By Paddy Clancy

A $1.34 billion giveaway budget that earned Finance Minister Brian Cowen the seasonal nickname “Santa” was hailed as an election return ticket for the government.

Whether it was a vote-magnet for next year’s general election, as was unconvincingly denied by ministers, or a generous package of goodies made possible by prudent housekeeping was irrelevant in the short-term to the electorate.

All they cared was that taxes were coming down, pensions and welfare payments were going up and mortgage interest relief for first-time home buyers was being doubled.

An average family was left about $2,000 a year better off as a result of a 1% reduction in the top tax rate to 41%, removal altogether of the lowest paid from the tax net, and a widening of the band for those on the standard 20%.

The changes mean that, as the countdown continues to an election expected in May, two out of every five workers will no longer be required to pay tax, and 80% of all earners will pay an effective tax rate of no more than 20%.

Cowen described the measures as “the biggest package of support for those on low incomes in the history of the state.”

There’s more on the way, too. In what was seen as a nod to the Progressive Democrats, the junior partners in the ruling coalition with Fianna Fail, Cowen indicated there will be a further 1% reduction next year in the top income tax rate.

Pensions for senior citizens are set to rise by $21 to $277 a week and social welfare payments will increase by $26.50 a week to a minimum $246.

While substantially increasing tax relief on mortgage interest for first-time house buyers, including people who bought their first homes within the last seven years as well as future buyers, Cowen did not make any changes in stamp duty, arguing that any reduction would end up in the pocket of the seller rather than the buyer.

He told the Dail (Parliament) that a couple with a joint mortgage of up to $500,000 over 33 years at an interest rate of 4.5% would gain up to $2,120 extra a year in interest relief directly credited against their mortgage bill.

The ripple effect of a 25% increase in the charge for private hospital beds will mean higher Voluntary Health Insurance payments for middle-income earners.

Tanaiste (Deputy Leader) Michael McDowell, who is also leader of the Progressive Democrats, denied that his party’s concerns had been largely ignored in a Fianna Fail-style budget.

He said he was happy with the budget and had agreed with Cowen and Taoiseach (Prime Minister) Bertie Ahern that the best way to help first-time house buyers was through extra mortgage interest relief.

"What Brian Cowen and myself and the taoiseach agreed was that it would be better to do it over two years. We don't want to set off inflationary pressures on the economy at this stage when things are going so well but the commitment is there,” McDowell said.

One of the so-called “hardy annuals,” alcohol, was untouched, with no increases in liquor duties, although publicans who have lost business with the smoking ban and with random breath-tests of drivers, claimed levies should have been reduced on their products.

A surprise was a hike of 66 cents in a packet of 20 cigarettes, bringing the price to over $9.30. Cowen said it was a public health measure, although anti-smoking campaigners led by cancer specialist Professor Luke Clancy argued the increase should have been greater.

The critics’ concerns brought some response with a government announcement next day banning sales of cigarettes in packets of fewer than 20 -– a move aimed at reducing smoking opportunities for youngsters who usually purchased packs of 10.

The main opposition parties accused Cowen of rigging the figures in an effort to disguise the fact that the government had failed to honor its commitment that only 20% of taxpayers would be left on the top rate.

They also maintained that the tax relief for first-time buyers would be nullified by a quarter percent interest rate increase announced next day by the European Central Bank.

Fine Gael Finance Spokesman Richard Bruton claimed that single-income families had been betrayed by the government as, for the sixth year in a row, there was nothing in the tax code for the spouse working in the home.

"People caring for their children in the home are being airbrushed out of the tax code” he said.

Sinn Fein’s Caoimhghin O Caolain welcomed measures for those on low incomes, but said Cowen "could have done much, much more if he had chosen to.”