Cantillon: Let the tax cut games commence

Has Michael Noonan slipped up and given a hostage to fortune over income tax cuts? To date, the Minister for Finance (pictured) has dropped hints and given indications that, if the economy recovers, an income tax cut by way of expanding the tax bands would be on the agenda.

Yesterday he seemed to go a step further by indicating what would constitute recovery in this scenario.

Whilst he may have been careful to add lots of caveats, the Minister appears to have made the cardinal mistake of giving a number and thus setting a target.

What he said – for the records – is: “If various independent forecasters are correct , and the economy is growing faster than the 2 per cent [forecast], that should give taxation buoyancy.”

What will happen is that this will be interpreted by the electorate and opportunist Opposition politicians alike as a commitment to cut income tax if economic growth exceeds the current consensus forecast of 2 per cent.

As a result, the Government can look forward to being quizzed on the subject every time a credible new economic forecast is proffered or, more pertinently, when the exchequer returns and official quarterly growth forecast come in over the next seven months.

Today will be the first such opportunity as the European Commission is due to release its latest economics forecasts. It will be an entertaining backdrop to the European elections but essentially remains a pantomime until such time as the Government starts giving some sort of indication of exactly what it has in mind.

There will be no shortage of figures being suggested, assuming the economic forecast and exchequer returns head in the right direction.

It will also be at that stage presumably that Brussels – which, lest we forget, must approve our budget – will start to take an interest and remind the Government that rather than bribe the electorate, it should focus instead of paying back some of the money it owes.