Irish Ferries looms over Budget

Can Brian Cowen use next week's Budget to kickstart the social partnership process and coax the trade unions back to the negotiating table, asks John McManus, Business Editor

The crisis at Irish Ferries will provide an unwelcome backdrop to Budget 2006. While the prospect of Ictu organising a day of action for two days after the Budget may not fill many company executives with glee, it does in its own way highlight the big issue that business wants addressed.

The competitiveness problem that underlies the attempts by Irish Ferries to restructure its Irish sea operation was the central theme of the pre-Budget submissions from the various business lobby groups.

Ibec, which is the largest of the business lobbies, has made the cost of doing business in Ireland the central plank of its pre-Budget campaign.

The Small Firms Association, which comes under the Ibec umbrella, made costs and competitiveness the theme of its submission to the Minister for Finance, Brian Cowen.

Its rival, Isme, is lobbying under the slogan "Getting the Competitive Balance Right".

While all three bodies would no doubt welcome cuts in income tax and PRSI - the main taxes on work - they are realistic about the prospects of such a move.

The most they can reasonably expect is that the situation will not be made any worse, which will require the Minister to adjust for inflation the various thresholds at which people enter the tax system and start paying the higher - 42 per cent - rate of tax. This will essentially be a re-run of last year's budget.

Such a move will not in itself do much to restore lost competitiveness.

But it could play a crucial role in getting the unions to the table to negotiate another national wage agreement, something that is looking distinctly unlikely in the context of the Irish Ferries stand-off.

Once the unions are at the table, however, the indexing of tax bands and credits will be one of the bargaining chips used by employers to argue for lower wage increases.

Getting the unions to the table for another round of negotiations will without a doubt be one of Mr Cowen's objectives next Wednesday.

While there is in reality very little he can do in a tangible way to entice them back, much may turn on the presentation of a number of initiatives that affect business.

There is a general expectation that a cap will be imposed on the amount of money that high earners and company directors in particular can put into their pensions.

The objective is to stop the practice whereby company pensions are used essentially to avoid tax, rather than provide a retirement income.

The cap is likely to be set at a level that will not discommode to many individuals. A figure of €250,000 a year has been suggested.

However, it will allow the Minister to say - with some conviction - that he has moved against the sort of inequity that so enrages the unions.

Equally, the Minister is expect to finally knock on the head a number of property-based tax incentives which are used by very high earners to cut their tax bills.

Although their demise has been on the cards for several years, the Minister ordered a review in his last Budget. A number, such as tax relief for the private hospitals favoured by the Tánaiste and Minister for Health, Mary Harney, may survive.

The tax exemption for artists living in the Republic may also be capped at a level that will again allow the Minister to claim that he is making sure that the rich pay their fair share of tax.

Childcare will also feature large in next week's budget and there is much common ground on this issue between unions and employers.

A significant increase in child benefit has already been flagged but there is also an expectation that a more comprehensive package will be unveiled.

Again, Ibec, Isme and the SFA are singing a similar tune, arguing that employers should be able to provide assistance to their employees in a tax efficient fashion.

Considerable thought is being given by the Government to a voucher-based system. It would be modelled on the current system by which employees can buy annual tickets from CIÉ through their employers and get a tax credit.

Leaving aside the cap on high earners' contributions, no big initiatives on pensions are expected.

The long awaited report from the Pensions Board is not expected to be published until after the Budget and to move ahead of its publication - and the debate that will follow - would be to the circumscribe the process put in train by the Minister for Social Welfare, Séamus Brennan.

A number of the initiatives looked at by the board would have cost implications for business.

The most serious would be a move to matching contributions - rather than tax relief - as the main form of incentive for pension contributions.

This would push up employers' PRSI bills, but such a move would would be primitive at this stage.

However, if the Minister has any pension-based initiatives relating to Special Saving Incentive Accounts (SSIA), he will have to move this year as the first accounts unwind in 2006.

One possibility is that he will waive the exit taxes on SSIA money that is put into pension schemes.

None of the above measures - if they transpire on Budget day - will end the stand-off at Irish Ferries.

But correctly packaged they may prove enough to coax Ictu back into the partnership fold.