The Minister for Finance has revelled in each Budget day as he unveils his latest bounty but, this year, we have a good idea of what is in store and it's not nice, writes John McManus.

What will have upset the Minister for Finance most about the Cabinet memo inadvertently released this week is the extent to which his Budget-day thunder has been stolen.

Few holders of his office have shown Mr McCreevy's appetite for the vaudevillian aspects of Budget day. With barely disguised glee, he has unveiled surprise after surprise ranging from the individualisation of tax credits to raids on the coffers of the Central Bank.

This time, when he gets on his feet in the Dáil chamber on December 4th, there will be an air of anti-climax about the proceedings. Thanks to the accidental release under the Freedom of Information Act of an Economic and Budgetary Strategy memo prepared for Cabinet in June, we already know the broad brush strokes of what he will be saying.

In fact, any surprises are likely to be unpleasant, with the economic assumptions on which the memo was predicated looking decidedly optimistic. The growth rates of 5 per cent per annum assumed for next year and the following two years are unlikely to be achieved given the failure of the European and US economies to pick up as predicted.

But - all else being equal - the Minister plans to announce some €1.9 billion in "new" spending on Budget day. Of this, only €250 million will go on tax reform and will be limited to increasing tax bands and credits in line with inflation, which is predicted to be 4.2 per cent this year and 3.2 per cent next year.

According to the memo, this means there will be no progress "on exempting the minimum wage from income tax or progressive widening of the standard rate band, nor contribute to the easing of inflation through under-indexation of excises".

The document points out that the decision to link increases in tax bands and credits to inflation "will involve a slow rise in the average tax rate borne by earners". The approach will raise the ratio of tax revenue to gross national product (GNP) each year by close to a third of 1 per cent of GNP.

The memo also indicated that an additional €450 million will go on unspecified infrastructural projects. However, it notes that the money put aside for capital spending next year and in the two subsequent years will not be enough to pay for what is planned under the National Development Plan (NDP).

"The Minister accepts, however, that - in large measure because capacity constraints led to higher-than-expected building inflation since the NDP's launch - they will not be sufficient to deliver in full the. . . physical outputs within the plan timeframe," according to the document.

The rest of the €1.9 billion "Budget-day envelope" will go on meeting "spending priorities in health, social welfare and. . . accommodating post-PPF pay increases and benchmarking costs".

It is also assumed the Government will meet its commitment to pay 1 per cent of GNP into the National Pensions Reserve Fund. This fund was set up by the Minister to meet future public sector and civil service pension liabilities.

Thanks to the memo, we also now have a fair idea of how Mr McCreevy plans to pay for all this. The Department of Finance is assuming that tax revenue next year will rise by about 9 per cent from €30 billion to €32.8 billion. This will include increasing excise duties in line with inflation, which represents a doubling of the historic rate of increase. Revenue from other sources - such as the sale of State assets and transfers from the Central Bank - will come to €714 million.

This gives the minister some €33.5 billion to play with. His problem, however, is to stretch this to cover the cost of maintaining current levels of Government services and investment - €37.7 billion - and allow for his €1.9 billion in Budget-day spending.

Mr McCreevy will bridge the yawning gap between revenue and expenditure in two ways. He plans to cut back the cost of maintaining the existing level of services and borrow to meet the difference between this lower expenditure figure and tax revenues.

The June memo sets out departmental targets that, if met, will cut the cost of maintaining existing services and investment levels by €900 million to €36.9 billion. The biggest cuts will come from the environment and education budgets, which are being trimmed back by €186 million and €148 million respectively.

The net cost of revised spending targets will actually be €35.84 billion, leaving Mr McCreevy with an Exchequer deficit of €2.315 billion, which he will have to borrow to finance. It will be the first time the Government has run a deficit since 1997 and the figure will amount to 2 per cent of GNP.

The General Government Deficit - the measure used by Brussels to quantify the prudence of the budget - will be €350 million or 0.3 per cent of gross domestic product (GDP). The General Government Deficit is the Exchequer deficit adjusted for a number of factors. It shows the fiscal position of all arms of Government - including local government and State agencies - while the Exchequer deficit is merely the fiscal position of central government.

The 0.3 per cent level is well within the limit of 3 per cent set by the European Union under the terms of the Growth and Stability Pact. This would indicate that, if the worse-than-expected performance of the economy in recent months has undermined the arithmetic involved in the memo's projections, there is scope to allow the deficit grow slightly.

Similarly, if the Minister cannot get the cuts he seeks from his colleagues in the cost of existing services, he will allow the deficit take up the slack.

As it stands, the Department characterises the budgetary stance as "slightly loose", which involves a "budgetary injection of one-quarter of 1 per cent of GDP into the economy - with sufficient fiscal tightening in the two subsequent years to bring the budgetary position into balance".

It acknowledges that the Budget will add slightly to overheating pressures but argues that it "represents a balance of the concerns to avoid adding to ongoing inflationary pressures across the economy without limiting spending too severely or resorting unduly to taxation".

It warns: "Any excess cost over €1.9 billion would have to be funded through significant increases in taxation and public-sector charges which, apart from their political difficulty, would have unavoidable adverse effects on inflation, wage developments and on the economic prospect underpinning the budgetary parameters recommended - and would involve a still higher increase in the tax/GNP ratio." ...

In reality, what is being proposed is about as close to a hairshirt budget as we have seen in a long while and will make for a rather disappointing Budget day compared with Mr McCreevy's five previous outings.

On the basis of the memo released last weekend, it is hard to see where Mr McCreevy can find some revenue rabbits to pull out of the hat on Budget day, but he might yet have a few pyrotechnics in store.