Payback time for Harney as McCreevy announces tax cuts

A number of Ms Mary Harney's birthdays came together yesterday as she sat smiling beside Mr Charlie McCreevy and welcomed his…

A number of Ms Mary Harney's birthdays came together yesterday as she sat smiling beside Mr Charlie McCreevy and welcomed his first Budget. It was as much as she could have hoped for: the deal she struck with Fianna Fail in the run-up to the general election was being delivered in style. Cuts of 2 per cent in both the top and standard rates of income tax were the jewels in the Budget day crown. But there were also substantial cuts for business, in terms of corporation and capital gains taxes. And the £5 a week increase for old age pensioners was from their stable.

The Budget offered the Progressive Democrats a desperately-needed lifeline. It was the kind of gesture Mr Declan McDonald, the party chairman, wanted when he said they were "the only party committed to tax reform as a matter of principle". And it underpinned Ms Harney's assertion that she and her party made a difference in Government. By contrast, the pre-election promises of Fianna Fail took a back seat. Mr McCreevy mentioned the 20 per cent introductory tax rate for young workers, only to dismiss it by saying "the better course is to cut the standard rate of tax until 20 per cent is achieved". The promise of a childcare tax allowance suffered a similar fate.

And Fianna Fail's talk about pumping money into disadvantaged urban areas and encouraging the unemployed to take up work by eliminating the "tax wedge" turned out to be largely aspirational.

Mr Bertie Ahern's fingerprints were absent from the document until Mr McCreevy got around to announcing a £20 million development grant for Croke Park, located in the heart of the Taoiseach's own constituency. The money was to come from the National Lottery - that slush fund that caused the Progressive Democrats such heart-searching in the past.

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But that was only an errant detail on a day of wine and roses. A day on which the Irish Independent's front page editorial favouring the incoming Government was unblushingly quoted by the Progressive Democrats: "It's payback time".

It was certainly a Budget for the better off, giving most to those at the top end of the income scale and offering even more goodies for the future. The £5 a week for old age pensioners was a brilliant - and well judged - political stroke, designed to deflect criticism from the Budget on the grounds of social inequity. And the flat rate increase of £3 a week for social welfare recipients kept their living standards above the expected level of inflation.

With two by-elections due in March, the Coalition Government should be smiling. There is no question of "eaten bread being soon forgotten" about this package. For while tax increases on petrol and cigarettes take effect immediately, the benefits take time.

The payment of entitlements also reflected the political muscle involved. Capital and corporation taxes would be cut from January 1st; income taxes would be reduced from April 6th; social welfare payments would be increased from next June and child benefits would be paid in September.

It was, as Mr Michael Noonan said, a recipe for a divided nation with an increasing under-class. The Fine Gael man saw "the hand of the Progressive Democrats in the tax cuts which were unfair and unjust. Those who had most, got most".

Mr McCreevy was "a rich man's Minister for Finance" who had spent two thirds of the available money in cutting the tax rates, while doing very little about the allowances and the tax bands. No attempt had been made to eliminate poverty traps and the levies, which amounted to 2.5 per cent on most earnings, had remained untouched.

The same hymn sheet was produced by Mr Ruairi Quinn and Mr Proinsias De Rossa and they branded the Budget as regressive and inequitable.

It was, the Labour Party leader declared, payback time for the rich. Those on low pay had got least. The contrast, Mr Quinn said, was between the £10 million granted to the disabled and the £20 million given to Croke Park.

For Democratic Left, the defining decision was the £7 million given to the Department of Health to provide residential care, when £65 million was needed.

And Mr De Rossa claimed the very well off would "get 10 times more than the badly paid".

Mr Derek McDowell saw it in political, horse-trading, terms. It was, the new Labour party spokesman on finance said, a Budget born out of political expediency. "It is intended to keep Fianna Fail in power through keeping the Progressive Democrats alive."

It was a reckless and irresponsible package because it "pointed to a Government prepared to put at risk social partnership", Mr McDowell said. And it "put paid to the lie of caring for the socially excluded".

During it all, Mr McCreevy spoke about meeting a 4 per cent current spending target and of how "totally unacceptable" public service pay increases had become. It was a weak-kneed comment by a Minister under pressure. Especially when he was about to devolve negotiating responsibility for the 2 per cent special bargaining increases to individual departments.

And that was before yesterday's goodies, doled out so bountifully to the richest section of society, had even begun to work their destabilising magic.