Why is the Government's Budget strategy in such a mess? Basically, because an attempt has been made to pursue simultaneously three different and mutually conflicting financial strategies.
First, there is the social partnership strategy of the Partnership 2000 agreement. This is based on the concept of trading tax concessions to PAYE workers, many on low pay, for moderate pay rises.
Second, there is the regressive tax policy which Charlie McCreevy seems to have persuaded Fianna Fail to adopt at the last election and which was given concrete form in the agreement negotiated with the Progressive Democrats after that election. This would give much larger increases in after-tax purchasing power, in percentage terms as well as in absolute amounts, to the wealthy than to the low paid.
And, third, as we now know, there is Mr McCreevy's personal policy of individualising the income tax system, a policy sprung on an unsuspecting State - and Fianna Fail party - 10 days ago.
It is not possible to pursue these three policies simultaneously without coming a cropper.
In his first Budget, Mr McCreevy effectively ignored the Partnership 2000 commitment, moving instead to implement the policy agreed with the Progressive Democrats, i.e. regressive cuts in tax rates. This provoked a very negative response from the trade union movement and the public.
It is true that during the 1997 election campaign enough people were influenced by the Fianna Fail policy of giving priority to tax cuts to maintain that party's vote at 39 per cent. Yet when people saw the actual anti-social consequences of the priority given to tax cuts in that first Budget, their reaction was so negative that the Government reversed engines in the following December 1998 Budget. Mr McCreevy then concentrated on tax changes which would benefit the less well off and dissipate trade union anger.
THUS, at the end of last year it seemed a course had been reset which would enable the trade union leadership to secure the support of members for a new agreement.
Moreover, this appeared to be confirmed by the NESC report published several weeks ago in which civil servants representing the Government put their signatures to taxation recommendations which seemed to be directed towards the interests of ordinary workers rather than wealthy taxpayers.
The NESC report tax proposals are as follows:
"This opportunity should also be used to reduce the remaining undesirable features of the tax regime, especially the relatively high taxation of low incomes . . . NESC attaches a high priority to increases in the standard-rated personal allowances [which are due to be converted to tax credits].
"An increase in the personal allowance/tax credit raises the threshold at which people enter the tax system. It is the most effective way of helping the low paid while at the same time providing tax reductions of equal amounts to most taxpayers in a straightforward way. The council also attaches significant priority to an increase in the income level at which people become liable for the higher rate."
This unambiguously-stated priority of the social partners and the Government representatives in NESC - to increase the standard rate personal allowances - was spectacularly downgraded in the McCreevy Budget.
The PAYE allowance - the one allowance which is already individualised along the lines advocated by Mr McCreevy - was not increased.
And when asked on radio why he had not increased this PAYE allowance he replied, astonishingly, that this was because an increase in this allowance would have helped only PAYE workers.
Given that a primary purpose of this year's Budget was to secure the acceptance of a new national agreement by PAYE workers, this dismissive attitude to these workers surely puts Mr McCreevy in the Marie Antoinette "let them eat cake" category.
No wonder he has started a trade union revolt, for it is hard to think of any single phrase he could have used which would have done more to undermine instantly the acceptability of his Budget to the 85 per cent of taxpayers who are in the PAYE category.
Having made a point of downgrading the single key reform which would have met the wishes of both trade unions and employers, Mr McCreevy then proceeded to spend almost twice as much on doing the one thing which, because of its regressive character, had most pointedly not been proposed by the social partners, i.e reducing tax rates.
Of the £350 million he used up on rate reductions, no less than £150 million was spent on reducing the top tax rate by two percentage points. This maximises the gap between benefits accruing to the high paid and the low paid.
Avoiding further expansion of this gap had been a primary target of the policy he had just subscribed to through his Department's signature of the NESC report. As the quotation above from the report shows, it attached particular importance to equality between the amount of tax cuts given to low-paid and high-paid workers.
Not alone is the absolute amount of the benefit accruing to wealthy taxpayers in this Budget many times greater than in the case of the low paid but the percentage increase in after-tax income of the well off is also much greater than for the low paid.
THIS was, of course, the intent of the policy adopted by the Government when it was established 2 1/2 years ago. As I pointed out in this column in mid-June 1997, the implementation of that policy over the lifetime of the Government would increase the living standards of someone with an income of £100,000 a year by 30 per cent but for someone with £10,000 a year, the increase would be only 15 per cent.
Thus, by virtue of its adoption of this regressive tax policy, this Government consciously committed itself to widening the gap between rich and poor taxpayers.
And, despite last year's momentarily more progressive Budget, that is what it has done.
For example, in the context of possible income increases of 13.5 per cent and an inflation rate of 7 per cent between 1997 and 2000, the net effect of the last three Budgets has been to increase the after-tax purchasing power of a single taxpayer with a 1997 income of £100,000 a year by eight times as much as in the case of someone on £10,000 a year in 1997.
Moreover, the percentage increase in after-tax income is also significantly greater for the higher earner, thus widening the gap between the two in percentage as well as absolute terms.
For many people this disturbing reality may have been obscured by a lot of clever political rhetoric. Yet neither trade union leaders nor community leaders have been taken in by this.
The partnership concept upon which our remarkable economic success has been largely based has been put seriously at risk by the manner in which the social partners were first led up the garden path on the issue of taxation of the low paid, and then contemptuously swept aside by the introduction of a reactionary Budget which has turned on its head the principles upon which social partnership has been based.
It is very difficult to see how a political, financial and economic mess of this magnitude can be sorted out short of cancelling the Budget and preparing one which will meet the needs of our social and economic situation. And that seems unlikely.
The alternative, i.e. a panic-stricken Cabinet offering more and more tax concessions to buy off multiple opposition to a disastrous Budget, could endanger our economy and must certainly affect external confidence in our economic and financial management.
For, when combined with the huge acceleration of public investment, the tax cuts proposed in the Budget already pose a threat to our economic stability. Before the Budget the ESRI warned of the danger of large tax cuts in our already overheated economy - as did the international organisations which comment on the economic situations in their member-states.
Until now I have been optimistic about our capacity to secure a soft landing for our overheated economy. Now I am not so sure. For I realise now that I grossly underestimated the capacity of the Government to mess up our financial affairs.