McCreevy to cut corporation tax

 

A sharp cut in corporation tax is expected to feature in today's Budget, which will also provide tax reductions aimed at the PAYE sector. The final details of the package were agreed over the weekend between the Taoiseach, Mr Ahern, the Tanaiste, Ms Harney, and the Minister for Finance. But the full Cabinet will only be briefed on all the elements of the package at a meeting at 1 p.m. today.

Mr McCreevy is expected to announce a significant reduction in the standard 36 per cent corporation tax rate, with some sources believing that the reduction could be of the order of five percentage points. The cut in the standard rate will signal the Government's intention to bring in a unified corporation tax rate of 12.5 per cent for all companies by 2005, or earlier.

The lower 28 per cent rate of corporation tax is also expected to fall, and Mr McCreevy will increase the profit levels which qualify for this lower rate.

However, the country's largest trade union, SIPTU, has warned that any bonanza for the corporate sector must be matched by gains for PAYE workers.

A SIPTU spokesman warned last night that a "huge bonanza" like this for the corporate sector will have to be matched for the PAYE sector, and that it must be fair to all workers and not give disproportionately more to higher earners.

Mr McCreevy will offer gains to the PAYE sector, cutting both the higher 48 per cent and the standard 26 per cent income-tax rates. The two Government parties in their election programmes promised to concentrate on significant reductions in income tax rates.

But Mr McCreevy is also expected to increase personal income-tax allowances and widen the standard rate income tax band. These moves will benefit lower earners and mean that fewer people pay tax at the higher rate.

The spread of gains from the tax programme between higher and lower earners is likely to be a major focus of reaction to the Budget package. If the package focuses strongly on reducing income-tax rates, then higher earners stand to benefit the most.

The Government will also move to give money to the less well-off through a programme of increased spending. This will include higher social welfare payments, a major increase in old-age pensions and higher spending on health to reduce hospital waiting lists.

The overall Budget "giveaway" is expected to come in somewhat below earlier expectations for a £500 million package. However, hefty increases in the price of cigarettes will make Mr McCreevy's job easier by providing some immediate ease for the Exchequer.

The overall shape of the Budgetary arithmetic remains unclear. A recent Cabinet meeting cleared the way for the sale of the State banks ACC and ICC. However, it is not known if the likely proceeds from the sale will be included in the budgetary arithmetic.

Mr McCreevy is expected to target an overall surplus on the Government's finances for next year, to prepare the country for the rundown of the EU structural funds and entry to monetary union.

He will also want to keep a tight rein on the Exchequer finances so as not to increase inflation, while this may mean a faster fall in interest rates next year.