Cowen gets it right on many issues

Finance Minister Brian Cowen described his budget as the biggest support package for the low-income sector in the history of the State.

There are increases in social welfare payments, pensions, and children’s allowances, and the tax band at the standard rate has been increased by €2,000.

This is an election budget.

The Government had held back on some increases in recent years so that it could give more this year when it is likely to have most electoral impact.

But then, of course, politicians play politics.

A more popular move would have been to lower the standard rate of tax, which has been left unchanged at 20%, but the minister announced a reduction in the higher rate from 42% to 41%, and hopes to make a further 1% cut in next year’s budget.

The Progressive Democrats possibly influenced this, along with incentives in the extension of the Business Expansion Scheme and concessions to bigger farmers.

The minister should be congratulated for not surrendering to the orchestrated pressure to lower or scrap the stamp duty on houses, especially for first-time buyers.

“Any stamp duty cuts would more than likely have been incorporated into the sale price and end up in the pocket of the sellers,” he argued. “This would not help first-time buyers.”

He has sought to help those first-time buyers, however, by doubling the mortgage interest relief rate, and including not only the first-time buyers of the future but also those who have been in receipt of such relief during the first seven years of their existing mortgage. This will benefit 125,000 people at a cost of around €60 million for the year.

At the same time it should have a minimal impact on house prices, which are dangerously over-inflated.

In earlier years, the excise tax on the old reliables, alcohol and tobacco, inevitably made headlines.

The minister announced a 50 cent increase in the price of a packet of 20 cigarettes, from today, but this was not designed as a revenue raising exercise. Rather, it was a health measure to cut down on smoking and deter younger people from taking up the habit.

To that end, Mr Cowen also announced the banning of the sale of packets of less than 20 cigarettes.

The minister requested the Social Partners should not take the cigarette price increase into account as part of inflation.

As the price increase is aimed at cutting down on consumption with the ultimate aim of eliminating smoking, it would be self-defeating to compensate people for the price increase at the same time.

One of the drawbacks of this budget is the continued practice of favouring individualisation, whereby a two-income family paying for childcare gains more than the traditional family where one partner stays at home to look after the children.

There could be some other drawbacks in the details when the Finance Bill is published, but, as it stands, the Budget should certainly be welcomed.