The Minister for Finance, Mr Cowen, can afford to widen income tax bands by between five and six per cent in the Budget and still have money to spare for social welfare increases, a leading economist said today.
Mr Jim Power of Friends First said the improved economic situation and consequent buoyant exchequer means that Mr Cowen will be able to deliver the most generous budget since 2001.
Speaking at the publication of the Friends First quarterly economic commenatry, Mr Power said this year's budget will be framed against the backdrop of a generally positive domestic environment with the economy enjoying a modest but steady recovery.
Even if the Minister decides to fully re-index the tax bands which would cost around €750 million there is still adequate funding for what Mr Power dubbed the 'Healy Agenda' of spending on social initiatives to address inequality.
Mr Power also called for a reduction in stamp duty on second-hand houses which he claims acts as a major disincentive for mobility in the property market. He claimed that the Government could halve the rate of stamp duty without losing revenue due to the ensuing pick-up in demand from buyers wishing to trade up.
Ireland's over-reliance on the property market as a source of growth remains a cause for concern but there are signs that the once red-hot market is gradually shifting towards balance, Mr Power said.
Mr Power dismissed recent proposals for a tax on second properties pointing out that these properties are already quite heavily taxed through stamp duty and VAT and purchases are serviced out of after-tax income.
Any increase in VAT or other indirect taxes would be both unnecessary and inflationary, Mr Power said.
Consumers expecting a great giveaway budget will be disappointed as this year's event marks the first in what Mr Power expects to be three budgets before the next general election. So rather than doling out all the goodies in one go Mr Cowen is likely to exercise some restraint.
Mr Power named funding of the Disability Bill as the most likely beneficiary of the Government's largesse.