The first Budget from Mr Charlie McCreevy was eagerly awaited. This was mainly because of the extravagant promises of lower taxation by both of the government partners in their election manifestos and partly because of Mr McCreevy's grasp of economic realities combined with a determination (most of the time) not to fudge the issues. Mr McCreevy duly delivered the goods which were promised though not as equitably as had been expected. This is a Budget which will be remembered for missed opportunities as much as for giveaways. The Minister, in a speech laced with his usual idiosyncrasy, said that his Budget "should not seek higher TAM ratings than it deserves". This Budget doesn't deserve the TAM ratings which it seeks.
Mr McCreevy said the Budget had three main characteristics; overdue acknowledgment of the elderly, control of public spending and correction of tax inequities. On the first, his decision to increase the old age pension by £5 a week is commendable, justified and, as he said, overdue. On the other hand, the Budget demonstrates that the Government has not got a firm grip on public spending at all. Mr McCreevy takes comfort in the fact that the increase in spending "including Central Fund" has been kept to 3.7 per cent. But stitching in the Central Fund gives him the benefit of substantial savings, such as debt reduction. Current spending as such is to rise by 6 per cent. Mr McCreevy rightly places much emphasis on publicsector pay where the last government dropped the ball so spectacularly. Rhetoric is cheap however. Action is what is needed.
On the third issue - correction of tax inequities - Mr McCreevy has proved to be decidedly timid; the reduction of tax rates (no matter how desirable) does not constitute tax equity. In applying resources to a 2 per cent reduction in rates, rather than significantly increasing allowances and widening tax bands, the Budget has missed a golden opportunity to inject greater equity into the income tax system.
The reduction in capital gains tax from 40 per cent to 20 per cent is surprising but welcome. Investment is often wrongly equated with speculation and gains-tax rates have been a distinct disincentive. The reduction should encourage investment and may also result in funds being repatriated. Similarly, the adoption of the last government's 12 1/2 per cent corporation-tax rate target sends out positive signals to foreign companies contemplating investment in Ireland.
The tragedy of the Budget is that people will still pay tax on incomes which are too low and will hit the high rate of tax on incomes well below the average industrial wage. This is a nonsense which Mr McCreevy should have faced up to. And his £20 million towards the development of Croke Park will be difficult to explain to the many thousands of people in disadvantaged areas who are deprived of the most basic sports or social facilities. The Labour Party yesterday was not as critical as it should have been of his decision not to concentrate tax relief on the lower paid. Mr Michael Noonan of Fine Gael did himself no favours in his first major speech as spokesman on finance. Rabble-rousing to the point of jeering is no substitute for articulate analysis. Perhaps the most satisfied person in the Dail chamber was Ms Mary Harney. Her party had almost sunk into the embrace of Fianna Fail without trace. But the thrust of Mr McCreevy's giveaways owes more to the philosophy of the Progressive Democrats than to that of his own party. The PDs live on for a little longer.