The Minister for Finance, Mr McCreevy, is expected to announce about £1 billion in tax cuts in next Wednesday's Budget. The package will be targeted at the lower-paid and at families with children.
The Minister has a pre-Budget surplus of revenue over spending of about £3.5 billion. This will allow him to spend £500 million, deliver about £1 billion in tax cuts and still end up with a record surplus at the end of the year.
One of the most expensive elements will be an increase of about £1,000 on the personal allowance, or tax credit, and an increase of about £1,000 in the PAYE allowance, pushing thousands of low-paid workers out of the tax net. All earnings up to about £140 or £150 a week are likely to be exempt from tax as a result. The Tanaiste, Ms Harney, has pressed continually for workers on the minimum wage to be taken out of the tax net.
The Minister will also announce the largest ever increase in child benefit, with a package of about £500 million. This is part of a three-year package and should mean increases of about £40 a month for third and subsequent children, with smaller increases for first and second children.
There will be no tax allowance for childcare, to the disappointment of both the unions and employers. A meeting of the Cabinet two weeks ago decided that women working in the home should not be given grounds for complaint about discriminatory treatment. However, the Minister may undertake to address this in the next Budget. That will be in September or October, as the tax year will coincide with the calendar year from January 2002.
Mr McCreevy will also continue with his policy of individualisation, increasing the standard-rate tax band by between £3,000 and £4,000, bringing it towards £21,000. This will mean that single workers will not pay tax at the higher rate on earnings below that level.
Cuts in the top and standard rate of income tax are probable. The standard rate is expected to be reduced from 22 per cent to 20. A cut in the top rate has been the subject of most disagreement between the Coalition partners, with Ms Harney understood to be seeking a 2 per cent reduction. It now appears likely that the top rate will be cut by a maximum of one percentage point, to 43 per cent.
The Minister has also indicated that targeting inflation will be at the core of the Budget. As a result, he is likely to cut 1 per cent off VAT, bringing it down towards the EU average. This will also have the short-term effect of cutting about 0.4 of a point off the consumer price index.
In addition, a savings product will be announced, which will give tax relief to long-term savers, curbing inflation by persuading them to save rather than spend. Other measures include a package aimed at encouraging profit-sharing and gains-sharing. Social welfare recipients can also expect increases, with pensioners receiving the biggest rise.
There is unlikely to be a general cut in excise duties on petrol, although an environmental package is likely. Sources say that the Irish Road Haulage Association is likely to see progress towards its demands for allowances to switch to more environmentally friendly vehicles in the package.