The Minister for Finance, Mr Cowen, has adopted a "conservative" stance in negotiations with Ministers during the run-up to the publication next month of his first Budget Estimates, writes Arthur Beesley, Political Reporter.
As the Estimates campaign nears its conclusion, senior sources said Mr Cowen had indicated to his Cabinet colleagues that he would have limited scope to increase spending outside the priority areas of health, social welfare and education.
Any additional spending is likely to be reserved for the politically sensitive areas of community employment, Garda recruitment and the indexation of tax bands and credits, the sources said.
Mr Cowen is said to be forecasting a general Government deficit of 0.8 per cent of Gross Domestic Product in 2005 in the Book of Estimates, which will be published on November 18th.
This is less than the 1.1 per cent deficit forecast in the last budget by his predecessor, Mr Charlie McCreevy, although buoyant tax revenues this year have eased the borrowing requirement considerably.
The EU measurement of debt, which strips out the State's contribution to the National Pension Reserve Fund, currently indicates that the Exchequer may record a small surplus this year.
In advance of Budget day on December 1st, Mr Cowen will also hold a series of meetings with Fianna Fáil TDs and senators to hear their concerns.
While the Minister has insisted that he will not change the Government's economic policy, senior political sources believe there will be a shift of emphasis in favour of social spending.
However, despite the recovery in the public finances, Mr Cowen has warned Ministers that his room for manoeuvre will be constrained by three public pay increases set out in the latest phase of the Sustaining Progress agreement.
While the Tánaiste and Minister for Health, Ms Harney, is expected to secure a significant rise in health funding, political sources said pay costs would take up a large portion of the increase.
Mr Cowen's caution has been repeated by officials in the Department of Finance who have stressed in the negotiations that the rapidly increasing price of oil, the war in Iraq and twin deficits in the US have the potential to seriously undermine the performance of the domestic economy.
However, multi-million euro investment in areas such as transport will continue under the five-year capital spending plans introduced by Mr McCreevy in the budget last December.
Money not spent on capital projects this year will be brought forward for spending in 2005, although it will counted as expenditure in 2004.
With the Government seeking to redefine its image in the wake of its poor performance in the local and European elections, sources said Mr Cowen was likely to concentrate on commitments not met since Fianna Fáil and the Progressive Democrats agreed on the Programme for Government in 2002.
Chief among these is the promise to increase the strength of the Garda by 2,000, a commitment which was repeated in recent weeks by the Minister for Justice, Mr McDowell, when he announced a three-year recruitment programme.
Mr McDowell is considered unlikely to have pushed ahead with that initiative without a commitment on funding from Mr Cowen.
In addition, the new Minister for Enterprise, Trade and Employment, Mr Martin, has also signalled a renewed commitment to the community employment scheme, a subject of significant pressure within the Fianna Fáil parliamentary party.
On income tax, the Taoiseach, Mr Ahern, gave a clear indication a fortnight ago that Mr Cowen was examining the tax bands.
Any development in this area would see the Minister move towards the Government target of 80 per cent of all earners paying tax at the standard 20 per cent rate.
This has not been done in recent budgets, meaning more middle-income earners have been pushed into the higher rate band.
Given the pressure on the Government to change its "right-wing" image, Mr Cowen is also likely to increase tax credits to exempt more low earners from tax and provide a boost for all income tax payers.