Remarks by the Taoiseach on the possible limiting of tax cuts in the next Budget appear to have created further tensions between the Government partners.
The Progressive Democrats issued a statement yesterday morning saying no decisions had been taken on the Coalition's tax strategy. This followed remarks made by Mr Ahern to The Irish Times on Thursday signalling that tax cuts for higher earners in December's Budget may be limited in order to curb inflation and to ensure the less-well-off received the benefits of economic growth.
The PD statement said controlling inflation was one of the "top priorities" for the PDs in Budget 2001.
"The inter-party discussions on the shape of the Budget have not yet begun. These discussions will take place in the Tax Strategy Group on which the PDs, Fianna Fail and the [Government] departments are represented. The first meeting of this group will take place next week." The statement said no negotiations between both parties had taken place and that "substantive negotiations would begin next week". The spokesman said it would be premature to discuss what the PDs would be putting forward at those meetings.
In his remarks, in New York, Mr Ahern was responding to the warning against generous tax cuts from the European Central Bank president, Mr Wim Duisenberg. The Taoiseach said continued economic success was the first priority of the Budget. He gave a strong indication that this could have implications for the coalition's tax-cutting strategy.
At the beginning of July, the Tanaiste, Ms Harney, who is on a trade visit to China, hinted at further tax cuts in the next Budget. "Our achievements on the taxation front in this Government have been significant. The basic rate of income tax has been cut by four points in three years and now stands at just 22 per cent. Don't be too surprised if it falls to 20 per cent in the December Budget."
She said the basic rate of income tax had fallen by 10 percentage points since 1990. "Nine of those points came off while the Progressive Democrats were in government. Only one came off while the Labour Party was in government," Ms Harney said.