Revised forecasts contained in the new Government’s first major statement on the economy next week will show additional room for manoeuvre in October’s budget.

Before the general election, the Department of Finance estimated the Government would have some €900 million on budget day to use on higher spending or cutting tax. The summer economic statement, due out on Tuesday, is expected to show some increase in this figure, though sources say it will not be significantly higher than the department’s estimate, and is still likely to be below €1 billion.

Minister for Finance Michael Noonan gave an indication of the improving picture when he said in Luxembourg this year's deficit was now likely to come in below 1 per cent of GDP, compared to the 1.1 per cent forecast two months ago.

This indicates that the scope in the budget will be above recent forecasts but still well below last October’s package for 2016, which involved €1.5 billion in new measures. The tax forecasts for the year have been updated since the stability programme update was submitted to Brussels in April, based on the continuation of strong trends since then. However, with more spending now being promised on health and in the Department of Justice, the extra scope in the budget for new measures for 2017 will be limited.

Mr Noonan said on Friday Ireland had now formally left the excessive deficit procedure. The State now has more flexibility under rules operating under the preventive arm of the EU stability and growth pact.