The tax burden on middle- and high-income earners will increase significantly next year following the Government's decision not to raise tax credits in line with inflation.
Unveiling his sixth Budget, the Minister for Finance, Mr McCreevy, imposed increases through a variety of stealth taxes, such as excise duties, Vehicle Registration Tax and duties on credit cards and cheques.
Workers will start paying the the higher rate of tax - 42 per cent - once they earn over ?28,000, while just ?125 million is being used to increase tax credits, rather than the ?500 million needed to keep them in line with wage inflation. Any small nominal rises in wages will be more than eroded by inflation, which is being pushed up by increases in excise and stamp duties and VAT.
The numbers employed in the public services will be capped at 280,000 and the Government will push for a reduction of 5,000 through natural wastage over the next three years.
The move raises serious questions about the ability of the Minister for Health, Mr Martin, to implement any element of the National Health Strategy during the lifetime of the Government.
Questioned at a post-Budget press conference, the Minister for Finance said Health and other departments would have to encourage more existing workers to quit if they want to hire new staff.
Builders, he said, had simply "pocketed" the ?3,800 grant to first-time home-buyers. The changes to mortgage interest relief made sense, he said, because they would cover first-time buyers of both new and second-hand properties.
The Minister rejected demands that PRSI should be paid on all earnings, but increased the earnings ceiling for PRSI to ?40,420 from ?38,740.
The 20-cent increase in excise duty on cigarettes will raise ?138 million in 2003, while a measure of spirits will cost 20 cent more. In what has been billed as a bid to curtail youth drinking, the tax on a bottle of "alcopops" has been increased by 35 cent.
Estimating that indirect tax increases would add 0.85 per cent to inflation next year, the Minister said he ruled out beer increases because such a move would cause too big an impact on the Consumer Price Index. Public spending will not breach the 5.7 per cent target set in the Budget, he said, warning all Government departments they will get no more money. "It is the job of managers to manage."
The old-age pension will be increased by ?10 a week, as expected, though the Minister admitted that plans to increase child benefit would have to proceed more slowly. Child benefit is being increased by ?8 per month for the first and second child and ?10 per month for the third and subsequent children, he told the Dail, to Opposition jeers.
Though corporation tax will fall to 12.5 per cent at a cost of ?300 million, the Minister is recovering ?500 from the business sector through changes to capital allowances and other reliefs.
Vehicle Registration Tax will yield ?30 million more since the higher 30 per cent rate will be levied on all vehicles above an engine size of 1.9 litres, rather than the two-litre threshold in place.
The 1 percentage point rise in the lower Value Added Tax rate, to 13.5 per cent, will raise ?187 million next year, though the Minister said it would add just 0.18 per cent to the Consumer Price Index.
The Minister's figures indicate the Government is banking that total VAT revenues will rise next year by nearly ?1 billion, up from ?8.870 billion this year to ?9.826 billion. The prediction is valid, according to Department of Finance official, Mr Donal McNally, because VAT income is 13 per cent up at the end of November on 2002 predictions, despite a sluggish economy.
Questioned about the three-year ?100 million levy on financial institutions, which has already been described as unfair by the biggest banks, the Minister said: "They won't miss it."
The levy will not mean higher charges for the public. "The banks have to apply to the Director of Consumer Affairs for increases, and they already feel that they get a hard time when they try."
Unusually, the majority of Government departments have received nothing extra on Budget Day in addition to the amounts promised in the Estimates. Health got just ?2.8 million while Social and Family Affairs got ?500 million for Budget Day social welfare increases. Next year, national debt repayments will cost ?2.7 billion, or 8.6 per cent of total tax revenues - the first time in six years that government borrowing costs have increased in real terms.
Extra stamp duty on credit cards, which rises from ?19 to ?40, will raise ?25.3 million, while similar increases on ATM and Laser cards will raise a further ?17.2 million.
Describing the Budget as "genetically flawed", Fine Gael finance spokesman, Mr Richard Bruton, forecasted that major public services would grind to a halt next year.
"Administrators will have no staff to administer. You will have expensive hospital beds closed because there will not be enough doctors and other workers to staff them," he told the Dail.
