Cabinet and social groups divided as deal prepares to keep 48% tax rate


THERE is no commitment to reduce the top rate of income tax in the new national agreement. This is expected to remain unchanged at 48 per cent in the January Budget, according to sources close to the negotiations.

But there will be a commitment by the Government to provide most PAYE workers with a 14 per cent increase in take-home pay over the three years of the agreement, Partnership 2000. This will be achieved by a combination of pay rises and tax cuts.

The Cabinet is to consider the text of the deal at its meeting today. It will also hear that groups comprising the "social pillar" to the talks, such as the Irish National Organisation of the Unemployed and the Conference of Religious of Ireland, may refuse to endorse the agreement, if more funds are not put into combating social exclusion.

There is £1 billion provided for tax relief under the deal. At least £300 million of this will be given to PAYE workers in January's Budget. It is expected that this will be used to reduce the standard rate of income tax by one percentage point to 26 per cent, that personal allowances will be raised and tax bands widened.

These measures are aimed at improving the lot of the low-paid and making it more worthwhile for unemployed people to take low paid jobs. However, the disagreement between the Government and organisations representing marginalised groups has delayed the conclusion of the deal, which is due to be revealed on Friday.

Some £500 million is provided for social inclusion measures, of which £275 million has been earmarked for new initiatives and the balance for improving existing services. The "social pillar" groups want the amount for new initiatives increased to £350 million.

It also wants the minimum rates of benefit recommended by the Commission for Social Welfare to be implemented in the first year of the new agreement. The Government is only committed to moving substantially towards them, by the third year of the agreement.

The cost of implementing the minimum rates recommended by the commission is £127 million in a full year. To concede immediate implementation would mean freezing funding for other measures, such as child benefit.

The only alternatives would be to claw back tax relief from the PAYE sector, or increase borrowing beyond the EMU parameters.

Neither is a viable option.

Partnership 2000 is understood to meet some objectives of the social pillar". For instance, it increases the number of full-time community based jobs for the long term unemployed from 1,000 to 10,000. This measure will cost £50 million.

The Government will be anxious to close the gap with the "social pillar", if possible. It will be politically embarrassing if the first attempt to include them in a national agreement fails.

The new agreement deals primarily with taxation, pay and restructuring industrial relations to ensure continued growth, as well as improving the Republic's overall competitiveness.

Partnership 2000 assumes growth rates of four per cent a year over the life of the agreement. On this basis most PAYE workers should enjoy a rise in real income of two per cent a year.

The wording of the agreement should ensure that the bulk of private sector trade unionists will receive the two per cent local bargaining increase due in 1998, but there are more stringent provisions for the public service, where productivity improvements will have to be verifiable, before the two per cent is paid.