By Andrew Bushe
DUBLIN — A package of tax cuts and social welfare increases costing about £600 million are included in the second budget from Finance Minister Charlie McCreevy, who has enough cash in state coffers to please everyone.
The unprecedented buoyancy of the Exchequer figures as a result of the booming Celtic Tiger economy has resulted in an unprecedented £1.37 billion surplus predicted for next year, so the minister will still have more than £1 billion left over to lower borrowings.
Income tax cuts are aimed at middle and low income earners by increasing personal allowances, widening rate bands and lowering the standard rate of tax.
The combination of changes will take very low earners out of the tax net. They will cut tax for everyone but give back proportionately more to the lower paid.
The standard 24 percent rate is expected to be cut by 1 or 2 percent, though the 46 percent rate may remain unchanged.
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The government is committed to cutting the standard rate to 20 percent and the higher rate to 42 percent over five years.
McCreevy’s first budget was criticized for favoring the rich and this year there is a strong emphasis on "social inclusion."
With increased pressure on wages threatening to fuel inflation, the measures aim to reassure unions and boost efforts to secure another national wage agreement with the social partners.
In the run up to EMU membership in January, the government has also been warned about the danger of over-heating the economy and stoking up inflation in a situation where it will no longer have control of interest rate levels.
The OECD said tax cuts should be limited to "what is required to retain the consensus-based approach to wage formation."
Prudence is the key-word and high expectations about a massive giveaway led to cautions from Taoiseach Bertie Ahern.
"There seems to be a national consensus that there are some people on the margins of Irish economic life that deserve something and hopefully those people will be better off," he said.
Some of the other main points of the budget are:
€ a corporate tax reduction of about 4 percent. The government is committed to cutting corporation tax to 12.5 percent by 2003 from the present 30 percent.
€ an increase of about £7 in old-age pensions and extra tax breaks for the elderly. This will bring the pension to £90; £10 shot of the £100 a week government commitment.
€ social welfare increases above the rate of inflation.
€ an increase in the carers’ allowance and a relaxation of qualification restrictions.
€ measures to encourage share ownership by employees.
€ low-income farm families will helped by bringing more of them into the Smallholder’s Assistance scheme to supplement their income.
€ increased taxes on petrol and diesel, more funding for public transport and a possible tax on parking spaces.
€ mix of changes in capital gains tax, the first time buyers’ grant, mortgage relief and incentive schemes will be used to try and dampen the property boom and ease the shortage of accommodation for rent.
There is also pressure on the government to ease health care queues and help fund child creches to encourage mothers to go back to work as the labor shortage is causing severe problems for business and industry as unemployment falls.