NEXT Wednesday, one of Mr Charlie McCreevy's first public duties as new Minister for Finance will be the pleasant one of unveiling a healthy half year budget surplus. At the release of the interim Exchequer returns, the Minister will be able to announce a massive current budget surplus, potentially over £600 million, compared to £455 million deficit in the first six months of last year.

The former minister, Mr Ruairi Quinn, has forecast a deficit this year of about 0.7 per cent, significantly lower than the 1.5 per cent forecast in January's Budget. He has also said it is possible there may not have to be any recourse to Government borrowing this year and that the current budget surplus may be enough to pay for this year's capital requirements.

So it now looks as if the zero EBR target which Mr McCreevy has said the new Government will implement should be achievable. Overall, the new Government is in an enviable position. The economy is likely to grow at more than 7 per cent this year, inflation is low at 1.6 per cent and 50,000 new jobs are set to be created this year.

However, the lesson of the last election is that the new Government will have to reward the taxpayer, rather than spending more.

In dealing with public spending, the new Government may take the approach of being virtuous but not just yet. It makes some sense for the Government to spend more freely this year and aim to tighten up for 1998. That will give it a higher base to work from, allowing it an easier task in remaining within its maximum 4 per cent increase in spending for 1998.

Whatever the precise level of spending this year, the Minister for Finance will not have an easy task in planning for 1998.

Already public sector pay is set to rise by 2.75 per cent, given the terms of Programme 2000.

Of course, Mr McCreevy can also hope that the huge inflows of tax revenue continue. It is tax buoyancy, rather than spending control, which is leading to the low level of Exchequer borrowing. Tax receipts at the end of May were up by 13.7 per cent, when the £119 million carryover of VAT receipts from 1996 is excluded. The Budget forecast was for an underlying increase in tax revenues of 5 per cent. As every 1 per cent over shoot in tax revenues adds almost £125 million to revenue, Merrion Street will be hoping for more of the same.

A faster than expected fall in the live register, which is likely to come in around 10,000 lower than the 262,000 assumed in the Budget, is also helping the public finances.

In addition, European Social Fund receipts this year are £142 million, compared to £26 million in the first half of 1996.

Even without the specific needs of a new Government, some analysts point out that, in recent years, there has been significant discretionary spending at the end of the year, as well as the transmigration of funds from one year to the next.

AIB estimates that these factors boosted the eventual EBR outturn by around £350 million in 1996.

The other issue the Government will have to examine is the possible revaluation of the pound in the ERM band. While this must still be seen as unlikely, with Fianna Fail hinting strongly during the election campaign that the cost to exporters and farmers would be too high, much will depend on the inflation performance over the next month or two.

So far this year, Irish inflation has been astonishing. The cost of living decelerated from 2 per cent to 1.3 per cent in the year to May, despite a 5 per cent fall in the pound on a trade weighted basis since December.

Most analysts continue to believe that the lower value of the pound will eventually have to feed through to inflation. However, so far there has been no sign.

The new administration will be keeping a weather eye on the currency markets, with the new Taoiseach having firsthand experience of the difficulties which financial turbulence can create.