A range of measures to raise additional tax revenue will be announced in today's Budget to pay for increases in social welfare payments and public sector pay.While most people will face higher taxes in some form next year, the Minister for Finance, Mr McCreevy, will avoid any significant rise in income tax payments. Cliff Taylor and Mark Brennock report.
Encouraged by figures published yesterday showing a surge in tax revenue in November, Mr McCreevy will also signal his determination to keep down borrowing. He will hold as closely as possible to the target submitted to the EU earlier this year of keeping the general government balance - the EU borrowing measure - to 0.5 per cent of Gross Domestic Product next year.
The Government is also expected to deliver on promised increases to old age pensions. The basic contributory rate is set to rise to around €160 from its current level of €147.29. This would be in line with the commitment in the Programme for Government to increase the basic State pension to at least €200 by 2007. Non-contributory pensions will rise to over €145 from €134 now.
A welfare package, costing up to €700 million, and increases in public sector pay are the two main additional costs faced by the Minister. On pay, he is expected to signal that the Government will pay the first phase of pay increases recommended in the benchmarking report for public servants, at a cost of some €550 million. This is an attempt to pave the way for talks on a new national agreement.
The Minister will also indicate extra funding for road investment, possibly allowing up to five major projects to commence next year. The new National Development Finance Agency will be asked to secure the funding.
To help hold down borrowing, Mr McCreevy may again take money from the social insurance fund, as he did last year.
He is also expected to look to a wide range of revenue-raising measures in an attempt to avoid inflicting a major loss on any one group.
Excise duties will increase on alcohol, tobacco and petrol, though the need to hold down inflation will limit the rises.
There is speculation that the Minister may seek to get agreement from the social partners to disregard the inflationary impact of tobacco and alcohol excises when negotiating wage increases. However, there has been no prior agreement by trade unions to this approach.
On income tax, there will be no increases in the 20 and 42 per cent rates. However, tax credits and the standard rate band will not be fully adjusted for inflation, meaning somewhat higher bills for most taxpayers as the tax system takes a larger bite from rising wages.
Higher earners will suffer from a rise in the employees' PRSI ceiling, although it is understood that the option of abolishing the ceiling has been rejected.
Other changes to the system - such as exposing benefit in kind payments to PRSI - have also been examined. There was also speculation last night that Mr McCreevy will introduce benefit-in-kind tax on free car-parking facilities for civil servants.
Mr McCreevy will also move to close down or restrict a range of tax loopholes and allowances. This will be partly designed to claw back money from the corporate sector.
Some better-off taxpayers will also be hit by the closing of allowances, or their restriction to the standard rate of income tax.
Capital gains tax payment arrangements may be changed to give the Exchequer a cash boost next year.
Following months of poor tax returns, Exchequer figures for November, published yesterday, provide some reassurance. A surge in tax revenues in November led to an Exchequer surplus of €1.1 billion at the end of the month.
Mr McCreevy will brief Cabinet colleagues at a special meeting at 8 a.m. today on the Budget. However, there is no briefing for Government backbenchers, some of whom may publicly voice concern over unpopular measures.
The Government will also this afternoon publish the report of the so-called "three wise men" who examined the preliminary spending estimates this year and suggested various cuts.
It may be all right on Budget night: Business & Finance: pages 18 and 19
The Irish Times website, www.ireland.com will provide coverage and analysis of Budget 2003 throughout the day, including live updates and reaction to Mr McCreevy's speech.