Two army barracks to close

TOP earners in the €100,000-plus bracket will take most of the pain with hefty tax increases in Tuesday's budget, which is likely to be the most draconian in almost a quarter of a century.

The chronic state of the public finances means the government cannot simply rely on stealth taxes – leaving tax credits and bands unchanged – and there will be headline tax increases for at least some workers.

Finance minister Brian Lenihan is likely to scrap or considerably raise the PRSI ceiling, although the Sunday Tribune has learned there is concern in government that raising the top rate of tax might send out the wrong signal and depress consumer confidence further. More targeted but less politically sensitive tax increases like levies may be on the cards.

A cut in the €1,000 per year per child early childcare supplement is believed to be highly likely.

Air passengers will be hit by a new air travel tax to be levied on all passengers leaving the country from main airports. The tax is expected to be in the region of €10 per ticket but could be considerably higher for long-haul flights and routes from the USA.

Agriculture minister Brendan Smith told RTÉ radio yesterday that Tuesday's budget would be tougher than anticipated. Severe decisions had been made but they were responsible and balanced, he said.

The Sunday Tribune also understands that the government has looked closely at free medical cards for over 70s and child benefit payments – both of which are paid out without means testing. The unsustainability of providing these universally, regardless of wealth, mean some change is likely to be announced on Tuesday, although the government is anxious not to impact on average earners.

"It won't be as radical as people think," one senior source told the Sunday Tribune.

Other measures are likely to prove more controversial. With departments having to find cutbacks in excess of €2bn on day-to-day spending, the pain from Tuesday's budget will not be confined to high-rollers.

It is understood that cutbacks in the Defence budget mean that two of the state's barracks will be closed, which is likely to prove extremely sensitive politically in the areas affected.

As many as 25 state agencies will be culled. The Combat Poverty Agency will be brought back into the Department of Social Affairs; all the regional fisheries boards, along with the central board, will be amalgamated into one fisheries board; and the National Consumer Agency and the Competition Authority will be merged.

The old reliables of drink, cigarettes and petrol are also certain to be hit. The deflationary impact of the dramatic global economic slowdown gives the government much greater scope to hike taxes on these areas without having to worry about inflation. Tax increases in these areas would come in from midnight on Budget day giving an instant boost to the state's hard pressed finances.

Lenihan is also likely to make an announcement on extending a voluntary redundancy programme from the HSE across the entire public sector with a view to sharply reducing public sector numbers.

However, the Department of Finance is determined to avoid past mistakes and ensure any such programme is targeted at the right areas. For that reason, Lenihan's comments may be limited to announcing that a group will look at how best this can be done.

The government is also expected to confirm the establishment of a new fund worth 250m to help out first time buyers.