Minister for Finance Brian Cowen has indicated that the next budget will favour increases in personal tax credits and tax bands over tax cuts, putting him at odds with Tánaiste and leader of the Progressive Democrats Michael McDowell, who called for a "significant middle-class tax cut" last weekend.
In a speech to the annual dinner of the Dublin Chamber of Commerce last night, Mr Cowen said tax cuts should be focused on lower- paid workers. "Inevitably, attention seems to settle on actual cuts in rates. But a widening of bands or an increase in credits is also a tax cut," Mr Cowen said, in a veiled reference to Mr McDowell's comments.
Mr Cowen refused to confirm that the next budget would see any changes in stamp duty, another policy flagged by the junior Coalition partners. He told RTÉ news later last night: "I don't want to see any interference in the property market.....my job is not to interfere there".
Earlier yesterday Mr Cowen unveiled the Government's "Pre-Budget Outlook", in which for the first time the Government is publishing its budgetary projections in advance of Budget day.
The figures show the Exchequer is set for its ninth successive budget surplus this year and will continue to run surpluses in both of the coming two years.
The Government expects income from taxes and other sources to exceed expenditure by €1.8 billion. Respective surpluses of €720 million and €500 million in 2007 and 2008 are also achievable, according to its projections, which assume a slowdown in the rate of growth in public spending from 13 per cent this year to 7.6 per cent in 2007 and 4.5 per cent in 2008.
The forecasts reflect continued expected buoyancy in the economy, which the Government expects to grow by 5 per cent on average until 2008. However, the projected balances are subject to any tax and spending changes announced in the next Budget.
Mr Cowen warned yesterday that he was not taking the economy's future prosperity for granted.
"Framing the budget on the basis of growth in property taxes would be irresponsible. Sustainability is the key," he said yesterday. Describing the publication of the projections as the "first step" in a broader reform of the budgetary process, he added that the Government will require spending departments to publish performance and output targets starting early next year.
The rate of inflation will average 4 per cent this year compared to 2.3 per cent registered on budget day, according to the projections. Ibec director Turlough O'Sullivan said yesterday the priority of the next budget should be to fight inflation.
Mr Cowen said he would be mindful of the need to keep inflation under control when framing the Budget, but added that inflationary pressures were likely to ease next year. "We are near the end of the era of interest-rate hikes. By this time next year one should not see a surge in inflation," he said.
Fine Gael Finance spokesman Richard Bruton accused the Government of complacency and said its budgetary performance had been paid for by taxpayers.
"The only sure thing this document tells us is that the taxpayer has been fleeced of €2,200 million more in tax, or €1,100 per household, than was promised in the Budget last December," he said.
Labour spokeswoman Joan Burton said strong growth in tax revenues had allowed the Government to disguise waste in public spending. Mr Cowen "is not tackling waste in public spending. This document is being spun as part of a 'budget reform process'. It is nothing of the sort," she said.