STRONG economic growth means a new national programme could include tax reductions totalling £800 million over the next three years, the Government has signalled to the social partners. This would depend on moderate spending increases being accepted as part of the new national agreement.
Economic growth, as measured by the increase in Gross National Product, is forecast to be 5 per cent next year and 4.5 per cent on average in the following two years, a senior Government official revealed in a paper given to the social partners.
Mr Michael Tutty, second secretary in the Department of Finance, said provided spending was kept in check, this level of economic growth would allow tax reductions of 0.5 per cent of national output a year. This was the scale of cuts called for in a recent National Economic and Social Council report and would mean considerably more relief for taxpayers than that granted in recent budgets.
Before any Budget changes, borrowing next year would be around this year's total of 1.5 per cent of national output falling to less than 0.5 per cent over the following two years, according to the paper. This may leave more room for tax reductions in the latter two years of a new programme. Mr Tutty also warned that next year's Budget must not inject too much cash into the economy, as this would risk fuelling inflation.
Mr Tutty, a key figure in drawing up the Budget and in the talks which are getting under way, said the programme must aim to keep national borrowing, on the measure used by the EU, to less than 1.5 per cent of national output by 1999, the end of the proposed new programme.
He warned, however, that agreeing the new programme would not be easy. For next year, a planned 5 per cent increase in public sector pay would lead to an overall current spending rise of 2.5 per cent even before any elements of the new programme were counted. This was "seriously restricting the Government's room for manoeuvre on public expenditure", he warned.
Mr Tutty's paper also predicted continued strong employment growth, averaging 33,000 a year over the next three years.
