Significant tax cuts for low income workers have cleared the way for a new national agreement to succeed Partnership 2000. The Budget concessions have removed the largest single obstacle to a new deal.
The Minister for Finance signalled a radical change in Government policy on income tax by reforming the allowances system. It has, effectively, taken a year out from its five-year plan to cut income tax rates to 42 per cent and 20 per cent, and has focused the £581 million reductions on lower earners.
Having fought the general election and framed the Coalition's programme around cuts in tax rates, even the most senior Government sources acknowledged the U-turn last night. But Mr McCreevy said it was still the Government's intention to reduce the top income tax rate to at least 42 per cent and the standard rate to 20 per cent over the next three budgets.
On the absence of any major childcare proposals in the Budget, Government sources said they were awaiting a final report from the 80-member group, set up under Partnership 2000, in February.
Preparatory talks on a new national agreement are expected to begin before Christmas, when members of the ICTU's public service committee are to meet senior officials from the Department of the Taoiseach and the Department of Finance, to discuss performance related pay and other issues central to any new agreement.
The atmosphere in which those talks begin has been transformed by the Budget, which took 80,000 low paid workers out of the tax net and took another 17,000 off the top rate.
The chairman of the ICTU's public service committee, Mr Peter McLoone, said that "overall the Budget is going to put the Partnership 2000 agreement back on the rails". He also welcomed the move by Mr McCreevy towards tax credits. These would "benefit all taxpayers but especially the low paid".
The Irish Congress of Trade Unions, public service unions and SIPTU, all welcomed the Budget main provisions last night. ICTU's general secretary, Mr Peter Cassells, said the Budget should be seen as the start of a new approach to national agreements. Any new agreement could now concentrate on creating a society with "decent personal incomes for all, combined with decent public services accessible to those who need them."
The biggest gainers from the Budget will be people on earnings below the average industrial wage, earning between £10,000 and £13,000 a year. Some of these workers will gain over 6 per cent, or just over £10 a week, compared with an average gain of just over 3 per cent, or around £6.30 for those earning up to £16,000.
Overall the tax reform package will ensure that no one earning less than £100 a week will pay any tax, while a single person can now earn £270 before moving to the higher rate of tax.
In direct contrast with last year's Budget, which benefited higher earners, the Minister aimed most of his tax cuts firmly at the low paid. This was achieved by announcing that the main personal income tax allowances can only be claimed at the standard 24 per cent rate from the next tax year. This is a significant step to replacing allowances with a system of credits, where everybody will get the same cash deduction from their tax bills.
To ensure that everyone gained something from the package, the Minister significantly increased both tax allowances and widened the standard rate bands, meaning less income will be taxed at 46 per cent.
Old age pensioners got a weekly increase of £6, while carers also won a significant package. However, for most on social welfare the main increase was only £3 a week, the same as the increases in child benefit.
SIPTU was last night critical of the low increases in social welfare and Family Income Supplement, which are important to many of its members in seasonal, part-time and low-paid employments.
The ATGWU, MSF and BATU, whose members are mainly in the private sector were highly critical of the Budget. They reflect concerns that private sector workers are falling behind in terms of pay and issues such as trade union recognition. Recognition still remains a problem that will have to be resolved before the ICTU is likely to agree any successor to Partnership 2000.
Business also benefited with the higher rate of corporation tax cut from 32 per cent to 28 per cent. The lower rate remained unchanged at 25 per cent.
The Minister left alcohol and petrol prices alone but 5p was put on a packet of cigarettes.