Measures to curb rising prices in the housing market and reductions in corporation and incomes taxes will be revealed by the Minister for Finance, Mr McCreevy, in next Wednesday's Budget.
The Minister will also increase old-age pensions by more than the rate of inflation and target special assistance to farmers. Small farmers will benefit with 8,000 to 10,000 additional families likely to qualify for smallholders' assistance.
The Budget package has not been finalised. There is still some disagreement in the Budget subcommittee - comprising senior Ministers and Government officials - about the introduction of tax credits. Such credits would involve a fixed cash reduction off tax bills, in place of the current system of tax allowances, which are worth more to higher rate taxpayers.
Sources say that moving suddenly to replacing allowances with tax credits would be a complicated move. A possible compromise would be if the existing PAYE allowances could only be claimed at the standard income tax rate, now 24 per cent. This would have a similar effect to introducing this allowance as a tax credit.
The housing package will be substantial, with the Government determined to build on measures implemented after the Bacon report.
Changes will be made to Capital Gains Tax, the first-time buyers' grant and incentive schemes in a bid to put a cap on property price rises, particularly in Dublin.
The Government and the social partners are agreed that further measures are needed following on from the Bacon report earlier this year.
Capital Gains Tax of 20 per cent is likely to be available to all sellers of zoned land, without the requirement to have planning permission. An additional 20 per cent would then be payable by the purchaser if the land were not developed for housing within a short time frame, of about three years, in a move designed to encourage the rapid development of new housing projects.
The Minister is likely to announce measures to make additional student accommodation available, through a public-private partnership initiative. Accommodation would be built oncampus with the Government providing 20 per cent to 30 per cent of capital costs. This would take students out of the private rented sector, freeing up accommodation and easing the current severe shortage.
The Minister is also likely to clarify the position of the Docklands area, while waiting for a decision from Brussels. Some move to uncouple the owner-occupied and residential incentives offered in Docklands is being pencilled in with the likely possibility of giving double rent relief to owner-occupiers. There will also be no increased or additional grants or subsidies for the housing or property sector, with some curtailment likely, although some of the main changes are expected in the Finance Bill rather than in the Budget.
This might involve the first-time buyers' grant and possibly mortgage interest relief being scaled down over a period of years, and would apply to both new and second-hand homes. This is seen as a way of overcoming the problem of incentives being "built into" the price of houses. The Minister may wait until the Finance Bill to introduce details.
The planned cuts in corporation tax to a standard 12.5 per cent rate are also expected to be enshrined in the Finance Bill to protect the deal from encroachment by the EU. This Budget is still likely to provide the four percentage-point reduction expected.
There is unlikely to be much progress towards significant green taxes, despite EU pressure. The Minister is also likely to defer action on child-care issues and tax relief, pointing to the imminent arrival of a working paper.
