The private sector is braced for significant tax increases in tomorrow's budget, research by analysts Deloitte & Touche suggests.

pSome 72 per cent of managers surveyed believe the Minister for Finance, Mr McCreevy, will raise indirect tax such as VAT and excise duty.

Around 23 per cent anticipate increases in personal income taxation through a lower-than-inflation rise in tax credits, maintaining of tax bands and curtailing of tax incentives.

Some 37 per cent believe a hike in capital gains tax is imminent, following speculation that the Government would introduce an increase in last year's budget.

However, only 9 per cent of managers think business taxes will be pushed upwards.

Rather than tamper with VAT, Mr McCreevy may be tempted to increase duty on fuel, tobacco and alcohol, predicted Mr Pat Cullen, national taxation partner with Deloitte. Such a move would impact negatively on the economy and could lead to a sharp climb in the rate of inflation, prompting renewed claims for wage rises.

"It is unlikely that we will see an increase in the standard rate of VAT, which increased from 20 per cent to 21 per cent in the last budget," he said. "The lower rate of VAT may increase, but a more likely scenario is that the Minister will increase duty on fuel, tobacco and drink. Should this happen, it will have a knock on effect for all businesses, with increases in fuel duties impacting on input costs and inflation in particular."

It is vital for the long-term health of the economy that the Minister holds firm on his commitment to lower the rate of corporation tax to 12.5 per cent, said Mr Cullen.

Failure to do so may damage the State's reputation among multinational corporations.