Goodbody maintains Government finances are moving into surplus

The Government finances are moving back into surplus and this can be maintained up to 2007 if current spending is kept in check, according to Goodbody stockbrokers.

Its latest economic outlook predicts that Gross National Product will grow by 5 per cent both this year and in 2005, giving a strong boost to the exchequer finances.

The outlook for the public finances has been "transformed" over the past nine months, the brokers say, with growth picking up, spending remaining in check and a once-off boost to the exchequer from the Revenue offshore disclosure scheme.

Goodbodys now predict that the general government balance - the measure used by the EU - will be back in surplus to the tune of €335 million this year, following a small deficit last year. Meanwhile exchequer borrowing, the wider measure that also includes the State's contribution to the national pension fund, will run a small deficit of somewhere over €800 million, some €2 billion less than the Budget day forecast.

"Looking further ahead, a continuation of reasonably generous current spending increases of the order of 6 per cent per annum will contribute to the delivery of a general government surplus in each year out to 2007," the review says. The Goodbody review is the second bullish forecast to appear in as many days from financial market economists, with Dr Dan McLaughlin of Bank of Ireland on Thursday predicting that GNP would grow by 5.5 per cent this year, with Gross Domestic Product rising by 6 per cent.

The Goodbody report says that re-appearance of surpluses will inevitably lead to pressure on the Minister for Finance, Mr McCreevy, to accelerate spending growth. However Goodbody economist Mr Colin Hunt says that with the exception of capital spending, where increases are justifiable, " these calls should be resisted."

Current spending increases at the current target level of 6 per cent are "hardly parsimonious", he says and looks "positively generous" when compared to elsewhere in the EU. There was also an "outrageous spending orgy" between 2000 and 2002 and the focus on day-to-day spending now must be on value for money, rather than additional resources.

"Any additional spare resources must be devoted to renewed tax reform with the indexation of income taxation allowances and bands a base minimum requirement for Budget 2005."

Looking at the pay talks now underway, covering the second 18 months of the national agreement, Mr Hunt says that given the competitive position of business, "it is vital that wage increases settle around the 3.5 per cent level".

The performance of the economy has been "truly remarkable", Mr Hunt says, with a short "soft-landing" followed by a return to above trend growth this year This strong growth should be maintained, he believes, forecasting GNP growth will remain close to 5 per cent in 2005, with the unemployment rate falling from an average of 4.4 per cent this year to 4.2 per cent next year.