The papers of the Tax Strategy Group are anything but complete, writes Cliff Taylor
In terms of getting the full story about budgetary decisions, reading the papers of the Tax Strategy Group is a bit like looking at a jigsaw that still has a good few pieces missing. Much is clear, but some imagination is required to fill in the gaps.
Two things are missing. First, various sensitive documents, or parts of documents, were not released under the Freedom of Information Act, such as, for example, all issues relating to tax on domestic companies. Second, the Tax Strategy Group machinations fed into a political process, where senior Government ministers decided on the final shape and balance of the Budget. The papers obviously give no hint of the political horse-trading involved (no reference to the bloodstock relief intended!) So what can we learn - or surmise - after reading the document?
The first is that it was clear from the outset that it would be a tight Budget, but not that it would be quite as tight as what emerged. From the start of its deliberations, the group was, for example, looking at a personal tax package of €250 million - on Budget day the cost was kept to €150 million. Similarly, the kind of social welfare package which appeared to be on the cards from the discussions was undershot by the relatively limited rises on Budget day. This, presumably, reflects two things. The international economic environment worsened towards the end of the year. And the Minister for Finance made a political decision that he would keep borrowing this year as low as possible.
The papers shed surprisingly little light on some of the revenue- raising measures sprung on Budget day. They do examine excise duty rises. However, there is no mention of credit and ATM cards as targets for higher stamp duties. Nor is there any mention of non-indexation of capital gains tax, a surprise announcement on Budget day which was criticised by tax professionals.
The possibility of increasing the lower 12.5 per cent VAT rate is briefly mentioned. The document warns that had the Government decided to increase the higher 21 per cent rate again, this would have left Ireland very much at the top of the EU VAT league and also encouraged cross-Border smuggling. This is likely to have encouraged Mr McCreevy to opt to increase the lower rate.
The Government, however, is surely likely to have given little serious consideration to an examination by the group of ending the current zero rating on items such as food, medicines and children's clothes and shoes. The very mention of tax on children's shoes would presumably have raised all kinds of political alarm bells - those old enough will remember the implications for the Fine Gael coalition government after John Bruton, the minister for the day, proposed just such a move.
As all issues relating to domestic corporation tax are withheld, there is no light shone on the decision to introduce a bank levy, although sources believe that this was a politically inspired move which emerged late in the day.
The Tax Strategy Group is not the place where tax strategy is decided. It is sorted out between politicians and senior advisers in discussions before Budget day - an area where the Freedom of Information Act will never shed any light.
