How can Charlie McCreevy take money away from taxpayers in Wednesday's Budget without them noticing? Cliff Taylor, Economics Editor warns what to watch out for.
For the first time in his six Budgets, Charlie McCreevy is going to have to "pick a pocket or two". Taxpayers have done well under his previous five Budgets, with the burden on all earners falling sharply. The tax take for a single person on the average industrial wage has fallen from 28 per cent in 1997/98 to just over 16 per cent this year. Married couples with two earners have done particularly well under the individualisation scheme.
Now, however, McCreevy must look for a few euro back from taxpayers. He will not increase the main income tax rates of 20 and 42 per cent, which would be the most visible way of raising taxes. Instead, he will try to raise significant amounts by getting a few euro here and a few euro there in a way which he hopes the electorate will hardly notice.
When he was Minister for Social Welfare, McCreevy brought forward a much-criticised "dirty dozen" changes in welfare schemes. Here are a dozen "stealth taxes" to watch out for on Budget day. They won't ALL happen - but some will.
Fail to adjust tax credit and the standard income tax band fully for inflation
This is a particularly sneaky one. If credits are not adjusted fully for wage inflation (and remember this is normally higher than consumer price inflation), then more income is exposed to tax. If the standard rate income tax band is not adjusted, then proportionately more of the taxpayers' income is exposed at the higher rate. This looks an "odds on" favourite.
Hit single income couples
A variation on the above. The individualisation process in the last few Budgets has given much greater benefits to married couples with two earners, when compared with couples where one earns. The two earning couple pays much less tax at the higher 42 per cent rate. If the Minister continues this process in 2003, then single earning households will again lose compared with those which have dual incomes.
Adjust the employees' PRSI system in the name of "reform"
This could be painful for higher earners. At the moment employees pay PRSI at a rate of 4 per cent on all income up to €38,740. Increasing the ceiling by more than expected wage inflation would expose more income to this charge. There have even been suggestions of an abolition of the ceiling, perhaps combined with a cut in the rate. This would be very costly for higher earners. Before the last Budget, senior civil servants also examined applying the 4 per cent PRSI rate to benefit-in-kind payments. If this happens, it would cost those with company cars and other perks.
Hit the "old reliables"
Booze, cigarettes and petrol are easy targets for higher excise duties. The only downside for the Minister is that increasing excise duties would push up the rate of inflation. Excises will certainly rise, the only question is, by how much?
Increase the VAT rate
A one percentage point increase in the standard 21 per cent VAT rate would raise almost €300 million in an instant. This would push up the cost of most goods and services, with the exception of food and other basics on which VAT is not levied. A tempting target.
Restrict the SSIAs
The much speculated capping of the SSIAs would mean that nobody would receive the tax benefit for extra cash invested in the accounts.
Cut special tax allowances or reliefs
A range of special allowances - many of them attached to property - are availed of by investors. There is speculation that some of these may be abolished. The most painful for many would be if the Government went back on last year's decision to restore interest relief to investors buying property to rent out. Beyond this, the Minister may shut down - or flag their end in 2004 - schemes which give investors tax breaks for buying property in designated areas. This will make it difficult for the better off to find tax-efficient investments.
Or restrict these reliefs to the standard income tax rate
Many of the special tax reliefs can still be written off against the top 42 per cent income tax rate. An alternative to abolition would be to restrict these allowances so that they can only be claimed at the standard 20 per cent rate
Make changes to capital taxes
A small increase in the 20 per cent capital gains tax (CGT) rate - or the rate for other capital taxes - is possible.
Another possibility, a change in the payment date for capital gains tax, would hit the cash flow of those selling assets such as shares or a house bought for investment. At the moment, the CGT bill on any asset sold next year would only fall payable in October 2004.
The Minister could get a cash boost by slashing this leeway.
Promote the use of tolls and charges
All the signs are that the Minister will signal a determination to get the private sector more involved in completing the national roads programme. And this will mean more tolls on the roads that are built. Also, by cutting back on money given to the local authorities, McCreevy is guaranteeing higher charges in areas such as refuse collection.
Tax child benefit
This would be costly to higher earners with families, but would be political dynamite. A recent report from the National Economic and Social Council suggested an easier route: rather than taxing child benefit, hold it at current levels but introduce another separate means-tested allowance for children. Either way, the better-off would lose out on increases promised in recent years.
A €5 Christmas turkey levy
Ah maybe not !