The Government is preparing to aim the main benefits of tax cuts in next year's Budget at the lower paid. The Cabinet will meet in all-day session on Friday to discuss Budget plans amid signals that the tax package will be directed at low- to middle-income earners, in contrast to this year's package which focused on the better-off.
The lower paid would be a "key consideration" of the 1999 Budget, to be delivered in December, a Government spokesman has said. The coalition had honoured its commitment on tax cuts under Partnership 2000 and would stand by its pledge to decrease the tax bill of the lower paid, he added.
A senior Government source said a consensus existed among Ministers that Budget benefits should focus on the lower- to middle-income group. They believed those on higher incomes had gained most from the previous Budget and the Minister for Finance, Mr McCreevy, would counter this with Progressive Democrats support.
Measures such as increasing income tax allowances and widening the standard rate band to ensure fewer people pay at the higher rates would help achieve the results. The Government would therefore place much less emphasis on reducing income tax rates, centre-point of this year's package.
Trade union leaders were heavily critical of the 1998 Budget, saying it did little for the lower paid. They have called for a new approach in the 1999 package. Directing reductions at the lower paid would also be less likely to stoke up inflation at a time when the Government is under pressure from our EU partners not to introduce a package that further boosts the economy.
It will be some time before the 1999 Budget is finalised. But initial discussions between Mr McCreevy and his Cabinet colleagues on departmental spending plans should get under way before Friday's meeting.
Mr McCreevy and his Department officials will argue that day-to-day spending should be strictly controlled and that the big spending departments should plan on the basis of no change in policy from this year. Tight control on spending would allow the Government to target a substantial Exchequer surplus for next year and would also let Mr McCreevy tell our EU partners we were running a disciplined policy as we head into monetary union.
But several spending ministers will push for hefty allocation increases, arguing that Exchequer finances are in strong surplus.