Corporation tax reductions in the 1999 Budget are likely to cost the exchequer £100 million, following the agreement with the EU Commission.

The agreement, which will mean an average fall of 4 percentage points in corporation tax over the next five years, was announced yesterday by the Minister for Finance Mr McCreevy.

The Department of Finance is reluctant to put a final price tag on the agreement, but this year's 4 per cent reduction cost around £100 million and a similar bill is likely next year. However, as the rate comes down the department would expect more taxes to be paid, diluting the full impact. Nevertheless, the cost to the Exchequer will be substantial.

The Minister is now looking at other business tax reliefs and many are likely to be either abolished or severely curtailed. More moves along the lines of those announced in the last Budget are likely such as the abolition of tax credit on dividends, the removal of capital allowances and business expansion schemes are all possible.

The EU Commission insisted that all business must be taxed at the same rate and to avoid an exodus of multi-national companies the Government chose to cut taxes for all companies.

It is now looking for ways to recoup some of the lost revenue - but a simple tax on any one sector would be picked up by Brussels and not allowed.

One option which may be considered is the reintroduction of the stamp duty levy on banks, which was abolished a few years ago. Another possibility would be to levy large charges on the banks to introduce a new Financial Services Regulator. The IFSC banks would not necessarily have to be involved in this, as they do not sell products to the Irish public. However the Commission could still be worried that exports were being subsidised.

A spokesman for Bank of Ireland said the banks made their views known to the department when the possibility of reducing corporation tax was first muted and insisted that the banks should be treated like every other business. But the banks now believe that the issue will be governed in Brussels and that a uniform rate means the Government will not be able to levy any additional levies on them.

A spokesman for the IDA welcomed the deal as "great news" which has been awaited for a long time.

But there are still a number of other questions to be answered, such as what happens when the quota is full. And indeed which companies will be allowed into the quota and which will be kept out. But overall the IDA believes the deal will maintain the momentum on inward investment.