Finance Minister Michael Noonan has strongly signalled that an easier Budget is possible, as better-than-expected tax returns suggested that tough EU debt targets can be met without cutting another €2bn from the economy.
The Finance Minister's break from his usual caution indicates that both government parties are actively seeking ways of winning back popularity after serious election reverses two weeks ago.
But the Government may have to set aside significant funding for the over-run in the health service, where spending is still out of control.
Continued Health Department spending is running over budget, with an excess of €144m so far. This remains a continuing source of concern and has again this week been criticised by the EU Commission.
But Exchequer returns yesterday eased some pressure as they showed tax returns €464m ahead of target for the first five months of the year.
Mr Noonan said the Government may be able to cut less than €2bn yet still keep the EU-IMF happy by bringing down the deficit to below demanded targets for 2015.
He signalled strongly that the Budget in October could cut less than the €2bn expected, given the positive tax return figures.
"We'd be well ahead of the profiles above budget at the end of the fifth month and the year-on-year figures across the tax heads are quite significantly better," Mr Noonan said.
"I don't think €2bn is the relevant figure, the relevant figure is to get the deficit below 3pc of GDP. It might be possible to get below 3pc without an adjustment of €2bn."
But Mr Noonan also sounded a note of caution.
"It is only June. We will have a better idea as we get closer."
Details of the tax and income returns brought good news across most sectors yesterday.
Both income tax and VAT were ahead of target, thanks to the improving jobs market and a pick-up in consumer spending.
The returns showed income tax totalled €6.6bn to the end of May, an increase of €476m. This was an increase of almost 8pc year on year and up €114m from what was predicted.
Some €15.6bn worth of tax was brought in between January and May – up €831m or 5.6pc on the same period last year.
VAT receipts totalled €5.21bn, up €39m or 0.7pc from the target, and 4.4pc better than the same period in 2013. Property tax receipts were €15m better than expected at €290m.
An Exchequer deficit of €3.5bn was recorded to the end of May, compared with €5.3bn over the same period last year.
The Department of Finance said the main drivers behind the improvement were increased tax revenue, lower spending and a significant reduction in bank guarantee payments associated with the liquidation of IBRC.
Consultants Grant Thornton described the figures as solid.
"Notwithstanding the cumulative effect of six years of tax increases, there is a renewed sense of consumer confidence, reflected in higher spending and resultant robust VAT returns," said tax partner Peter Vale.
The trade union SIPTU called on the Government to make it totally clear that there would be no need for any further cuts in the upcoming Budget.
SIPTU president Jack O'Connor said an EU target to slash the budget deficit to below 3pc of the value of the economy could be met without any more austerity.
"It is simply no longer tolerable that working families should have to bear any more of the adjustment," Mr O'Connor said.