UPDATE 1-Ireland boosts war chest in budget but remains cautious over Brexit

Ireland's finance minister boosted the country's war chest by raising extra revenue for the second budget in a row, amid warnings from the state's fiscal watchdog that the booming economy does not need such additional stimulus.

Having already pre-committed 2.6 billion euros on the increased public sector and planned infrastructure spending for next year, Paschal Donohoe, in the annual budget speech, almost doubled the remaining pot to 1.5 billion euros to dish out on further tax cuts and spending increases.

With an election potentially looming and the fast-growing economy exacerbating deficits in areas such as housing, a scrapping of a reduced VAT rate for the hospitality sector primarily funded the extra spending.

That allowed the government to keep giving workers a small annual tax break it has promised to continue in future budgets, reverse welfare cuts imposed during a series of savage austerity budgets a decade ago and boost infrastructure spending.

"The shared progress we have made is real. However, the risks and challenges that we now face are equally real," Donohoe told parliament in a speech that also struck a tone of caution around neighbouring Britain.

"Brexit, the outcome of which is still unclear, edges closer each day. Increasing trade barriers are raising the spectre of protectionism and the international tax landscape is changing rapidly."

Donohoe said the government's "central case" is that a Brexit deal will be reached in the coming weeks between Britain and the European Union, but that the possibility of a no deal outcome had influenced the financial decisions made.

A further round of "Brexit-proofing" measures that have had mixed results to date were announced including a 300 million euro loan scheme for small and medium-sized businesses and the agriculture and food sectors to invest in future growth.

Donohoe said the best preparation for Brexit was responsible budgeting and he intends to balance the state's books for the first time in more than a decade next year, an improvement on the tiny deficit originally planned but still not the surplus the central bank says should already be running.

The state's independent fiscal watchdog, set up in response to the years of reckless spending that left the Irish exchequer massively exposed when the 2008 financial crisis hit, voiced concerns ahead of the budget over what its chairman has called the "not very good budgetary practice" of recent years.

It is particularly worried by successive years of spending coming in over budget, with this year's 700 million euro or 4.5 per cent estimated overrun in the health service equivalent to almost the entire budget day spending package laid out a year ago. 

(With inputs from agencies.)