INTEREST rates may fall by as much as 1 per cent by the end of the year, and the State's taxpayers could enjoy substantial tax cuts in January's budget.
Official figures published yesterday show that, for the first time in 30 years, the Government's revenue from taxes was more than its spending. And Government borrowing for the full year is likely to be £400 million lower than forecast in last January's Budget.
This means the Minister for Finance could have up to £300 million available for a tax cutting bonanza before the next election.
Last night the Irish Congress of Trade Unions said it will be demanding significant tax reductions for PAYE workers in the next Budget.
Mr Quinn welcomed the figures but cautioned against "unrealistic" expectation for 1997's Budget. "I am conscious of how easily the progress we have made could be dissipated under less favourable economic conditions," he said. "Discipline is absolutely necessary."
But the Dublin stockbroker NCB yesterday predicted that interest rates would fall. This is because the Central Bank has to choose between a higher exchange rate for the pound against sterling and the deutschmark or lower interest rates.
If interest rates fall by 1 per cent, as NCB suggests, then mortgage rates which average 7 per cent would fall to a near 30 year low of 6 per cent.
This would result in a £36 saving on a £60,000 20 year mortgage, reducing the monthly repayment to £436, while a £50,000 mortgage would fall by £30 to £363 in the monthly repayment.
The Bank has recently held down the pound's value and soon will have no choice but to allow market interest rates to fall, according to NCB.
Interest rates will also have to fall because the gap between Irish and German rates is large. German market rates are around 3 per cent compared with more than 5 per cent in Ireland. This gap has to close in the run up to monetary union, NCB says.
Exchequer returns published yesterday show a healthy economy. Tax receipts are up more than 10 per cent on last year, indicating a jobs increase. The Government predicts that up to 45,000 jobs will be created this year.
Nevertheless, the live register is growing. The Government expects the unemployed figures to reach 284,000. But officials stressed they would be examining the Labour Force Survey when it came out on Friday. "The live register is not a reflection of unemployment an official said.
VAT receipts are also very strong, with consumer spending now up 6 per cent, compared to a forecast of 4.5 per cent in the previous last Budget. Retail sales in the shops are also much stronger than expected, officials said.
The strength of Exchequer borrowing figures boosted demand for Government bonds which had previously been bid up on unprecedented demand from overseas investors.
Dealers in Dublin reported "frenzied" demand for stock. This will increase the pressure for lower interest rates as foreign money floods the Irish bond market.