Budget 2015 likely to include parents, USC and tax bands

The economy is not quite in a place where a Charlie McCreevy can say: “When I have it, I spend it.”

But it’s certainly moving in the right direction.

In the past week, there have been some dramatic revisions of growth forecasts; all of them increasingly optimistic. The ESRI, for example, predicted growth of an impressive 5 per cent for 2015. Its assessment: if the Government delivers a fiscally neutral budget next Tuesday, the deficit for next year will be 2.1 per cent, well below the target of circa 3 per cent set out by a departing troika last year.

But what does it all mean?

For one, it means the €2 billion adjustment envisaged last year does not have to happen. Indeed, the Coalition could even splash the cash and meet its targets . . . But that’s not going to happen.

Every Government Ministers involved on the fiscal side has declared it is going to be a fiscally neutral budget and have pledged their eternal troth to Prudence.

The deal struck up by the Coalition has essentially split up responsibility into two departments: with Brendan Howlin in control of the purse strings when it comes to State expenditure, and Michael Noonan in charge of the revenue and macro side.

The expenditure side is usually more visible in the run-up to the budget - in previous years both the Departments of Health and Social Protection have washed their linen in public in the fraught final weeks.

This year is no exception. Bilateral talks with five departments continued well into this week with health (unsurprisingly) dominating the discussions.

From the start, Brendan Howlin has dampened expectations of increased departmental spending, and any departments looking for extra resources (like Minister for Justice Frances Fitzgerald hoping to bring the strength of the Garda Síochána to above 13,000 or Minister for Transport Paschal Donohoe pitching for one of the mothballed transport projects in the capital) have had to argue the toss with Howlin.

Most of the wrangling has taken place with the Department of Health, which has sought a similar budget for 2015 as it got for 2014 (more than €13 billion) but also needs a supplementary budget of about €500 million to cover overspending.

On the fiscal side, Michael Noonan tends to keep some big measure (an eye-catching initiative, to use the parlance) under wraps.

So what is known now?

The document of Government priorities spelled out some measures that will be effected in the budget.

They include a child payment of €30 per week for parents returning to the workforce, measures to extend eligibility for free childcare (another barrier against returning to work); and an increase of €100 in the household benefits package for pensioners (to compensate for water charges).

There are also commitments to extend free GP care to over 70s, to children aged between six and 11, and then to children aged 12-17. Some of that funding will have to be provided in this budget.

Another major commitment in the document is a plan to reform tax, over a number of budgets, to reduce the 52 per cent effective rate for top earners without making the tax code regressive.

That has been the subject of most disagreement in the four-person Economic Management Council. Fine Gael is keen on spelling out a very specific three-year plan to reduce tax; Labour is more focused on reducing USC. The likelihood is a mix including adjustments of bands, perhaps a small decrease in the top rate of tax, and USC concessions.

But each change is costly in itself. For example reducing the 41 per cent top rate to 40 per cent would cost almost €200m, as would increasing the standard rate band by 1,300.

Similarly reducing the lowest 2 per cent rate of USC (for income under €10,036) to one per cent would also cost circa €200m.

At this stage it is unknown how much will be allotted to the tax reform package. But even with €500m, the options are relatively limited.

Housing will form a big part of the budget. There will be a “Help to Build” programme to stimulate new construction.

Developers who build within 18 months of receiving permission will get tax discounts, while those who delay will pay higher levies.

There will also be funding available for a five-year social housing programme with a target of 35,000 units. Details of that will be announced a week after the Budget.

It looks likely that the 9 per cent VAT rate in the tourist sector will remain. One of the most contentious measures was the 0.6 percent levy that was imposed on private pensions.

That was supposed to be a temporary measure but Noonan actually increased it in last year’s Budget.

There has been a clamour for it to be discontinued but Finance has given no indication as of yet if that will be the case.