The rest of Europe may be flirting with recession, but the Irish economy continues to motor on. The quarterly Exchequer figures, published yesterday, provide an up-to-date indicator on the health of the economy and demonstrate clearly that the boom continues.

The normal health warning must apply: too much should not be read into data from just three months. But the overall trend from the first three months shows that the pattern of recent years looks set to continue. Once again, taxes are rising well ahead of Budget forecasts and the Department of Finance estimates for the year look conservative.

Income tax receipts in the first three months were running 11 per cent ahead of the same period in 1998 and VAT receipts were up almost 16 per cent.

Overall tax revenues were up 13.3 per cent in the first quarter. While Budget tax concessions will slow this rate of increase later in the year, the official forecast of 7.5 per cent annual growth in tax receipts now looks on the low side.

The Minister for Finance, Mr McCreevy, will no doubt be glad to preside over another set of bumper figures. But with an annual Budget surplus likely to exceed £1 billion, he may also feel he has an embarrassment of riches. Mr McCreevy insisted, in a statement accompanying the figures, that spending targets for the year must be adhered to. But faced with pay demands from a number of sectors - most recently from the teaching unions - the Government faces an increasingly hard fight in holding the line on public spending.

Figures for the first quarter, with current spending on Government services running 15.8 per cent up on the same period last year compared to a full year target of 10 per cent, shows that spending is already under pressure. The Minister points out that special factors were behind some of the rise, but over the rest of the year he is now likely to face increasing demands from a number of quarters for higher spending.

This comes as the Government is gearing up to try to get the social partners to agree to another national programme to replace Programme 2000. Officials must also draw up a plan for EU-supported investment spending in the economy over the next five years.

The strong state of the Exchequer finances will mean severe pressure on the Government to agree to higher pay increases for public servants and higher spending in other areas of the economy.

It will also fuel demands for much higher Government investment in infrastructure, to compensate for lower EU funding and to lay the foundations for future growth.

The trouble is that when the economy slows, the exchequer figures - while still likely to remain strong - will start to look less rosy. Politically, though, the Government will realise that this argument will not wash with the constituencies arguing for extra cash.