The State’s finances are continuing to improve with the latest official figures showing tax revenue running nearly €450 million ahead of projections for the first five months of the year, while spending is lower than forecast.

The better-than-expected out-turn for tax, if maintained, gives Minister for Finance Michael Noonan potentially more leeway to ease up on austerity in the upcoming budget.

He suggested earlier today that the planned €2 billion adjustment required to achieve the troika-agreed deficit target of 3 per cent in 2015 may not be necessary.

“I don’t think €2 billion is the relevant figure. The relevant figure is to get the deficit below three per cent of GDP,” he said.

“With the tax numbers out this afternoon, and a couple of other things on the horizon, it might be possible to deliver a deficit of below three per cent without an adjustment of €2 billion.

“But it’s only early June so there’s a lot of things will move in the next three or four months. We’ll have a better idea as we come closer.”

His comments are at odds with recent warnings from Brussels that a €2 billion retrenchment was still required.

The exchequer returns - for the five months to the end of May - show tax revenue of €15.6 billion, which is 5.6 per cent up on last year, and €446 million or 2.9 per cent higher than the department’s own forecast.

Income tax, which is the biggest tax heading, generated €6.6 billion, which is 7.8 per cent up on last year, and €114 million or 1.8 per cent ahead of profile for the period.

Department of Finance said higher income tax receipts reflected improving conditions in the labour market.

The figures show the Revenue’s VAT intake, which has been behind projections up to now on the back of weak consumer spending, came in marginally ahead of expectations.

The sales tax generated €5.2 billion for Government coffers, which was 4.4 per cent up on last year, and €39 million or 0.7 per cent better than forecast.

Corporation tax receipts came in at €981 million, 13 per cent ahead of profile.

Excise duty was €1.9 billion, which was 5.5 per cent up on the year and €91 million or 4.9 per cent ahead of projections.

The better-than-expected excise receipts were linked to strong car sales in the early part of the year.

Overall, the exchequer deficit stood at €3.5 billion at the end of May, down from €5.3 billion at this stage last year.

According to the department, the main drivers behind this improvement are increased tax revenue, lower expenditure and a significant reduction in bank guarantee payments associated with the liquidation of IBRC, formerly Anglo.

On the spending side, the May figures show total net voted expenditure of €17.1 billion, which is €484 million, or 2.7 per cent, down on the same period last year, and €156 million less than forecast.

Most worryingly, the main overrun is once again in health with spending €144 million or 2.8 per cent ahead of profile.

This is offset, however, by underspends in several other departments, most notably social protection, where spending was €138 million or 2.7 per cent lower than expected.

On the basis of these figures, the Government is on course to hit its budget deficit target for 2014 of 5.1 per cent of gross domestic product.

The cost of serving the national debt to the exchequer was €4.07 billion so far this year, a decrease of €177 million or 4.2 per cent on last year.