ANALYSIS:In meeting his spending commitments, Mr McCreevy did the minimum possible, short of saying that he was not going to pay the public sector benchmarking report, writes Cliff Taylor, Economics Editor.
It was a tight Budget, the kind we haven't seen in years. The Minister for Finance, Mr McCreevy, had certain spending commitments to satisfy - mainly welfare payments and rising public sector pay. He funded these by a host of tax increases and revenue raising measures, but avoided any significant increase in tax on income.
In meeting his spending commitments, the Minister did the minimum possible, short of saying that he was not going to pay the public sector benchmarking report. The welfare package and the rise in public sector pay due to benchmarking both cost over €500 million. Add in some additional spending on roads and the total additional spending above and beyond what was announced on estimates day last month as €1.3 billion.
To fund this, the Minister cast his net wide. Excise duties will rise, as will the lower 12.5 per cent VAT rate. A range of stamp duties increases were announced - the kind which will raise considerable revenue, but which the Minister hopes people will quickly forget. More money will come from capital taxes - mainly due to a change in the payment arrangements for capital gains tax. And the Minister has re-imposed a bank levy, raising €100 million per year.
What will it mean for taxpayers? A rise in the employee tax credit will protect lower earners. However, significantly, the Minister did not adjust the standard rate income tax band. This means that as higher earners get wage increases during the next year, they will find relatively more of their income exposed to the higher 42 per cent rate.
Elsewhere there was mixed news for the middle- to high-income earner. The employee PRSI ceiling was only increased in line with inflation; meaning no major increase here. However the Minister has announced the imposition of the 4 per cent PRSI change and the 2 per cent health levy on benefit-in-kind payments, but not until 2004. This will mean a hit for those with perks such as company cars.
For the economy, Mr McCreevy clearly set down his priority as being to hold down borrowing. On the EU general government balance measure, borrowing is being held to 0.7 per cent of Gross Domestic Product, a relatively low level. However the Minister has warned that the exchequer will remain under pressure next year, on current forecasts. The era of generous giveaway Budgets may not return for quite some time.