The Republic's tax payers could share an €850 million windfall in Budget 2005, a leading economist is predicting today.

In a weekly market comment published this morning, Mr Robbie Kelleher, chief economist with Bank of Ireland subsidiary Davy Stockbrokers, says that the latest Exchequer numbers were almost €1.8 billion ahead of targets set in last year's budget.

Mr Kelleher says that the Minister for Finance, Mr Cowen, will have more than €1.5 billion to fund the measures in his first budget, which he says will give him scope to give income tax cuts worth €850 million. "Increases in social welfare will cost €300 million to €400 million and the bulk of the remainder will probably be allocated to increasing tax bands and credits," he says.

"The basic bands and credits have been unchanged in each of the last two budgets and every one percentage point increase in these basic bands and credits costs about €85 million in a full year. They may, therefore, be increased by around 10 per cent at a cost of €850 million."

Mr Kelleher says that the figures suggest that there will be no need to increase duties levied on alcohol, tobacco and motor fuels.

"The Minister hinted last week that he was unlikely to do much on this front when he stated that he did not wish to add to the inflationary pressures in the economy," Mr Kelleher adds.

His calculations are based on the fact that this year's Exchequer borrowing requirement (EBR) will be a little over €500 million, well below the target set by former finance minister, Mr Charlie McCreevy, of €2.8 billion.