Economics: Over the past few weeks, as the political parties have been busy setting out their stalls for the upcoming general election, the air has been thick with proposals and counter-proposals to cut taxes. It would be a pity if the remainder of the election campaign were to be marked by the same obsession, writes Jim O'Leary

I say this because I'm inclined to agree with Brian Cowen when he argues that cutting taxes is not the priority of economic policy at this juncture. In my view - and here the Minister and I may well part company - the most important challenge for budgetary policy now is to implement mechanisms and procedures that enhance the efficiency and effectiveness of public expenditure programmes.

If, having done that, and having delivered the range and quality of public services desired by the citizens of the State, there is still scope for tax cuts, so much the better. But to conduct an election campaign in 2007 on the basis that the question of how much to cut tax by is paramount would betray remarkably blinkered vision.

Besides, even within the narrow frame of taxation, it may prove to be quite the wrong question. As everyone knows, the current buoyancy of tax revenue is largely due to activity levels in the construction and property sector that are plainly unsustainable.

It is clear that a fall in building output or a decline in turnover in the property market over the next few years would lead to an appreciably lower rate of increase in tax revenue.

One doesn't want to be overly alarmist on this score - but the Government's revenue stream is now so highly leveraged off the fortunes of this sector of the economy that a sharp contraction of building output together with a sharp drop in the aggregate value of property transactions would almost certainly produce a fall in total tax receipts.

In these circumstances, the government of the day, even one that was securing significant efficiency gains across the public service, might be forced to raise tax rates.

This brings me to an important point about the baskets of goodies that some of the political parties have been putting on display for the delectation of the electorate. They are all predicated, as best I can make out, on the continuation of robust rates of GNP growth over the next five years and on the maintenance of a benign relationship between GNP growth and the growth of tax revenues.

Obviously, given such a scenario, projected resources are plentiful, allowing political parties validly to hold out the prospect of combining expanded public spending programmes and reduced taxes with the maintenance of a healthy overall budget balance. The choices that have to be made in this sort of context are relatively painless ones.

For political parties to tell us what they would do in office "if resources permit" is not terribly meaningful.

What the electorate needs to hear instead is what the different parties would do if resources became a lot tighter and truly tough decisions had to be made. This is not just because there is a non-trivial chance that resources will become a good deal tighter than the cheerful medium-term forecasts for the economy suggest, but also, and more particularly, because it would reveal to us what the parties' priorities are. And at the end of the day what differentiates political parties from each other, if anything does, is what they would do when resource constraints start to bite hard and when they have to front up to stark choices.

So, a modest proposal. In addition to producing a list of things it would spend more money on and a list of taxes it would cut if the economy were to expand at a rate of about 5 per cent per annum and tax revenues were to behave accordingly over the next five years, each party should be required to produce the (presumably much shorter) list of things it would do in circumstances where rates of economic growth and tax revenue growth were halved. I think this sort of exercise would have a considerable effect.

On a lighter note, and at the risk of going against my own warning about obsessing over tax, I am struck by how Irish political parties are given to stealing each other's clothes. Pat Rabbitte's promise to cut income tax is the most obvious recent example and it is interesting to observe that, in this case, the crime provoked the victim to quickly replace the stolen garments with an even more expensive outfit.

But why did Pat Rabbitte go for a rate-cutting option rather than the bands-and-credits approach previously favoured by the Labour Party? For example, the €1 billion that it would cost to cut the standard rate by two percentage points could instead be used to fund increases in the basic personal tax credit of €500-€1,000 for single/married earners, a strategy that would produce a much more progressive distribution of benefits.

Maybe it's because Labour's tax clothes have been stolen by Fianna Fáil and the PDs to the point where this particular outfit can no longer be sensibly worn.

After all, most of the tax relief given in the budgets of the last five years has been delivered in the form of increased tax credits. As a result, the proportion of earners who pay no tax has now reached 40 per cent of the total, up from 25 per cent in the late 1990s. The wisdom of raising this ratio further, which raising the basic credit by more than the rate of wage inflation would do, is questionable.

That being the case, a party seeking to impart what might be termed a social democratic flavour to income tax cuts has little option but to target the standard tax rate, although, adopting a slightly broader perspective, cutting the PRSI contribution rate might have been examined as an alternative.

Jim O'Leary lectures in economics at NUI-Maynooth. He can be contacted at jim.oleary@nuim.ie