The Government finances are running ahead of expectation and the end-year position is likely to be far better than predicted, according to the latest figures.

The Department of Finance is currently predicting an end of year deficit of around €3 billion, but Exchequer figures released yesterday indicate it could be as low as €2.2 billion.

Tax receipts of €6.1 billion in the first two months of the year are running well ahead of last year and the Department’s interim targets. Spending by Government departments was €5.1 billion, and while this was also ahead of last year, it was behind target.

The only factor likely to undermine a better than expected outcome for the year is the bill for reimbursing the residents of nursing homes who had their pensions docked.

The Government is obliged to refund this money following a recent Supreme Court ruling and the cost could be up to €700 million. "Its not clear if this will be paid out this year or next year," said Oliver Mangan, economist with AIB.

The figures "confirmed the story that we are getting from all sources that the economy has picked up", said Dr Dan McLaughlin, chief economist at Bank of Ireland.

Strong new car sales and consumer spending drove up VAT and excise receipts, which were strongly ahead of last year, he said.

Dr McLaughlin, who is one of the more bullish economic forecasters, said he would consider revising upward his current forecast for economic growth this year of 6 per cent of Gross Domestic Product, which is the value of the goods and services produced by the economy.

One figure which did not tally with a generally positive economic picture was income tax receipts, according to Austin Hughes, economist with Irish Intercontinental Bank. He said the figure of €1.76 billion for the

first two months was behind target, which was surprising given the level of employment growth.

This was underscored by the release yesterday of the latest quarterly household survey which showed that employment rose by 3 per cent last year.