has also made conservative assumptions on the likely trend in tax revenues.
The Minister may be able to find extra revenue from an unexpected source on Budget day. But the figures published this morning show that he is likely to either produce a less generous tax package than trade unions and others had demanded, or decide that rather than keeping the Exchequer finances in surplus he will borrow again in 1998.
Both Mr McCreevy and the Taoiseach, Mr Ahern, have indicated that they would like to see a surplus on the Exchequer finances next year, but it is now not clear whether this can be delivered.
Trade unions had been calling for income-tax cuts of £500 million. But Mr McCreevy is now likely to have to confine tax reductions to £350 million at most in 1998. And to help offset this cost, price increases on goods such as cigarettes and petrol will come into effect immediately and could be substantial.
The final shape of the tax package will be finalised this weekend between the two Government parties. The Minister is expected to reduce both the standard 26 per cent and higher 48 per cent income-tax rates, possibly by one point each.
Following intensive negotiations with Brussels, a reduction of two to three percentage points in the standard 36 per cent corporation tax rate is also expected.
Mr McCreevy is likely to spend a maximum of £150 million on Budget day on items such as increases in social welfare, a substantial rise in the old-age pension and reducing waiting lists in the health services.
The pre-Budget White Paper shows that Mr McCreevy is borrowing £1.17 billion in 1998 for capital purposes compared with £896 million in 1997. This largely results from the Government's decision to spend more in areas like education and roads.