THE Government has been forced to relax its borrowing targets in the new national agreement.
A late text of the report had said that borrowing would be held to no more than 1.5 per cent of national output, between 1997 and 1999.
But the final document says that the target is to reduce borrowing to 1.5 per cent of national output by 1999. This could allow considerably I more leeway for tax reductions in the January Budget.
The late change may also have been needed to allow for the extra planned spending on social welfare and jobs programmes.
The programme uses the Maastricht Treaty borrowing definition the general Government deficit (GGD) which is slightly different from the more common exchequer borrowing requirement.
This year, the GGD was due to be 2.6 per cent of national output, but this target is now set to be under shot. A target of around 1.8 to two per cent is now likely in the January Budget.
Otherwise the details of the economic targets and the business measures are as reported in The Irish Times earlier in the week. The programme aims to reduce the debt to GDP ratio to 70 per cent by 1999.
On public spending, it says that the Government would aim to, hold the annual increase in 1998 and 1999 to two per cent in real terms.
Figures already published show that next year the increase will be more than four per cent in real terms (ahead of inflation) and the wording of the programme which says that for the following two years two per cent would be an aim rather than a firm commitment is likely to be seen with scepticism by the financial markets.
The agreement is based on an economic growth (GNP) forecast of 5.5 per cent for next year, and 4.5 per cent for the two subsequent years. If growth slows, however, the spending and tax commitments, which total well over £2 billion, may prove difficult to achieve.
The plan allocates £100 million for corporation tax reductions over the three years, in addition to the £900 million income tax package. This is likely to herald Budget reductions in both the 38 per cent standard income tax rate, and the 30 per cent rate which applies to the first £50,000 of profits.
However in a late addition, a new line in the final draft says that, subject to budgetary constraints, additional resources may be made available for corporation tax reductions in the light of strategic directions on corporation tax.
With the 10 per cent manufacturing tax rate due to run out in 2010, this suggests that the Government considering its strategic options, including possibly a unified rate for all business.
The programme also promises improved taxation arrangements for employee share ownership, profit sharing schemes, which are due to be introduced in next month's Budget.
Reacting to the announcement, the Chambers of Commerce of, Ireland (CCI,), said it gave it a "cautious welcome.
A spokesman said that, on the positive side, it should help Ireland to maintain competitiveness and as sure industrial peace. But "none of our fears on public spending are assuaged by the deal", given that the target of holding the increase to two per cent in real terms has been consistently breached over the past couple of years.
