By Padraic Halpin
DUBLIN (Reuters) - Ireland's unemployment rate fell to its lowest level since 2008 and the state collected 7 percent more tax than a year ago in January in a boost for Prime Minister Enda Kenny as he prepares to set an election date on Wednesday.
Kenny, who took to Twitter to highlight the positive jobless figures within minutes of their release, said he would dissolve parliament on Wednesday. He is expected to call the election for Feb. 26, a government source told Reuters.
"I have told the cabinet that I will proceed to Aras an Uachtarain (the president's residence) tomorrow to ask for a dissolution of the Dail (parliament) and announce polling day," Fine Gael's Kenny told his local radio station, Mayo-based Midwest Radio, on Tuesday.
Despite boasting Europe's fastest-growing economy and a big lead in opinion polls, Fine Gael will need junior partner Labour to return to power and the parties are a few percentage points short of achieving a majority in all polls, raising the prospect of an inconclusive outcome.
The coalition parties hope the economic upturn will deliver the added support they need and it has formed an increasingly favorable backdrop so far this year, from a 34 percent surge in new car sales to a six-month high in manufacturing activity.
"The continued fall in the numbers out of work combined with the strong pick-up in the economy generally should boost the chances of the Fine Gael/Labour coalition returning to power," Merrion Stockbrokers chief economist Alan McQuaid said.
While high levels of emigration has been a factor in keeping unemployment down, McQuaid said the fall to 8.6 percent last month from 8.8 percent in December and a 2012 high of 15.1 percent showed the labor market had "improved dramatically".
The fall was also the sharpest monthly decline in six months and moved Ireland further ahead of the euro zone average of 10.4 percent, underscoring its relative performance since exiting a three-year international bailout in 2013.
The coalition's opponents are campaigning on what they see as an unequal recovery and the data showed youth unemployment is closer to 20 percent while the most recent detailed figures put the overall rate as high as 12.4 percent in some rural regions.
However, the 300 million euros in additional revenue collected in January offered further evidence of a broadening economic recovery as growing employment and wages drove a sharp rise in income and sales tax receipts.
"At this early stage at least, tax revenues are in line with the government's full-year forecast of a 5.8 percent gain," Davy Stockbrokers economist David McNamara said.
(Editing by Alison Williams)