The new Minister for Finance, Mr Cowen, will come under pressure to ease the burden on taxpayers in his first Budget with the publication today of figures that confirm the recovery in the public finances, write Arthur Beesley & Barry O'Halloran.
The drawing up of the Budget estimates was delayed due to the preparations for last week's Cabinet reshuffle but Mr Cowen will intensify the process this week by beginning a series of bilateral meetings with his Government colleagues.
Despite the positive economic outlook and pressure for increased social spending in the aftermath of the Coalition's poor performance in the local and European elections, Ministers expect Mr Cowen to adopt a conservative stance.
Still, senior political sources said last night that Mr Cowen would be less rigid in his attitude to social spending than his predecessor, Mr Charlie McCreevy.
"He will operate within the same parameters as McCreevy, but he might give a bit more to the social side of things."
The publication today of third-quarter Exchequer figures will confirm the recovery in tax revenues, suggesting that Mr Cowen will have greater room for manoeuvre than Mr McCreevy had in his last two Budgets. Such figures follow a positive assessment of the global economy from the International Monetary Fund (IMF), which has forecast lower oil prices and said yesterday that the international economic situation was at its best for many decades.
While senior Government sources expect Mr Cowen to prioritise health and education in the Budget, trade unions were told in pay talks last summer that their members could expect "substantial increases" in take-home pay in forthcoming Budgets.
Unions will urge Mr Cowen to increase tax bands in line with inflation after Mr McCreevy failed to do this in the two Budgets since the 2002 general election.
Mr Cowen has already said that the Government must adhere to the clause in the Sustaining Progress partnership agreement, which commits the Government to keeping the rise in current spending in line with economic growth.
While this would restrict current spending growth to about 8 per cent, it was suggested last night that Ministers were encouraged by the positive state of the public finances and some were said to have instructed officials to examine new projects for consideration in the event of a modest increase in expenditure.
The head of the IMF, Mr Rodrigo Rato, reiterated the fund's prediction that world growth will reach 5 per cent this year and 4.3 per cent in 2005 and said the global recovery was more entrenched.
"Financial market conditions are benign at present, supported by the global recovery, and the financial system is more resilient today than it has been since the bursting of the equity bubble."
Mr Rato predicted that crude oil prices, which surged above $50 per barrel on Friday, would drop to around $35 next year as global conditions stabilised.
The IMF's assessment came as one economist predicted a return to the levels of growth that characterised the boom of the late 1990s.
Dr Dan McLaughlin, chief economist with Bank of Ireland, said the Irish economy would expand at 6.5 per cent per year between now and 2010, establishing the Republic as Europe's richest country.
While the chief economist with Friends First, Mr Jim Power, predicted a lower growth rate of 5 per cent a year, his said this would give Mr Cowen scope to deliver big tax breaks in the 2005 and 2006 Budgets. "It will put Brian Cowen in a position to deliver two very generous Budgets this side of the next general election."