Davy predicts €1bn budget giveaway

CHARLIE McCreevy may have around €1 billion to give away to taxpayers on budget day because of the improving economic climate.

New research from Davy Stockbrokers says the public finances have been in their best shape for some years and this is bringing in better than expected tax revenues.

Though a deficit of nearly €2.7bn was predicted by Finance Minister Charlie McCreevy last December, the Exchequer is currently in surplus and tax receipts are well ahead of forecast.

If they continue to come in at their current rate and with extra cash netted by the Revenue Commissioners from its investigations into illegal offshore accounts, Mr McCreevy could find himself with €1bn extra to giveaway to taxpayers this year.

In the six months to the end of June, tax receipts were running €1.04bn ahead of target and Davy Stockbrokers' chief economist Robbie Kelleher expects this figure to rise to €1.6bn at the end of the year.

The Department of Finance has repeatedly maintained its cautious stance about the public finances.

The department says that though tax receipts are well ahead of last year, it is mainly because of extra cash netted by the Revenue Commissioners, as some of the key tax receipts are only just on target.

But Mr Kelleher said: "Nevertheless, the arithmetic facing the minister when he comes to frame his budget next year is likely to be considerably more favourable than in the past number of years."

He said if Mr McCreevy sticks to his current target he will have room for "more than €1bn in net giveaways on Budget day itself", while the Government deficit will be just 1.5% of gross domestic product, keeping the country within the EU's strict borrowing guidelines.

In the wake of the disastrous showing of the Government parties in June's European and local elections, pressure is mounting on Mr McCreevy to be generous to taxpayers in this year's budget.

Though direct tax cuts would be ruled out, the improving economic environment would allow him to index tax bands for the first time in three years. Last year, an extra 70,000 people were pushed into the top rate of tax by not indexing the bands.

Mr McCreevy has also faced repeated calls to use the extra revenue on public services, particularly health and education.

In recent weeks, the economy has shown signs that it is growing very strongly with exports surging and employment prospects picking up.

Mr Kelleher, has revised upwards his forecasted economic growth figures to 4%.

He is also looking for a record year for the housing industry with 80,000 new homes built this year.