Charlie McCreevy and the seven budgets. In the first five we had happy, last December's was decidedly grumpy and Budget 2004 might be characterised as bashful, writes Cliff Taylor Economics Editor.
After the significant tax increases in the last budget - stealthy and otherwise - the impact of yesterday's package on most taxpayers will be minimal. It was clearly a holding Budget, with Mr McCreevy deciding that cautious was best, in the hope that economic recovery is on the way.
Last year the Budget raised €944 million in extra tax. This year the difference between what the Minister gave on tax and what he took away was an insignificant €17 million. Rarely does a tax package see such balance between one hand giving and the other taking away.
What largesse he afforded was directed at lower earners, while basic social welfare increases, well outstripping inflation, ensure the less well-off will gain most, in terms of percentage income increases.
Most taxpayers will not notice a significant change in their take-home pay. The PAYE sector will benefit from the increase in the employee tax credit by €240 to €1,040. This delivers the biggest proportional gain to the lowest earners, particularly the 39,200 removed from the tax net.
However, the Minister's failure to adjust the standard rate tax band for the second year running will mean that many middle to higher earners will see more of their income taxed at the higher 42 per cent rate. It means tax will take a larger chunk of any wage increase they get - including public pay benchmarking rises. More than 50,000 earners will move into the 42 per cent tax net for the first time, after a similar group joined the higher tax rate club this year.
Take "Joe and Sarah" a mythical married couple with one earner on €40,000 a year, featured as an "illustrative case" in the Government's Budget booklet. The calculations presented show the increase in the tax credit lowers the total tax taken from their income from 15.5 per cent this year to 14.9 per cent next year. However, if "Joe" receives a 4 per cent wage rise, all the cash increase will be taxed at 42 per cent. The couple will still be better off, but the total tax take on their income rises to 15.9 per cent.
We have gone from a rapidly reducing tax burden on most earners in Mr McCreevy's early budgets, to a position where the tax take will creep a bit higher for many. The self-employed will be particularly unhappy, as the employee tax credit increases - the only relief in the last budget and this one - do not benefit them.
Commitments under the national programme meant the welfare package was the main budgetary cost. Basic welfare increases of €10 were ahead of recent years. This left less cash to increase child benefit, although a €10 increase in the old-age pension was afforded.
The combination of the tax and welfare measures means the gains from Budget 2004 are firmly focused on the poorer sections of society. An analysis in the Budget documents, using an ESRI model of the economy, shows that the poorest 30 per cent of the population will receive increases in disposable income of between 5.7 and 7 per cent. Meanwhile, the top 30 per cent will gain by between 0.4 and 0.9 per cent.
Many middle-income earners will not notice the difference as the Government bets that economic recovery rather than budgetary giveaways will deliver the "feel-good" factor next year.