The publication of the Exchequer returns traditionally starts the run up to Budget day and this year is no exception. The Minister used yesterday's occasion to dampen expectations of his scope to reduce taxes and increase spending in the Budget. Meanwhile the Opposition parties have renewed their attack on the Government's economic strategy, while the ICTU has outlined what it is seeking when Mr Quinn brings in his package later this month.
Last year's Exchequer figures reflect strong, growth in the economy. Rising income taxes and VAT returns more than offset a weakness in corporation tax and led to Exchequer borrowing coming in almost £200 million below the Budget day target. Fortunately for Mr Quinn, a further strong rise in income and indirect taxes is likely this year which will provide him with some room for manoeuvre as he frames his package.
The spending side of the Budget is already largely pre determined. The Government has decided to breach its own limit of keeping the increase in current spending on services below 2 per cent in real terms, and the rise over 1995 is now likely to be about 2.8 per cent above inflation. The only spending item to be determined on Budget day is the final shape of the increase in social welfare spending; the indication is that most recipients will receive increases of 3.5 to 4 per cent, above the expected inflation rate of 2.25 per cent.
Intense political discussion will now resume on the rest of the Budget package. The details of the tax reductions remain to be sorted out while the Government parties are also looking at some specific measures to tackle long term unemployment. The indications are that Mr Quinn has some scope for taxation measures, although he emphasised yesterday that his room for manoeuvre is limited.
Dramatic changes in the structure of taxation are not on the Government agenda. Instead, like every administration of recent years, it will continue to give some relief to income tax payers while still keeping Exchequer borrowing within the Maastricht guidelines. The standard income tax band is likely to be expanded, while PRSI relief will be directed at helping the lower paid and their employers. Measures to reduce the corporation tax burden on smaller businesses are also being examined.
There are still a few weeks of political bargaining before the final details are decided. The next step is for the Department of Finance to provide its final forecasts for tax this year which will determine Mr Quinn's scope. The main constraint then on the Minister will be the need to keep Exchequer borrowing well below the 3 per cent of GNP level set in the Maastricht Treaty.
Mr Quinn should also use the opportunity to outline how he sees the public finances evolving, at least up to the end of the current Dail in 1997. There is a strong case for moving Budgetary planning firmly onto a longer time frame than one year. This would provide a framework within which public spending and taxation policy could be properly planned, rather than being the subject of an annual bargaining process at Budget time.