The surplus on the Government's finances is now so large that problems are likely to arise in simply spending it, Dr Dan McLaughlin, chief economist at ABN Amro has warned.

Total excess of revenue over spending this year could be a completely unprecedented £5.5 billion-£6.2 billion. According to Dr McLaughlin, the Government should consider setting up a separate fund which could invest the surplus money until opportunities arose to either repay debt or spend it on productive investment.

He added that a number of Middle East states already use such a model with a proportion of all revenues set aside for future generations so they will have cash when oil reserves run out.

Even apart from privatisation receipts, the Budget surplus will be about £1.5 billion. That assumes that spending remains on target and tax receipts rise by £1.7 billion or 10.5 per cent. On Budget day, the estimate for tax receipts was £1.2 billion but by the end of May they were actually up 15.5 per cent year on year so the forecast is based on a slowdown in revenue growth over the rest of this year. If tax receipts do not slow £2.5 billion is possible, giving rise to a surplus of £2.2 billion.

However, substantial extra money will result from the Telecom Eireann privatisation.

If the Government sells its whole 50 per cent stake at a price between £2.64 and £3.27 a share, the total gain is likely to be between £2.8 billion and £3.5 billion. The Government will receive even more money from telecom companies KPN and Telia as they take up their options to increase their holdings in Telecom Eireann. As a result, the Government could receive as much as £4 billion, giving a total surplus between £5.5 billion and £6.2 billion.

The conventional wisdom is to spend this on infrastructural improvements. But Dr McLaughlin points out the time lags in planning and construction mean that even if appropriate projects are earmarked, the drawdown of any cash will be intermittent.

Paying off the national debt is also more difficult than in previous years. The National Treasury Management Agency has just converted all its bonds into four new very liquid issues to encourage more foreign investors back into the Irish debt market. Announcing a policy of buying these back in the first year or two flies in the face of the reason for undertaking the conversion.

"A large pool of cash will be available and some thought should be given to managing it to add value," Dr McLaughlin said.