The third budget to be presented by Minister for Finance, Brian Cowen, is still more than six weeks away but he is coming down with advice on what it should contain, most notably from the Progressive Democrats. The Tánaiste, Michael McDowell, has called for a "significant middle-class tax cut" while the property sector has been united in clamouring for a sharp cut in stamp duty on sales of residential property.
The huge surge in property prices through the last decade has pushed the price of houses and apartments to the point where first-time buyers find it extremely difficult to fund a mortgage and thousands of lower-paid workers are incapable financially of even contemplating the most basic of purchases. It is, perhaps, the by-product of economic success that is the most unwelcome and it has been worsened significantly by the complete indifference of Government.
Mr Cowen does not see out-of-control property prices as something which should be tackled in his budget. His job, he says, is "not to interfere" in the property market. This statement is a bit disingenuous since the Government has interfered before to benefit the property speculators. It is far from certain that a reduction in stamp duty would actually benefit the buyer.
If past experience is anything to go by, property developers can often be relied upon to quickly adjust their prices upwards to cash in on any price-reducing government measure. But while alterations to stamp duty may not be appropriate, other measures, especially acting on the gross imbalance between the demand for and the supply of housing, are needed desperately.
Mr Cowen has stated that his budget will be cautious and prudent. While buoyancy in tax revenue would allow him to disburse up to €3.5 billion, he is expected to restrict the cost of the handouts in the last pre-
election budget to some €2 billion. He has effectively ruled out a reduction in tax rates by reminding the Progressive Democrats and others that any relief through allowances, credits or widening of the tax bands would have the same effect as a reduction in rates.
A prudent budget is certainly what the economy needs now. Inflation has risen sharply to 4 per cent and an expansionary budget would run the risk of sending it higher. In addition, there is an expectation that the economy (and tax revenues) will slow down considerably from 2008 onwards. Mr Cowen hopes to return to the Department of Finance after the general election and will want to resume his ministry with a sizeable surplus.
If the budget concentrates on helping the lower-paid then no-one should object. In fairness, Mr Cowen has already made great strides in providing for lower-income groups through boosts in social welfare payments and pensions. He will deserve credit if, as he says, he will resist the temptation to go for the kind of unwarranted pre-election splurge which his predecessor was unable to resist.