Quinn seeks tax cuts to woo the voters

 

TAX cuts are once again on the agenda. The Minister for Finance, Mr Quinn, is well aware that he has to deliver an election winning Budget early next year and for that he needs tax cuts to woo the voters.

The thinking in Government circles is that the electorate is far more likely to vote for a government which cuts the standard rate of tax from 27 to 25 per cent than for one which is perceived as merely tinkering at the margins of the tax system.

This is a reversal in Government tax policy. When it took office, this Government said tax reform would be aimed at the low paid and concentrated on measures such as widening the standard rate band, reforming PRSI and increasing personal allowances.

All that appears to be history as the Tanaiste, Mr Spring, and Fine Gael have been making their positions increasing clear on the need for higher profile tax cuts, even though Mr Spring was careful to couch his calls in terms of not cutting services that were essential to everyone. This change in direction is despite broad agreement that widening lax bands and increasing allowances is the most direct way of targeting specific groups.

Government advisers are now focusing on how to target families in the middle income bracket. Although these families could not be classified as well off, they are not necessarily the "low paid" whom the Government originally pledged to help.

But the Government parties have decided that they simply do not win any political kudos from widening tax bands and increasing allowances. The electorate simply does not notice, Ministers believe, no matter what impact the measures have on their pockets.

But what measures would impress the voters? The chairman of Fine Gael, Mr Phil Hogan, has said his party's tax committee wants a cut in both the 27 per cent and the 48 per cent bands, and believes 25 per cent and 45 per cent should be the targets. However, earlier this week Mr Spring hinted clearly that he might not support a reduction in the top rate. This battle has still to be fought.

For the moment, Mr Quinn is waiting for the unions to show their hand. The Irish Congress of Trade Unions is due to decide whether to enter negotiations for a successor to the Programme for Competitiveness and Work (PCW) at a conference at the end of this month.

The unions have already signalled that any agreement on a pay deal would be contingent on broadly based tax cuts. SIPTU, in particular, is thought to be very bullish on this.

As a result, the content of the next Budget will be determined largely by the negotiations for the next pay deal.

There are other problems which Mr Quinn must overcome before he can deliver what he will hope will be an election winning third Budget.

Three critical factors, which will affect his judgment, will be the level of pressure on Government expenditure programmes, tax buoyancy and the possibility of outside shocks requiring capital commitments.

Spending pressure from Government Departments is substantial. Mr Quinn asked the other Ministers to reduce 1997 spending plans they had already lodged by £150 million, or 1.2 per cent, as far back as July. However, the revised packages which have been coming into the Department in recent weeks are mostly still ahead of budget and target.

All the estimates were meant to be done on a "no policy change" basis but few, it seems, managed even that.

The two Departments which have exceeded the targets by the greatest amount are understood to be Agriculture, which is suffering as a result of the BSE crisis, and Just ice, which is responsible for the new anti crime package agreed in the wake of the murder of journalist Veronica Guerin.

It will be later this autumn before the submissions are finalised. In the upcoming rounds, Mr Quinn will be stressing to his ministerial colleagues that tax cuts depend on keeping a lid on spending.

His second big concern is that spending increases could hurt Ireland's chances of qualifying for the single currency. It is next year's debt and inflation figures which will be most important in this respect.

The Government also needs room for manoeuvre, specifically to deal with any external shocks along the lines of the BSE crisis or the crime wave.

Given all these considerations, it will be some time yet before the size of the tax cuts is decided. But one thing is for sure: tax cuts there will be.