The Minister for Finance, Mr McCreevy, made up for some lost ground with the publication yesterday of the Finance Bill. The bill gives effect to the Budget provisions outlined back in December but, much to the relief of the government's backbenchers, it includes additional measures designed to overcome the outrage from single-income families and the low-paid which the Budget gave rise to.
Chief among the measures is the £3,000 tax allowance for spouses who remain at home to care for children, the aged or the handicapped. This was hastily conceded by Mr McCreevy in damage-limitation mode immediately following the Budget but yesterday he improved the concession by allowing the spouses to still qualify for the allowance if they have an income of up to £4,000 per year. The Minister is still committed to individualisation and so he should be - though he is somewhat coy about how he will progress it. The allowance does take away some of the sting of individualisation for the single-income families, reducing their feeling of discrimination. It will however cost more than £125 million a year and it will diminish the attraction for spouses of a return to the workforce - which is what Mr McCreevy wants and what the economy needs.
Mr McCreevy is on more solid ground with his response to the Public Accounts Committee's report into DIRT evasion. The Revenue Commissioners will have the power to carry out a full audit, going back as far as necessary and in this it can bring in private sector auditors and accountants for assistance. The banks will be charged full interest and penalties for their evasion and the penalties, according to Mr McCreevy, will be "very, very substantial". There will also be public approval for the closure of tax avoidance loopholes and the "naming and shaming" of tax defaulters which will provide for the nature of the tax offence to be disclosed.
The Labour Party spokesperson on finance, Mr Derek McDowell, has wrongly criticised the Minister's decision to reduce to 20 per cent the capital gains tax on land sold for development. High rates of capital gains tax generate little revenue but have the effect of locking up assets which have development potential. The lower rate should encourage owners to divest themselves and turn badly needed land over to development.
Mr McCreevy has much left to do. It was expected that the bill would address profit-sharing; it does not. The vital issue of affordable childcare has been ducked and the Minister stubbornly refuses to try for agreement with the credit unions on tax. Mr McCreevy also must reflect on the seriousness of inflation. In just two years Ireland has moved from having the lowest inflation in the euro zone to having the highest. The rate for this year may touch 4 per cent; exporters trying to stay price competitive will be justly concerned. A rate of 4 per cent also represents a very large slice of the 5.5 per cent pay increase for the first year contained in the Programme for Prosperity and Fairness. Mr McCreevy may find the remainder of his term in office even more troublesome.