Minister for Finance Brian Cowen indicated last night that he will increase all welfare payments by at least as much as inflation in today's Budget. Mr Cowen gave a commitment to protect the standard of living of all social welfare recipients, with pensioners in particular expected to benefit.
He also said he intended "to borrow modestly to invest ambitiously", indicating that there will be no slowdown in investment in the National Development Plan.
The announcements are expected to come in tandem with a cut in the official forecast for growth in the economy during 2008. The Tánaiste will cut the forecast growth rate in real Gross National Product (GNP) from 3 per cent to 2.75 per cent, while reducing the projected growth rate in Gross Domestic Product (GDP) from 3.25 per cent to 3 per cent.
It is expected that Mr Cowen will make a major effort to stabilise investor sentiment and to restore economic confidence. Already, he has announced that he will increase public capital investment by 12.5 per cent or by €1 billion in 2008 to hasten the implementation of the National Development Plan.
Against this background, the Tánaiste is expected to concentrate his efforts on keeping low-paid workers out of the tax net and on ensuring that middle-income earners do not drift into the top 41 per cent tax band. The reduction in the top rate of income tax, from 41 per cent to 40 per cent, promised in the 2007 budget, is likely to be deferred.
The June 2007 Programme for Government set out ambitious plans for the reform of Pay-Related Social Insurance, promising to reduce the full PRSI rate from 4 per cent to 2 per cent during the lifetime of the Government. It is understood that these plans to cut PRSI rates have also been put on hold. He is also expected to announce a series of measures that will reflect the involvement of the Green Party in Government for the first time.
These include measures that will reflect the commitments made in the programme for government to tackle the issue of climate change. Motor tax will increase for the first time in three years, but a new carbon emissions-linked system will be brought into force for new cars next June.
New three-litre engine cars will cost €148 more to tax from then on, while a 1.6-litre will cost less than €50 more. New commercial vehicles will cost €50 more.
Mr Cowen will announce the financial details involved in the "green" aspects of the Budget. Tomorrow, Minister for the Environment, John Gormley, will give details of a "carbon budget" outlining the impact of the various budgetary measures on the level of Ireland's carbon emissions.
The tight fiscal background to today's Budget was underlined with the publication of exchequer figures for November. They showed stamp duty receipts virtually collapsed during November as the national tax take for the month fell far below official projections.
The exchequer had expected to collect €367 million in stamp duties during November. However, reflecting the continuing slide in housebuilding activity, actual stamp duty receipts amounted to just €209 million, €158 million or 43 per cent below target.
Overall, the exchequer had planned to take in €10.9 billion in tax revenues during November, but the actual amount of tax collected came to just €9.7 billion.
Tax receipts during November - the busiest tax-collecting month of the year - fell short of official expectations by €1.2 billion or 11 per cent, according to the exchequer returns for November, published yesterday.