GOVERNMENT spending plans agreed for next year will allow the Minister for Finance, Mr Quinn, to afford close to £250 million in tax cuts in the January Budget. The spending estimates were agreed at a special meeting of the three Coalition leaders and the Minister for Finance in Government Buildings yesterday.
The Government is to breach the 4 per cent ceiling on the increase in day to day spending set down in the Programme for Government.
However, the target growth in spending after the Budget is likely to be held to 5 to 6 per cent, which will leave room for tax reductions almost twice the size of those given in the 1996 Budget while still holding borrowing in check.
It has been clear for some time that the 4 per cent ceiling would be breached, due to additional, spending to combat crime and the impact of BSE on the agriculture budget. However, the spending increases being sought by some Government departments would have led to a significant breach of the 4 per cent figure and cut the scope for tax reductions.
Because of pressure of EU business, the three Coalition leaders and Mr Quinn met yesterday to hammer out a compromise. They agreed, in principle, to cut £120 million off the estimates put forward by the Government departments for day to day spending and a further £40-£50 million off capital spending.
While Mr Quinn had initially sought deeper cuts than those agreed, he is now expected to announce a Budget figure showing spending increasing by 5 to 6 per cent, some 3 to 4 per cent above inflation.
As a result of yesterday's meeting, the overall parameters of thee Budget are now set. Mr Quinn is expected to have scope to reduce taxes by almost £250 million while still bringing in Exchequer borrowing below 2.5 per cent of national output.
This is the level of tax reduction signalled to the social partners in the talks on a new national agreement, although senior trade union leaders have been calling for, more.
The proposed Book of Estimates will be circulated to all Ministers before the Cabinet meeting tomorrow week and published in the second week of December. The Government spokesman would only state that "satisfactory progress" was made at yesterday's meeting.
In the preparations for what, could be the Government's last Budget before the next general election, the three Coalition leaders have also decided to abolish the Residential Property Tax (RPT) and service charges.
The Minister for the Environment, Mr Howl in, has been asked to present a report on the future financing of local government to the party leaders within weeks.
A revamping of the road tax, to allow local authorities to raise increased revenue, is one of the proposals being considered by the Minister. The Government will have to raise about £80 million extra in revenue to cover the cost of the RPT and the service charges.
While Fine Gael sees the abolition of the RPT as a priority for its voters, the two left wing parties, Labour and Democratic Left, want to see a more acceptable substitute for the contentious water and service charges. RPT brings in about £12 million a year to the Exchequer whereas the service charges yield some £65-£70 million.
The Federation of Dublin Anti Water Charges Campaigns said last night that any move to replace service charges with a new road tax would lead to a national boycott and would be a massive issue in the next general election.
According to Councillor Joe Higgins, any such move would be seen as a new low in Government cynicism, adding to the anger and deep resentment at these charges among the PAYE sector.
The Sunday meeting of the Cabinet's budgetary sub committee was arranged to meet the exigencies of the three leaders diaries. The Taoiseach, Mr Bruton, will be abroad for most of this week visiting EU capitals in preparation for the summit of the Irish Presidency of the EU in mid December. The Tanaiste, Mr Spring, left for a two day meeting in Brussels last night.