The Minister for Finance, Mr McCreevy, is now expected to have to raise more than €1 billion in extra revenue on Budget day to pay for additional spending on social welfare and public-sector pay. Cliff Taylor, Economics Editor, reports
Pre-Budget figures, published by the Department of Finance today, show that before any Budget Day measures, the Government will need to borrow €642 million to bridge the gap between spending and revenue.
This pre-Budget borrowing requirement, using the EU borrowing measure, is 0.5 per cent of GDP. Mr McCreevy is expected to aim to hold borrowing at under 1 per cent of GDP on Budget Day.
He will add to this opening borrowing requirement with a social welfare package costing up to €800 million. He is expected to allocate some €500 million for the cost of public-sector pay benchmarking, following intense political discussion. Payment of the remaining increases under the benchmarking report will be contingent on talks on extra productivity .
Mr McCreevy is also expected to announce an additional several hundred million euro for road-building, raised under the direction of the new National Development Finance Agency. Most of the additional money will count towards borrowing, but the agency may be able to keep some off the State balance sheet where new projects can be funded by tolls.
A significant increase is expected in cigarette excise duty, with smaller rises for alcohol and fuels. The Government will argue that the tobacco excise rise is a health measure and that its inflationary impact should be disregarded for wage bargaining. There is some speculation of the extra money raised being used for additional health spending.
Mr McCreevy is also expected to target capital taxes. A change in the payment arrangements for capital gains tax would give the Exchequer a once-off boost of €500 million. There is speculation of a rise in the capital gains tax rate, or the rate of other capital taxes.
The corporate sector and better-off taxpayers will be targeted through closing off or restricting a range of allowances. Mr McCreevy is likely to restrict, or signal the end of, some of the reliefs targeted at property investors and stallion relief has also been examined.
Most taxpayers are likely to find themselves slightly worse off as more income will be exposed to tax, because the Minister will not fully index tax credits and the standard rate band for wage inflation. Changes in employee PRSI may also hit higher earners - the ceiling is likely to rise and income received as benefit-in-kind could be subjected to PRSI.
Today's figures show that the Department is taking a cautious view, predicting a rise of just 3.9 per cent in total taxes in 2003 compared to this year. A rise of just 1.8 per cent in expected income-tax revenues indicates a depressed jobs market. Borrowing for this year is now excpected to be lower than earlier thought, with an exchequer borrowing requirement of €139 million, compared to earlier estimates of €750 million. This is due to a late surge in corporate tax receipts, a lower-than-expected contribution to the EU and lower debt-servicing costs.
See also page 21 and
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