Booming economy will give Quinn scope for big tax cuts

NOW we have proof that the economy is booming, even without the contribution from the powerful I multinational sector, can the electorate look forward to real tax cuts come the next Budget?

Given the year that's in it, with an election due, the Minister for Finance, Mr Quinn, will be under serious pressure from the Coalition partners to deliver. Fine Gael is already said to be pressing for £270 million of tax cuts in the next Budget and recent reports from Forfas and IBEC have only added to the general clamour.

Despite his latest warning that the Government's crime programme will restrict options in other areas, there should be more money available at the next Budget than at any time in the recent past.

The Irish economy officially grew by more than 7 per cent last year, excluding any contribution from multi nationals. All the signs are that next year should see a continuation of strong growth, keeping us at the top of the EU growth table.

At the same time, Mr Quinn has predicted that the Exchequer Borrowing Requirement this year should undershoot its target by £150 million. Most analysts believe this may be pessimistic. In any case, it may allow Mr Quinn to move some spending from 1997 into this year and thus increase his options for next year.

So, if spending is kept under control and the economy holds up, it should leave the Minister with considerable leeway to play with at Budget time in January. This year, Budget Day tax cuts cost the Exchequer £87 million at least that much, and probably considerably more, should be in the bag for an election year Budget.

The Government's first priority is to meet the Maastricht requirements and qualify for the single currency. It is the 1997 figures which will be used to determine who can join. It looks as if Ireland will have no problem meeting the criteria next year. The budget deficit could be as low as 1.5 per cent of GDP well below the 3 per cent limit while the debt to GDP ratio could make strides to around 70 per cent of GDP by end 1997. Inflation, too, is under control, running at 1.4 per cent, one of the lowest in the ERM block.

Of course, many economists argue that the money should be used to pay down the national debt.

This Government, like many of its predecessors, has been spending heavily. Government spending so far this year stands at £6.2 billion, up more than 10 per cent on the same period last year. However, much of the increase can be accounted for by EU beef fines, the "mad cow" crisis and the increasing cost of unemployment.

For next year, it will be a matter for the Government to decide where the balance lies between tax cuts and spending.

Tax cuts would be targeted to make further inroads into the "tax wedge" and the cost of employment. The added being this is that it also makes sense in is of job creation.

At this stage it appears that tax reductions could be substantial a figure of £150 million to £200 million might be pencilled in. This could be spent on a combination of cutting the standard income tax rate each percentage point cut cost around £50 million next year or even introducing a lower rate, increasing personal allowances and widening the standard rate tax band.

The Minister could choose to continue cutting PRSI for the low paid and employers. Last year, that cost around £71 million.

Whether those sort of cuts would be enough for workers and unions is another matter. They have already made it clear that Mr Quinn will have to promise some thing rather special to get another PCW signed by the end of the year.

Whatever else, Mr Quinn must remember than any electioneering tax cuts must be matched by slower growth in public spending. Otherwise he may spark off an inflationary spiral which could be setting up serious trouble ahead of the single currency.