PD tax package more generous, but stamp duty niggles persist

If they were judged on conviction alone, yesterday's PD manifesto would top those of either Fianna Fáil or Fine Gael and Labour…

If they were judged on conviction alone, yesterday's PD manifesto would top those of either Fianna Fáil or Fine Gael and Labour.

At one point in his presentation, Michael McDowell's phraseology became almost Marxist.

As if inspired by Mao's concept of continuous revolution, the PD leader spoke of a process of "continuing radical transformation" that was not yet complete.

Mr McDowell said if the economy was not being driven by continuous tax reform, it was going to become sluggish.

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If PD assumptions about the economy materialise, there will be plenty of taxes to cut.

Fianna Fáil, Fine Gael and the Labour Party assume that the economy will grow in nominal terms, ie measuring both increases in prices as well as volumes of output, by 7 per cent on average over the lifetime of the next government.

The PDs top this by ½ a per cent a year, assuming 2½ per cent inflation and real growth of 5 per cent.

At an estimated value of €4.7 billion, the PD tax package is significantly more generous than either that of Fianna Fáil or the rainbow. On the other hand, the PD plan to ensure that before any manifesto proposals are accounted for, the level of existing government spending rises by 7.5 per cent a year, less than the 8 per cent target for the rainbow.

In its analysis of the revenue forecasts in Fianna Fáil and Fine Gael-Labour manifestos, The Irish Times this week ran stress tests assuming that nominal growth would be 6 per cent rather than 7 per cent and that taxes would respond on a one- for-one basis with the rate of nominal growth in the economy (rather than by 1.1 times that rate).

Although the PD manifesto was not provided in time for the exercise to be replicated, its growth assumption implies that, should nominal growth average 6 per cent, the PDs will end up with a slightly larger hole in their finances - perhaps €6 billion in 2012 values - compared to just over €5 billion for Fianna Fáil and Fine Gael-Labour.

In answer to accusations that they lack prudence, the PDs argue that previous tax cuts have in the past stimulated higher rates of economic growth.

To some extent, the views of smaller parties on the macroeconomic framework are less relevant than those of the "big beasts".

In the event of hammering out a programme for government, they will take second place to the economic forecasts of larger parties and established forecasting institutions like the Central Bank and ESRI.

At an estimated cost of €350 million in 2007 values, stamp duty will be reformed, "no later than the immediate resumption of the Dáil", Mr McDowell said yesterday.

A final observation might be made on the PD position on stamp duty.

Despite arguing passionately for its reform, Mr McDowell declined yesterday to say that, in the absence of a clear commitment from his Coalition partner to reform it, he would refuse to go into government. In spite of all that has been said, especially by the PDs, a niggling uncertainty persists about this tax.