The Nevin Economic Research Institute has said the Government should make a Budget adjustment of €800m.

It said the current strong rate of economic growth is not long enough established to risk introducing tax cuts or current spending rises.

NERI said the Government should take advantage of low interest rates to increase capital spending.

The economic think-tank is taking a half-way position between the Fiscal Council’s call for a €2bn adjustment and the Government’s view that a neutral Budget is possible.

It said an adjustment of €800m balances fiscal prudence with the need to avoid doing harm to an emerging economic recovery.

Much of that adjustment would come from already legislated changes, such as water charges.

It argues against tax cuts in its latest economic quarterly, claiming that Ireland's low revenue base leaves little room for reductions in the overall level of taxation.

NERI said the Government should take advantage of record low interest rates to borrow to fund a bigger public capital programme, concentrating on building social housing, education facilities and broadband infrastructure.

It said the capital budget, which has been heavily cut in recent years, could be doubled, whilst still complying with debt reduction requirements.

Employers' group Ibec has also sought a very large increase in capital spending by Government.