The Minister for Finance should have enough in the kitty to fund €1.4 billion in tax cuts and social welfare increases, a leading economist said yesterday.
Friends First chief economist Mr Jim Power said yesterday that Mr Brian Cowen was in a position to return more than €700 million to workers in the form of increased income tax allowances and breaks.
Mr Power calculated that this would leave a further €700 million to spend on the social welfare increases promised by the Government in Sustaining Progress, the national pay deal.
He recommended increasing single people's income tax credits by 4 per cent, and raising their tax band - the point at which the Government begins taxing their income at 42 per cent instead of 20 per cent - by €5,000 to €33,000.
The economist said that the married tax credit should be increased by 6 per cent and the tax band for spouses should be increased by another €10,000.
Speaking at the publication of the Friends First Quarterly Economic Outlook yesterday, Mr Power said such income tax cuts would cost a total of €713 million.
He also warned that increasing VAT and the excise paid on alcohol, tobacco and motor fuels would be inflationary in the current climate. "There is no call for indirect tax changes; the Minister would be well-advised to do nothing on that front," he said.
Mr Power argued that, contrary to the International Monetary Fund's (IMF) warning last week, property tax, in the form of measures like stamp duty, was already high.
The outlook calls on the Minister to consider changes to the current stamp duty regime, which Mr Power said was acting as a disincentive to some people to move homes.
He said that, in particular, it was preventing elderly couples living in homes too big for their needs from trading down and freeing up properties for families. He added that lower stamp duty would increase turnover and worker mobility.
"If structured properly, the revenue impact would be limited by the increase in housing turnover," he said.
Mr Power said Budget 2005 would offer Mr Cowen the chance to tackle issues that could not be addressed in the last couple of years.
"The Minister will still need to pursue a relatively cautious fiscal stance, particularly in the context of the risks that are currently on the horizon, in the shape of the appreciating euro, spiralling oil prices and a prospective slowdown in the US economy," he said.
