An air of quiet confidence permeates the Department of Finance. The halfway point in the year has been reached and the Exchequer finances are in better than expected shape. In addition, the risks are, on balance, firmly on the upside.
Tax revenues are some €320 million ahead of forecast and the normally cautious department is talking already of a €500 million overshoot in the full year. And this is not taking into account the very real prospect that the money brought in by the Revenue Commissioners' investigations into single premium insurance policies will exceed the €200 million built into the budgetary arithmetic.
The only worry is the bill for refunding nursing home residents who had their pensions docked unlawfully by the State. Estimates for the amount involved this year range from €300 million to €500 million and the department was not prepared to shed any light on the matter yesterday. Even assuming the larger figure, the Government will be facing into a benign scenario when it returns to work in the autumn and gets down to the business of framing next year's spending Estimates and subsequent Budget - the penultimate one of the current administration, assuming it runs its full term into 2007.
The temptation will be to repeat the strategy that led to re-election in 2002, which centred on significant increases in Government spending in the two preceding elections. Entreaties to this effect from his colleagues and elsewhere must be firmly resisted by Minster for Finance Brian Cowen.
Were it not for the financial surpluses built up during the 1990s, the economy would not have been able to sustain such huge increases in spending in the face of the global economic slowdown that followed the events of September 11th, 2001.
This time there is no such buffer. The economy may be performing strongly, but it is a long way from producing the sort of surpluses that sustained it through the last downturn. Notwithstanding the tax buoyancy evidenced at the midway stage, the Exchequer is already in deficit to the tune of €594 million and could be up to €3 billion in the red come the end of the year.
With this in mind, it is important to note that there is plenty in the Exchequer returns that questions the robustness of the current growth trends. Income tax receipts are still not in line with reported growth in job numbers and the tax surplus is almost entirely explained by consumer-led demand, in particular for cars and, surprisingly, tobacco, which accounted for €80 million and €40 million respectively of the surplus.
The extent to which the economy is being driven by domestic demand for items such as housing and cars, much of it fuelled by debt, has already led to warnings from commentators such as the Central Bank and the ESRI. The Minster for Finance must hold the line on expenditure in the autumn and avoid any attempt to present the electorate with a repeat of the 2002 election.