The Government faces further political and trade union pressure to modify its Budget despite its attempt to defuse the week-long furore by announcing a tax allowance worth £660 a year to one-income households.
At least six Fianna Fail backbenchers told a parliamentary party meeting yesterday that the new allowance was not enough to alleviate the anger of their constituents and would lead to further trouble for the Government. The Opposition echoed the criticism, saying the plan would cause more social division.
Meanwhile, the Irish Congress of Trade Unions is continuing to press for immediate measures to alleviate the position of workers on low pay as talks continued with the Government last night in an attempt to restart negotiations on a new partnership agreement.
In the face of unprecedented opposition to his Budget, Mr McCreevy told the parliamentary party he would give a £3,000 tax-free allowance, at the standard rate, to families where one spouse cares full-time for children, the elderly or handicapped people.
This is designed to balance the measure he introduced last week which strongly favours two-income families over single-income households in the tax code.
Mr McCreevy, whose political authority has been seriously undermined by this episode, indicated the Government may rethink its entire strategy of "individualising" the standard rate tax band, a measure which heavily favours two-income families over single-income households. Last week, he said this would be done over three budgets.
The climbdown on plans to discriminate heavily in favour of two-income families follows enormous dissent within Fianna Fail, as well as protest from the Opposition, the Catholic Church and pressure groups.
The tax plans announced by Mr McCreevy in last week's Budget are now in disarray. The £968 million tax package has now become a £1,093 million plan after the announcement of the measure to defuse the crisis.
The result is a highly incoherent policy, with the tax system now giving an incentive to spouses of taxpayers on the standard rate band to stay out of the paid workforce, while encouraging spouses of top-rate taxpayers to join it. This is because spouses of standard-rate taxpayers will lose £660 if they take up paid employment, while spouses of top-rate taxpayers will gain £1,200 by taking the same step.
The Opposition last night heaped criticism on Mr McCreevy, with Fine Gael's finance spokesman, Mr Michael Noonan, saying the climbdown was "a fiasco of unprecedented proportions". Labour's spokesman, Mr Derek McDowell, said the Minister had made "a dog's dinner" of his Budget.
The new allowance reduces but does not eliminate the discrimination in favour of dual-income couples over one-income couples in Mr McCreevy's "individualisation" plan. It will give one-income households on top-rate tax only half the benefit the individualisation plan will bring two-income families.
However, the new allowance will benefit middle and some lower-income earners, as its £660 benefit will be given to all qualifying taxpayers, while the individualisation benefit of £1,200 will be available only to those earning over £28,000.
If individualisation was fully implemented in two budgets' time, as proposed last week by Mr McCreevy, the £6,000 benefit from it for top-rate taxpayers would dwarf the £660 benefit from the new allowance. However, the concept of individualisation will now be reviewed.
Meanwhile, a spokesman for the Irish Congress of Trade Unions said last night it was still seeking significant changes in the post-Budget Finance Bill to benefit low-paid workers. "We are looking for an increase in personal allowances and to ensure workers earning up to £135 a week don't pay any tax."
A senior union source said the fact that the Government had amended its Budget had given the trade union encouragement in seeking changes, as it showed that "budgets are not written in stone".