The pre-Budget season is in full swing, with submissions flooding in to the Minister for Finance, Mr McCreevy, and no shortage of advice on where to direct his largesse. Just yesterday the Irish Business and Employers Confederation (IBEC) called for a tax reduction package costing over £800 million in a year, while over the weekend the Conference of Religious in Ireland argued for substantial increases in welfare payments. The Minister has the cash to meet many of the demands, but he must choose his priorities carefully.
Whatever about the detail, the 2001 Budget must be built on a number of broad principles. These are: a commitment to helping the less well-off; a tax package which gives the biggest gains to the lower paid; a commitment to value for money in public spending; and a strategy of directing the economy towards a path of somewhat slower growth and easing inflationary pressures. The 2000 Budge gave the biggest gains to the better off. This must not be the case in the package to be presented in December. The Conference of Religious in Ireland - supported by other voluntary groups and non-governmental organisations (NGOs) - have a point when they call for significant increases in adult and child welfare payments. There is no excuse for not doing so at a time when the exchequer is awash with money.
Public spending on the provision of services such as health and education is important for the less well-off - and for society as a whole. Will we see a genuine attempt to improve the services on offer, setting out a coherent strategy? Or merely a few extra million to try to mollify the critics of the current state of key public services such as health? And what of taxation? Here the Minister has to tread a particularly difficult line. If he pumps too much money into the economy, he risks adding further to inflationary pressures. If he gives away too little, however, then the Programme for Prosperity and Fairness could fall apart. The best strategy in the light of these concerns, and from the point of view of equity, would appear to be to limit the overall size of the tax package and to direct relief towards the lower paid. Last year's £1.2 billion giveaway pumped too much money into the economy and, by boosting the income of high earners in particular, exacerbated pressures in areas such as the housing market.
This year the tax package should be less generous - the IBEC recommendation of £875 million would be a maximum. And instead of cutting the tax rates, the Minister should concentrate on increasing basic personal tax allowances - or credits - which would remove many people from the tax net altogether, and widening the standard rate band, which will ensure that fewer people pay at the higher rate. These measures - particularly increasing the basic allowance - help lower earners most in proportion to the size of their income, but also give gains to higher earners. Suggestions that money could be paid into some kind of savings bonds - or that other tax measures could encourage savings - are also worth examining, if a practical way of implementing them can be found. And more effort to encourage profit-sharing by business should also be on the agenda.
In short, Mr McCreevy needs to aim for social equity, economic stability and a tax package which directs generous gains to lower earners but also benefits all taxpayers. It will be a difficult balancing act.