The introduction of tax discrimination in favour of working couples was the most controversial aspect of the largest tax give-away in the history of the State announced in the Budget yesterday by the Minister for Finance. Analysis of the Budget carried out for The Irish Times by the Economic and Social Research Institute (ESRI) confirmed the Opposition view that its benefits were substantially skewed towards the better-off. Mr McCreevy last night defended the most politically controversial budget of recent years, saying it involved radical tax reform which would be implemented fully after two more budgets. His package was condemned by Fine Gael's finance spokesman, Mr Michael Noonan, as "the most socially divisive" he could remember, and by Labour's finance spokesman, Mr Derek McDowell, as an "immoral" Budget which "lines the pockets of the wealthy".
Mr McCreevy announced tax cuts worth almost £1 billion in a full year, which give greater monetary and percentage benefits to those on higher incomes than people on lower incomes. He pledged to reduce the number of taxpayers on the top rate to 17 per cent - compared to 46 per cent at present - over the next two budgets.
The Government sees the tax package as a vital step towards persuading trade unions to accept a new social partnership deal. Mr McCreevy announced the widening of the standard rate tax band for a single person from £14,000 to £17,000, ensuring fewer people pay at the higher rate. In the first move towards "individualisation" of this band, he said the tax band for working married couples would be double the single band - £34,000. For couples with one spouse working it would be £28,000.
The Minister also announced the reduction of the income tax rates from 46 per cent and 24 per cent, to 44 per cent and 22 per cent. The contentious movement towards "individualising" the standard-rate tax band over three budgets will mean, when it's fully implemented, that for the first time households with two spouses working will receive substantially more favourable tax treatment than where one spouse stays at home.
This directs benefits at the 130,000 married couples where both spouses work who are now liable to pay at the higher income tax rate. They stand to gain substantially over coming Budgets compared to the 103,000 married couple with one spouse working, who currently fall into the higher rate.
Mr McCreevy said the Attorney General had advised there was nothing unconstitutional about the measure, but that if anyone wanted to challenge it, "I can't stop people from going to the courts."
The £46 million childcare package was criticised as inadequate both by representatives of childcare providers and parents. The package includes capital allowances for those providing childcare places, an increase in child benefit of £8 a month for the first two children and £10 for subsequent children.
There was, as predicted, no tax relief for parents who pay for childcare, an omission condemned last night by the Childcare 2000 campaign which represents working parents. Mr McCreevy announced a major public service decentralisation scheme, and revealed to reporters last night that some 10,000 public service jobs would be transferred from Dublin to provincial locations. Virtually whole civil service departments and non-commercial semi-State bodies would be identified for the scheme by the middle of next year, he said.