Shaping up for fight to finish on economy

ROUND one is over, and like two ageing prizefighters the Government and the Opposition appear to have fought almost to a standstill on the issue of tax. The Coalition may be ahead on points on the technicalities of the tax proposals, but now the real scrap is starting on what combination of parties can best manage the economy.

Both sides have their weak points. The Coalition can point toe a successful economic record. But in Government the three parties consistently exceeded their public spending targets and thus this year's Budget was the first to offer substantial tax reductions. The Opposition will claim that the Rainbow Coalition cannot deliver consistently on spending control and tax reductions.

Fianna Fail also has a problem. It is called the PDs. By promising to reduce public sector employment by 25,000 (which would involve major layoffs), sell off a wide range of State assets and police the dole queues, the PDs" are putting forward an agenda with which Fianna Fail will be deeply uncomfortable.

It is also in contrast to the more reasonable and thought out policies of the larger party, particularly in the area of public spending control where Fianna Fail's economic document makes some worthwhile proposals.

The question now is what impact the PDs campaign to target a particular market will have on the voters overall perception of the PD/Fianna Fail alliance. Yesterday Fianna Fail was forced to concede that it does not support Mary Harney's plans to cut the rent allowance to single mothers, and neither would it set a target for cutting the numbers in the public service.

It also takes a much more cautious approach to the disposal of State assets. In the run up to polling day the Coalition partners will hope to maintain their cosy policy consensus and focus on the differences between Fianna Fail and the PDs.

But this strategy is not without its risks. For example, Fine Gael risks losing some support among its voters by agreeing to concentrate in the first two budgets on increasing allowances and widening the standard tax band, thus postponing cuts in the top tax rate. But for the Rainbow the appearance of agreement and stability is everything.

The Government parties will also continue to parade their tax policies as a way to help low to middle income earners. Certainly their strategy of concentrating resources on increasing personal allowances appears both fairer and more directed at the key problems in the tax system than the Opposition's ratecutting approach.

The PDs are, of course, promising more than the other parties in tax reductions, a total of over £2.2 billion in income tax and PRSI. But their budgetary calculations are based on the public sector cuts' with which Fianna Fail would not agree.

The Opposition parties also differ on State companies. The PDs believe that privatisation of a whole range of State companies can help to hold down capital borrowing. Fianna Fail, meanwhile, wants to develop the State companies and, like the three Government parties, is careful to avoid the dreaded "p" word, privatisation, in its manifesto. Its formula for selling shares in State companies is "a broadening of the shareholder base."

The Government has its own problems in this area, notably demonstrated by its continued indecision on State banking.