I had not intended to return in the new year to the controversial December Budget. But I am tempted back by this week's revelations about the rejection by the Minister for Finance of the advice of the Government's Tax Strategy Group on some key aspects of the Budget: in at least one instance he did the opposite to what the group had unanimously suggested.
In what has been published on this subject in the last couple of days, the full context of the group's recommendations has been absent, and this is important. Before commenting on the political implications of recent events, something needs to be said about the way in which a number of distinct but related issues became entangled, both in the pre-Budget discussions and in the presentation of the fiscal changes that introduced discrimination into the taxation of spouses, principally women.
In his Budget speech the Minister presented the changes affecting spouses as specifically designed to deal with "the low level of income at which single people become liable to the top tax rate". Ignoring the fact that an increase in the undifferentiated PAYE allowance would provide a ready means of tackling this problem so far as 85 per cent of taxpayers are concerned, he attributed the problem of over-taxation of less well-off single people exclusively on the fact that "the single person's tax band is doubled for married couples". This was the sole justification he offered for "individualisation of the standard rate band". However, this jump, from the simple introduction of individualisation to increasing the standard rate band by widely different amounts for oneincome and two-income married couples, although presented by him in the context of the need to relieve the tax burden on less well-off single people, is totally unrelated to that issue. ail speech on the Budget, the Minister offered no explanation for the introduction of this discriminatory element in relation to concerning married women - unless, perhaps, he intended a general statement in his closing comments half an hour later to the effect that the Budget "addresses the problem of skill shortages in a fast growing economy", - to refer back to this part of his fiscal proposals. It was by a quite different route that those providing advice on these issues reached a negative conclusion on the individualisation issue.
In the course of an analysis of "options to redistribute resources to families with children", the Tax Strategy Group reviewed the work that had been carried out several years earlier by a working group examining "the treatment of married cohabiting and one-parent households under the tax and social welfare codes".
Adverting to the fact that many factors have been acting as incentives for women, whatever their household situation, to seek economic independence, the group looked at a possible restructuring of the tax system to direct resources to families with children.
Towards that end, it asked the ESRI to examine possible restrictions on the transferability of tax allowances between spouses - the aspect of individualisation.
One option the ESRI examined involved the use of the full £725 million that could be secured from this course to finance general tax cuts, including a £600 increase in the personal allowance, a figure very close to the actual Budget increase in this allowance.
The text of the Tax Strategy Group's report says: "This particular proposal considered in this context (involving a £600 increase in personal allowances for illustrative purposes), results in a major redistribution from couples to single people without children and dual-earner couples with and without children. Losers outnumber gainers among one-earner couples with and without children. "The resources raised would not be targeted towards families with children and, as such, this approach would be at variance with Government policy to tax and welfare systems in favour of the family unit".
The Minister has since denied that these conclusions were those of the Tax Strategy Group, asserting that they were, in fact, a quotation from the conclusions of the ESRI report. This is in no way clear from the text.
Of course, the fact that this was, in fact, the conclusion of the ESRI, based on its comprehensive model of Irish income distribution, and was not just of a less expert advisory group within the Government system, enormously strengthens, rather than weakens, the case against the Minister's decision to adopt a version of this option.
We know that his decision was endorsed by the Tanaiste and Taoiseach but the rest of the Government was not told until it was too late for any changes to be made.
The Tax Strategy Group's own views seem to have been rejected in two other important respects.
Firstly, as The Irish Times revealed on Thursday, the Tax Strategy Group recommended against reductions of two percentage points in the top and standard tax rates because these would most benefit higher taxpayers and would have little impact on the removal of people from the tax net, or on reducing the number paying the higher tax rate.
Now, given that in his Budget speech the Minister gave verbal priority to these two objectives - the latter of which was even accorded the honour of black type in the printed copy - - his decision to ignore this recommendation must raise a question as to the sincerity of his commitment to his own stated objectives.
Secondly, as a result of a Freedom of Information request made by Eithne Fitzgerald, it has now emerged that the Tax Strategy Group also put forward proposals about mortgage interest relief that Mr McCreevy not merely ignored, but in one significant respect actually turned on its head by doing the opposite to what it had suggested.
Given the implications of this decision for house prices, it is worthwhile explaining more fully what is involved in this instance.
The Tax Advisory Group was concerned about the imbalance between tax relief for home ownership and tax relief for rental payments. The maximum relief for rental payments available to people under 55 is only between one-quarter and one-fifth of the relief available to house purchasers. The Tax Strategy Group report 99/24 had earlier pointed out that if neutrality between purchase and rental were to be sought by increasing the rental tax allowance this "would have a minimal effect on supply, while possibly increasing demand for rented residential accommodation and the measure might also be simply absorbed by the landlord in higher rent in current market conditions"
In its view "the policy objective of achieving neutrality between rent relief and mortgage interest relief also needs to be viewed in the context of a possible long-term objective of restricting/phasing out mortgage interest relief".
The group went on to point out that between 1993 and 1999 interest repayments net of tax in the case of a married couple had fallen by one-third, or in the case of a larger loan such as £80,000 by as much as one-half, whereas rents had increased by 20 per cent within the shorter period 1995-1999. They went on to emphasise that "any changes in relief for mortgage interest/rent have to be assessed for their potential to alleviate these difficulties, especially in relation to managing demand and increasing supply".
So the group suggested a series of options, various combinations of which could reduce by up to £50 million the cost of the subsidy to house purchasers that is contributing to the continuing rise in house prices. One of these options would have increased by 50 per cent to 100 per cent the present de minimis limits for mortgage tax relief, viz the amounts of £100/£200 for single/married house buyers that is at present deducted from the tax relief.
What did the Minister do? Instead of increasing the de minimis deductions, and despite the absence of any public demand for such an additional relief, he abolished them, at a cost of £33 million, thus further significantly increasing housing demand and house prices.
The ESRI has since estimated that, together with other elements of this over-expansionist Budget, this will increase house prices by an additional 15 per cent this year.
How perverse and irresponsible can a government be?