The Minister for Finance will have to spend €260 million of his tax package on Budget day just to ensure that a higher percentage of taxpayers do not move on to the higher 42 per cent rate.
The information is contained in pre-Budget figures published yesterday, which indicate that adjusting to compensate for wage inflation would consume much of the money likely to be available for the tax package.
The percentage of taxpayers liable at the 42 per cent rate has risen steadily in recent years, because recent budgets did not increase the standard rate band. This is the income limit that applies before people become liable at the higher rate. This year an estimated 32.6 per cent of taxpayers were caught in the higher bracket - up from 26.7 per cent in 2002 - and this will rise to 35.9 per cent next year, unless action is taken on Budget day.
Yesterday's figures show that the full-year Budget cost of just maintaining this year's position would be €261 million.
Although the 2005 cost would be slightly less as the increase is phased in, this item alone would consume a significant amount of the resources likely to be allocated in the Budget tax package.
Increasing personal tax credits would also be costly. A 3 per cent rise in the employee credit - roughly in line with inflation - would cost €96 million, while a similar increase in the PAYE tax credit would cost €40 million.
The Government is likely to want to go well beyond indexing for inflation, to move towards the target of removing those on the minimum wage from the tax net.
However, with the amount of money available for the tax package set to be constrained by concessions in other areas, Mr Cowen looks unlikely to be able to deliver tax reductions which will translate into real - or after-inflation - improvements in living standards.
As well as the tax package, Mr Cowen must allow for significant social welfare increases and for increases in capital investment spending.
The Budget is likely to add up to €700 million to existing current spending plans outlined in last week's Estimates. Several hundred million is likely to be added to capital spending plans.
