Modest relief in income tax

Press, 6 December 1979, Page 20

Modest relief in income tax

When a fairly firm ceiling has been applied to the percentages ;for wage increases the modest adjustment to tax rates announced for next April is likely to have a greater effect than would otherwise be expected. On many incomes the effect will be of little consequence: the main influence will be on the spending power of people on lower incomes. The effect will be regarded a s little enough in times of fierce inflation, but the tax relief in economically difficult times is to be preferred to a general rise in wages and salaries—of even 1 per cent —ail the way up the earning scale and to increases that must be reflected in overtime and other extra earningjs. Relief on such a small scale is not a spectacular political gesture. Indeed, it may be interpreted as a miniscule crust for taxpayers. The times are not right for using taxation as a tool for political ends and a Minister of Finance who did so would be roundly condemned. not just by economists, but jby his political opponents. The Leader of the Opposition, Mr Rowling, is not being unreasonable when he says that, in isolation, the tax change is not enough. From next April other tax incentives will apply. The new scheme for export incentives should not be forgotten; many businesses will benefit because they are active in exporting. Relief from indirect taxation is most unlikely when the whole drift of tax policy is towards indirect taxes to relieve the burden on direct taxpayers

Influences on spending will include possible interim pay rises for State servants and the rate of inflation itself. A major influence will be the decisions made in the next few months on the level of State expenditure in the coming year. Complete packages of financial adjustments can no longer be expected, and even the annual Budget has ceased to be the full story on financial policy.

The time is approaching for the customary statement from the Minister of Finance on the condition of the economy and options open to the Government This year, Mr Muldoon should leave no doubt in the public mind about where the economy is heading. He will inevitably want to hedge his bets: and only a foolish Minister would lay out an unalterable course in any detail. Many big businesses are capable of charting their own future, and their employees’ future, from economic signals that are less clear to small firms and individuals. Even clear signals must be ones that people are willing to follow if they are not prepared to make their own way.

If they get a broad guide, Mr Muldoon may expect to get a more ready answer to the appeal he launched in his last Budget speech when he sought wide co-operation in facing economic problems and achieving economic goals. The public must see very clearly what these goals are, acknowledge that they are worth while, and have the confidence that they can be won. The rest is up to individual action.