SPENDING on Government services next year is set to exceed £13 billion, with the increase again running well ahead of inflation.
But this will still leave room for tax and PRSI relief in the Budget, with reductions of at least one percentage point in both the 25 per bent standard income tax rate and the 5.5 per cent employees' PRSI date now expected.
A continued fall in the level of unemployment - with figures yesterday showing the live register at a five-year low - has helped to reduce the level of social welfare spending. But a substantial increase is still expected in spending in this area.
The official spending estimates for next year, to be published on Monday, will detail spending on Government current services of close to £12.9 billion for 1997. This will be added to by social welfare increases on Budget day, which will bring total spending on services to just over £13 billion.
The Minister for Finance, Mr Quinn, is expected to announce this post-Budget spending target on Monday. It will be some 8 per cent above the planned level of spending for this year. However, as spending is running ahead of target this year, the year-on-year increase in 1997 will turn out to be lower, probably less than 6 per cent.
Monday's estimates will show substantial increases in spending in key areas such as justice and agriculture. Some £160 million to £190 million will be left for additional spending measures on Budget day, mostly social welfare increases. Exchequer capital spending is likely to rise from £1.4 billion to around £1.6 billion, partly due to the need to provide grant support from the high level of new investment projects.
When Mr Quinn announces the estimates, he is expected to focus on the exceptional spending pressure the Government came under to justify the spending overrun this year. The Minister has already pointed to factors such as the BSE crisis, beef fines and hepatitis C payments to justify this year's spending rise.
He will highlight the need to control public pay and borrowing.
A target of around 1.9 to 2 per cent is expected for the general Government deficit.
Public-sector pay will be a key element in controlling spending. However, the Minister is keen to leave enough for a sizeable tax-cutting package. Various tax-cutting combinations have been presented to the social partners.
The favoured package now is said to be a combination of a 1 percentage point cut in the standard 5.5 per cent employees' PRSI, as well as a 1 percentage point reduction in the basic 25 per cent rate of income tax. However, some Government sections are still pushing for a 2-point cut in the basic rate to 25 per cent.
A widening of the standard-rate income-tax band as well as increased allowances would also be included, bringing the cost of the total package to just over £900 million over three years.
One obstacle is said to be the Minister for Social Welfare, Mr De Rossa, who is unenthusiastic about his Department losing the PSRI revenue.
However, the fall in the live register at the end of November to 268,700 - a fall of 5,100 claimants on the month after seasonal adjustment - will ease the burden on his Department. The Department of Finance is also taking a more cautious line on the scope for tax reductions.