Highest tax applies to extra 50,000

More than 50,000 people will be pushed into the higher income tax bracket next year following Mr McCreevy's failure to raise the standard rate band in line with inflation in yesterday's Budget. Dominic Coyle and Kitty Holland report.

The Minister for Finance's decision to leave tax bands untouched means that more than one-third of all taxpayers will pay income tax at 42 per cent.

However, 39,200 taxpayers will no longer pay income tax next year, after Mr McCreevy raised the employee tax credit by €240 to €1,040 a year. The rise means that 90 per cent of those on the minimum wage will remain outside the tax net even after the minimum wage increases to €7 an hour in February.

The Minister's inflation-busting increases in income exemption limits for people over the age of 65 will see a further 2,200 people fall below the income tax threshold.

However, economists said last night that the Government's failure to index the standard rate band might make wage negotiations in the next pay talks more difficult. Mr Austin Hughes , economist with IIB Bank, said it limited the scope for containing wage increases in the next pay round.

Friends First economist Mr Jim Power said: "The Government clearly had an objective to target any positive tax changes at the lower paid and help fend off criticism from the backbenchers with a strong social conscience."

Government figures, based on an ESRI model, indicated that the Budget measures would increase disposable income among the poorest 10 per cent of the population by 7 per cent, with the top 10 per cent seeing just a 0.4 per cent rise.

The Minister for Social and Family Affairs has indicated there may be some row back on "savage 16" welfare cuts announced by her Department in last month's Book of Estimates.

Speaking as she set out her Department's Budget package last night, Ms Coughlan said she had not yet signed off on a number of the cuts and identified those in rent supplement, diet supplement, creche supplement, and the Money Advice and Budgetary supplement.

She had undertaken to "listen to the members of the House, my Parliamentary Party, to what was being put forward by a number of organisations" and would take all these into consideration "on the basis of ensuring flexibilities within the scheme to deal with particular situations."

She would be signing off on them however "by the end of the year".

The increases, particularly for children, received harsh criticism, with anti-poverty groups saying the Budget had ignored child poverty and left the Government far short of its own commitments on addressing the plight of at least 300,000 children.

The failure to increase the Child Dependent Allowance - a payment made to the poorest children in the State - for the 10th year in a row was greeted with widespread disappointment.

Ms Coughlan rejected these criticisms, saying the increases "were quite substantial" and that Child Benefit was costing her Department over €1 billion per year. "That in my opinion is a commitment," she said.

In what was largely described as a holding Budget, the Minister also avoided the temptation to tinker much with indirect taxes. Excise duty rose by 25 cents from midnight last night on a packet of 20 cigarettes and by five cents a litre on both petrol and diesel. But alcohol escaped the Minister's attentions this time as he told the Dáil that "the goal of keeping inflation low takes precedence on this occasion".

The changes in indirect tax would, the Minister said, add just 0.4 of a percentage point to the annual inflation rate.