Safeguarding the recovery through minimal giveaways

For much of the summer Government ministers have rarely missed an opportunity to raise public hopes of tax cuts in next month's budget. Now, less than five weeks from Budget Day both Taoiseach, Enda Kenny and Tánaiste, Joan Burton have indicated a welcome change of approach. Both have dampened down the unreal expectations on tax already set by Cabinet colleagues. Instead, caution has become the new watchword of Government – anxious to protect and not to damage the economic recovery that is under way. As Ms Burton told RTÉ's Morning Ireland, both she and Mr Kenny had agreed "We are going to be careful". And as the Taoiseach also noted: "We are not in a position to write large cheques."

The change of heart and head occurred just before the Cabinet yesterday held its first meeting since July, as Ministers prepare for some weeks of intense negotiations on the detail of the 2015 budget changes. Undoubtedly, the Government can take great encouragement from the Exchequer returns for August. These show tax revenue exceeding forecasts, and close to €1billion ahead of target year to date, with spending broadly under control. But with 40 per cent of annual revenue due for collection in the remaining four months to December, some uncertainty still remains.

There is little scope to provide relief for hard pressed taxpayers, even with Minister for Finance Michael Noonan conceding that the fiscal adjustment – via tax rises and spending cuts – next year would be "significantly less" than the €2 billion agreed under the terms of the EU/IMF bailout programme. That should ensure that a budget deficit of less than 3 per cent could be achieved. The relief that may be on offer in next month's budget will be limited in size, and focussed mainly on low and middle-income earners. And those concessions may have to be paid for by tax rises elsewhere in the economy.

Certainly, there is a case for raising the exemption threshold (€10,036) at which the Universal Social Charge (USC) applies, which would benefit the very low paid, and also help boost consumer spending. That Mr Noonan is willing to consider, and also to think about raising the ceiling (€32,800) at which single taxpayers pay the high marginal (41 per cent) rate of tax on earnings above that amount. Few other countries apply such a high level of tax at such a relatively low level of income – well below the average industrial wage – which damages competitiveness and penalises enterprise and initiative. The Government, it would seem, has wisely resisted the temptation to make next month’s financial statement, the first of two election budgets. For that would do little for the Coalition’s re-election prospects and do much to damage economic recovery, so painfully and painstakingly achieved.