The Department of Finance has indicated that at least £1 billion (€1.27 billion) in tax cuts over the next three years is on offer in the new partnership talks, as well as Government current spending increases of 20 per cent.

Presenting the Department of Finance's position to the social partners earlier this week, second secretary Mr Michael Tutty also set out a new set of forecasts for the economy pointing to higher than expected growth and more rapid inflation.

According to Mr Tutty, whose speech was published by the Department yesterday, the tax and spending figures put forward are a "technical assumption" and there is scope to exceed them. The presentation was given to the social partners so that they could understand to what extent tax packages would affect the Exchequer finances.

These technical assumptions assume personal tax cuts of £350 million a year which would lead to a broadly unchanged tax burden as a percentage of GNP.

However, the Tanaiste Ms Harney has already indicated that the total package in the 2000 Budget is likely to amount to at least £700 million. The Minister for Finance, Mr McCreevy, has indicated that the top and standard rates of tax will be cut. A widening of the standard rate tax band and increasing allowances to take people out of the top rate and out of the tax net altogether are also likely.

Mr Tutty's presentation indicates that the Government is prepared to commit to substantial further tax reductions in subsequent years.

According to Mr Tutty the budgetary performance of 1999 has exceeded expectations. The Department is now forecasting that tax revenues will finish the year 13.7 per cent higher than in 1998 with a general Government surplus of 3 per cent, excluding the pre-funding of pensions.

The Department is also projecting a surplus of 2 per cent in 2000 and - importantly in terms of planning tax reductions in future years - a surplus increasing to 3.5 per cent by 2002. This is substantially higher than its previous surplus forecasts of 1.4 per cent in 2000 and 1.6 per cent in 2001.

The Department also assumes a 9 per cent increase in current spending next year. This would allow for the figures in the Estimates, which have already been announced, as well as a Budget day spending package of £250 million, concentrated on welfare increases. This would be followed by annual current spending increases of 5.5 per cent in 2001 and 2002.

"Delivering tax reform and addressing social priorities are key objectives," according to Mr Tutty.

The Department has revised upwards its growth forecasts. It is now predicting that growth in GNP will reach 6 per cent in 2000 and will be 5.3 per cent on average over the next three years. Its previous forecast was for growth of 5.7 per cent in 2000 and 5.2 per cent in 2001.

The rate of inflation is forecast to rise from an average of 1.8 per cent this year to average 2.25 per cent in the 2000-2002 period. The previous forecast was 2 per cent in 2000 and 2001.