The Government’s spring economic statement today will set out scope for €2 billion in tax cuts in the next three years.
The plan, which is being cast as the opening salvo in a long re-election campaign by Fine Gael and Labour, assumes that more than €600 million will be available for tax concessions in each of the next three years.
With the election due within a year, the adoption of common fiscal targets by the two parties marks an attempt to set the parameters of the economic debate for the campaign to come.
They will present a joint plan to cut income tax, boost employment and increase investment in childcare, education and health, all while eliminating the deficit in the public finances by 2018.
The tax plan, which will be pitched as a mechanism to support the creation of 20,000 jobs, will follow a template set down in October’s budget.
In that budget, Minister for Finance Michael Noonan directed tax concessions at “squeezed middle” workers earning between €32,800 and €70,000 with cuts centred on the universal social charge and the higher income tax rate. He also raised the threshold at which people enter the marginal rate.
Although this template will be followed for two or three years, sources suggested the approach and method of reducing tax might then be reassessed.
Thresholds In particular, changes to the marginal rate of tax and thresholds at which people pay the higher rate will be pitched as reforms to convince emigrants who left the State in recent years to return.
The five-year plan, to be unveiled in the Dáil this afternoon by Mr Noonan and Minister for Public Expenditure Brendan Howlin, also heralds the opening of pay talks with public unions.
Encouraged by modest private sector pay increases and anxious to avert any sustained public sector unrest, some Coalition figures say a deal could be struck this summer to deliver a limited pay rise next year to civil and public servants.
While the stance of public sector unions remains unknown, Coalition figures believe the maximum duration of any new agreement would be two years.
Pay concessions At the same time, the Government will set a limit on public pay concessions by saying the funds available for future expansionary budgets will be divided equally between tax cuts and spending increases. The aim is to ringfence the resources available for tax concessions from pay claims.
The plan says economic output will reach pre-crisis levels this year, with gross domestic product on track to expand 4 per cent in 2015. Employment is projected to reach the peak achieved before the crash in 2018 and a new high in 2019.
In the near term the plan assumes the Coalition can reserve between €1.2 billion and €1.5 billion for tax and spending measures next year, a little more than previously reported.
The Coalition aims to bring the budget deficit to 1.7 per cent of GDP next year, 0.9 per cent of GDP in 2017 and to balance the books in 2018.
A budget surplus of to up to 2 per cent of GDP is expected by 2020, raising political questions over the pace at which the national debt would be reduced.
Mr Howlin will today outline how demographic pressures should influence expenditure.
He will focus on education, with a need for more schools, the rising cost of pensions, further health spending and other areas such as broadband and flood defences. However, it is understood that many spending commitments will be backloaded to the latter half of the five-year plan.
