The Minister for Finance, Mr McCreevy, hinted last night that he may remove the ceiling on employees' PRSI, leading to higher tax bills for people earning in excess of £28,500.
In an interview with The Irish Times, he added that he had told his Cabinet colleagues he would not go through the "ridiculous process" of the bilateral round again this year. At the Cabinet meeting yesterday he restated that he was doing business on a different basis this year.
"I have told the other Ministers that I simply could not entertain 20 per cent plus spending increases. We simply cannot go back to that situation - it is unsustainable."
The Minister met most of the social partners for pre-Budget briefings earlier this week. He said he found the process useful and added that he was not against innovation in his Budget to stimulate activity in some areas. "I have always done innovative things," he said, and the public could expect such innovation again this time.
The employers' group IBEC had been particularly vocal about PRSI changes and the removal of the employers' PRSI ceiling. However, the Minister is unrepentant and said that removing the ceiling was the only equitable thing to do. He added that the ceiling had also been removed for the self-employed and proprietary directors and, hinting of a possible compromise, he noted that their rate was cut from 5 per cent to 3 per cent.
"That [the new regime] is colossally expensive for many high earners and many professionals are none too pleased, but I felt it was equitable."
Asked if keeping the ceiling for employees was equitable, he said the issue would "be addressed in an overall budgetary context".
On the subject of the usual bilateral meetings with other ministers in the run-up to the Estimates, Mr McCreevy said he was "not going to engage myself in that process".
"I am not going to contemplate double figure increases and Ministers simply have to temper their spending plans. I am not entertaining their demands".
He added that most Departments had only been given single digit increases in spending, although some Departments, such as health, would receive more than this when the Estimates were published in mid-November.
However, he insisted that even with the combination of higher spending on infrastructure, increasing pay demands from schools and hospitals as well as the benchmarking process he would not allow debt to increase significantly.
"In the past looser policies led to higher debt and I am not going down that road." He said he could not assume current difficulties would be temporary. "No one is certain of the economic situation in 2002. Even the Fed chairman, Mr Alan Greenspan, has admitted that he simply does not know how things will pan out. In those circumstances it is better to be prudent."
Nevertheless he did not rule out some borrowing next year. "I will be taking a middle course. It would be foolish to say things will be worse in 2003 or 2004 and it would not be in our interest to cut back, we must prioritise investment. I will be running a middle course erring on the prudent side."