Cowen has limited room to manoeuvre

With just hours remaining before the Minister for Finance Brian Cowen delivers his 2008 Budget the framework for spending next year is becoming clearer.

The fall-off in tax revenue means that his scope to announce substantive reliefs to taxpayers when he takes to his feet at 3.45pm in the Dáil tomorrow is curtailed.

A fall-off in tax receipts during November means tax revenues are now projected to fall €1.75 billion short of expectations, almost double that expected when the pre-Budget outlook was published in October.

In fact, along with stamp duty, revenue from all the major taxes have been revised downwards with only income tax returns bucking the trend.

Despite a powerful lobbying campaign it appears unlikely that Mr Cowen will adjust the stamp duty rates. Stamp duties are now running over 18 per cent behind projections or down €730 million at €3.19 billion for the year.

Mr Cowen has already committed to increasing day-to-day government spending by 8 per cent in 2008 and has announced a 12.5 per cent addition to public capital spending to meet commitments in the National Development Plan. Mr Cowen has said that spending in this area is sacrosanct.

This funding will include money for roads, schools and universities and may also contain scope for Public Private Partnerships.

To try and keep those on minimum wage out of the tax net Mr Cowen is expected to index-link tax bands and credits and this move would benefit lower income workers generally.

The standard rate of income tax (20 per cent) band currently stands at €34,000 and Mr Cowen may look at widening these bands although a move to 18 per cent - Promised in the Programme for Government, looks unlikely.

Changes to the VRT system have been the subject of detailed leaks from the Government and will see taxes based on the carbon-dioxide emissions.

As a result taxes on some, smaller diesel cars will fall in price by 10 per cent while larger engined petrol cars will see an increase in taxes.

The system has been organised so that the overall revenue from VRT - some €1.3 billion last year - will hold steady.

Small cars emitting up to 120g of CO2 per kilometre will pay 14 per cent VRT; the rate for cars emitting up to 140g will be 16 per cent; while the top rate of 36 per cent will apply to cars emitting more than 225g per kilometre.

Mr Cowen's leeway to increase social welfare payments or pensions is also narrow. With the Government having promised to raise the pension to €300 over the next of five years an increase of around €10 is expected; bringing the non-contributory pension to €210 and the contributory pension to €220.

Child benefit payments are also expected to rise by a similar amount. The budget will have a slightly different format this year will all new capital spending being announced tomorrow.