Tax plans to be unveiled in dance of 3 manifestos

THE election tax battleground is beginning to come into focus. The Coalition partners will take the risk of trying to sell a somewhat complicated package, gambling that the gains it offers to middle income and lower earners will win the day.

The Progressive Democrats already have opted for a more eye catching cut in tax rates and Fianna Fail will unveil its plans today, but will also opt for sizeable cuts in the 48 per cent and 26 per cent rates.

The Coalition partners are aiming to win the middle ground - the one million taxpayers earning £30,000 or less. Their plan would reduce the annual tax and PRSI take on a single earner on £15,000 by around £800 after five years - or a little over £15 a week - and offer a cut of around £900 per annum for a married couple with one earner working on the same salary.

That's the bottom line of the tax cutting commitment for the lifetime of the next government contained in the "21 Goals for the 21st Century" published yesterday by the outgoing administration.

The three Government parties have decided they will get more electoral kudos if they unveil their tax cutting intentions in a kind of dance of the three manifestos, although today's Irish Times contains details of the Fine Gael plan. They may then, closer to the election, decide to merge the three into one final Government tax proposal, no doubt at the same time hoping to exploit any remaining differences between Fianna Fail and the PDs.

Yesterday's "21 goals" document outlined the ultimate goal of a lower tax burden. The three Government parties will now outline individually their preferred route for getting there in manifesto proposals over the coming days. The "21 goals" promises to reduce the tax and PRSI take for a single average earner to around 22p in the pound from about 27p now and to 14p for a married person with one spouse working from a current level of about 20p. This target takes into account all taxes, PRSI and levies paid by taxpayers.

For example, a single person earning around £15,000 would now pay almost £4,100 a year in income tax, PRSI and levies. The Coalition promises that it would reduce this to around £3,300 over the five year government term, a gain of around £800.

This goal would be achieved, the Coalition parties will suggest, through increasing personal tax allowances, reducing employee PRSI rates and increasing the standard income tax band. The three parties manifestos will differ slightly in emphasis, but will still be closely coordinated. Fine Gael, for example, is offering a mixture of rising personal tax free allowances, a widening standard income tax band and a cut from 4.5 per cent to 3 per cent in the employees' PRSI rate.

It also wants to exclude more employees from the 2.25 per cent health and employment levies. The party is also envisaging a three point cut in the top 48 per cent rate, although this is lower down its list of priorities.

The electorate thus looks likely to be offered two different tax packages. The outgoing Coalition will offer what might be called "more of the same, only better". They will continue the tax cutting direction taken in recent Budgets, only promising that economic growth will allow them to move more quickly.

The focus will be on giving proportionately bigger gains to the average and lower earners.

The Progressive Democrats have also to fully show their hand, but have promised the eye catching plan of cutting the two income tax rates to 20 per cent and 40 per cent, as well as unspecified increases in tax bands and other reforms. Fianna Fail looks set to follow the same direction, committing to reduce the top rate to 43 per cent and the standard rate probably to around 22 per cent, as part of a package to be unveiled today.

By concentrating more resources on reducing the two main income tax rates, the FF/PD packages look set to offer more than the outgoing Coalition to the better off taxpayers, while still offering something for everybody. The PD plan to cut the top rate to 40 per cent in particular would bring major gains to the better off.

The electorate would do well to realise that all the tax plans on offer are based on a continuation of strong economic growth and tighter control of government spending.

The Government parties have already promised some £300 million in annual tax cuts over the next three years as part of the Partnership 2000 plan and the manifestos will be based around this kind of spending on tax reductions, with two more years added on. The PDs say the net cost of their tax plan will be a little over £300 million a year.

There is a risk that economic growth will come in below expectations. Few of the parties are likely to take into account the need to prepare the public finances for the double whammy of monetary union and the rundown in the EU structural funds. Promises to control spending more tightly are hardy election perennials and should be treated as such.

The record of the outgoing Government and its predecessors, for that matter - is that spending invariably grows above target, leaving less room for tax cuts. The next government already faces extreme pressure on public sector pay and real difficulties reining in spending growth to frame a 1998 Budget for presentation at the end of October.

During electioneering, the political parties are likely to ignore such potential difficulties. The key election battleground will be about maintaining economic growth and dividing the spoils. And the fight is only beginning.