Budget 2015: Budget to draw battle lines for next general election

The battle lines for the next general election will be drawn in today’s budget, which will provide for a modest boost to after-tax incomes for the first time in seven years.

Fine Gael and Labour are hoping the budget will boost economic growth and convince the electorate that Government policies are beginning to yield dividends.

The Opposition parties have already attacked the expected measures as far too little and have focused on the water charges as the Achilles’ heel of the Coalition.

Among the key items expected in the budget to be announced by Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin this afternoon are: n A cut of 1 per cent in the top rate of income tax to bring it to 40 per cent. n Raising the threshold at which the universal social charge (USC) is paid by low and middle income earners. n A widening of the tax bands so the threshold at which people enter the high marginal rate will rise from €32,800 to €33,000. n The reduction or elimination of the levy on private sector pensions. n Tax relief for those paying water charges. n A major investment scheme to promote social housing and boost construction.

Sources in both Coalition parties emphasised yesterday that the thrust of the budget would be to make work pay and continue the trend towards the creation of more jobs, a feature of the economy over the past year.

An increase in excise duty on alcohol in regarded as unlikely although cigarettes are likely to be hit again.

As part of a 10-point plan to overhaul the corporate tax regime, the contentious “double Irish” mechanism will be closed to new entrants from January. However, existing schemes will remain in place until the end of 2020.

There will also be tax measures targeted to improve farmers’ disposable income.

It is understood that a new relief package for water charges will comprise both a water tax income credit and a widening of the eligibility for welfare payments to offset the cost of water charges.

Welfare payments

A €100 payment to 415,000 people on the household benefits package will also be given to other categories in receipt of welfare payments.

No increases are expected in prescription charges, the eligibility limits for medical cards or charges to emergency department charges.

The total fiscal easing in the budget will amount to some €1 billion, comprising about €500 million in tax cuts and another €500 million in spending increases. This marks a departure from the plan agreed with the troika to retrench by a further €2.1 billion, which was scrapped once it became clear that the acceleration in economic growth and rising tax revenues would bring the budget deficit on target without further cuts.

Although the European Commission urged the Coalition to proceed with a €2.1 billion retrenchment, the Government is confident that Brussels will endorse the budget. Crucial here is the fact that the plan will be cast to deliver a budget deficit of 2.7 per cent of GDP, well below the 2.9 per cent required to meet European targets.

Contrary to expectation, sources said a three-year tax plan to be unveiled by Mr Noonan today in tandem with the budget will not lay out specific rate or band cuts for the years ahead. Instead, it is understood that the plan will detail a list of priorities for reforming the income tax system including major changes to the USC.