The three senior ministers involved in framing the Budget are setting out their stalls in advance of negotiations on the detail of the package. The choice, as usual, lies between a package which favours the better off or one which benefits middle and lower income groups. After the furore over last year's Budget, it seems a safe bet that the less well off will receive at least as much as the better off this time around.
The Taoiseach, Mr Ahern, will be taking a close interest and, while the Minister for Finance, Mr McCreevy, will have some autonomy his cards are likely to be more heavily marked than on previous occasions.
With an election due possibly in May or June and a question mark hanging over social partnership, Mr Ahern's recent comments that low and middle-income earners would be targeted makes sense. In many ways it is the unions' agenda which will have to be most closely adhered to this year, particularly if the employers get their way on pay. As it happens, employers too are calling for cuts in the top tax rate to be held off for another Budget.
So why would the Tanaiste, Ms Harney, place her cards on cuts to the higher rate of income tax so firmly on the table? The consensus is that a two percentage point cut in the top rate of tax, as called for by Ms Harney, is almost impossible. It would put the unions so far offside that the Government could find it impossible to convince them their agenda was even considered.
The most likely explanation is that Ms Harney, with one eye on the next election, is now marking out some territory between herself and Fianna Fail.
The ministerial Budget group, comprising Mr Ahern, Mr McCreevy and Ms Harney, has not met yet to discuss this year's package but all are beginning to make their positions clear. Mr Ahern has said the Budget will focus on low and middle-income earners, although his spokesman pointed out this week that does not mean the well off will be ignored.
Mr McCreevy has stressed that commitments in the Programme for Government will be honoured. This, as Mr Manus O'Riordan, SIPTU's head of research, stressed at the National Economic and Social Forum yesterday, means tax relief on child care as well as ensuring that 80 per cent of workers pay tax at the standard rate. Mr McCreevy stressed last week that he would press ahead with the introduction of individualisation.
Of course, the Programme for Government does make a commitment to cut the standard and top tax rates but the unions and even, privately, the employers point to the conditional clause "if economic circumstances permit".
This may have been envisaged as a let out if the economy and the Exchequer finances turned down, but could be used in the context of what Mr McCreevy has called an anti-inflation package which will be at the core of his Budget.
It is the cutting of tax rates which distinguished the PDs and Fianna Fail from the previous Rainbow partners at the last election. Ms Harney argues that she must achieve it. But observers say she had indicated that, given the circumstances, the cut in the top rate could wait until the next Budget. That could be as early as September or October, given the tax year will be changing to a calendar year basis from January 1st, 2001. Even with commitments that appear to be in place already, the forthcoming Budget will amount to the largest giveaway to date.
Simply continuing on schedule with individualisation will cost around £260 million. However, this has serious distributional consequences and would mean a package firmly favouring single people earning more than £25,000 and married couples earning more than £50,000 between them.
On top of existing commitments, Mr McCreevy will have to come up with other changes that will deliver benefits for the low paid.
This could be done by delivering on the ICTU demand of a £1,000 increase in personal allowances and £1,000 on the PAYE allowance. In total, this would cost £624 million.
When the possibility of an anti-inflation payment of £500 into a pension or savings bond, which could cost more than £1 billion, is factored in, the total rises to £1.88 billion.
That is before any reductions in excise duties or VAT which Mr McCreevy would probably need to consider to offset the inflationary impact and social welfare changes.
A two percentage point cut in the standard rate of income tax would cost £257 million, while a similar cut in the top rate would cost £164 million, bringing the total to £2.3 billion.
Cutting the top rate might force the Minister to compensate lower paid workers by further increasing personal and PAYE allowances, bringing the total towards £2.7 billion.
A Budget of that size would certainly provoke the Central Bank, the OECD, the ESRI and others to warn about the inflationary implications and probably far worse. With the certainty that the responsibility for any downturn would then attach to him, Mr McCreevy may be more likely than in other years to listen to the unions and the employers.
In a meeting between the business group and the Government today, IBEC will tell the Minister it believes cuts in the top rate of tax should be deferred. IBEC will call for a slowdown in the process of widening the bands and for cuts in VAT. It says the overall package should be smaller than last year given the requirements of the economy.
Last week the unions put forward a broadly similar package. They are asking for a focus on the personal allowance and PAYE allowance which target the less well off. SIPTU is warning that it may walk away from the Programme for Prosperity and Fairness if the Government does not meet its commitments on childcare.
Mr O'Riordan, who represents the ICTU on the National Economic and Social Forum, said the unions were adamant that minimum tax relief at the standard rate of £4,000 for all families availing of child care should be part of the Budget.
