Sale of State bank assets to help McCreevy with Budget tax cuts

The Government is to clear the way for a generous Budget by including a substantial sum from the expected sale of State assets in next year's Exchequer figures. While the Budget may not specify what is to be sold, it is believed that the Government parties have agreed in principle to sell part of the State shareholding in ACCBank and ICC.

The addition of the extra cash - which could benefit the budgetary figures by £100 million or more - should make it possible for the Minister for Finance, Mr McCreevy, to announce a substantial package of tax reductions and extra spending, while still aiming for a surplus on the Exchequer finances next year.

Despite the healthy state of the nation's finances, discussions between the Government parties have been continuing over the weekend in a bid to finalise the shape of the crucial income tax package.

Up to the end of last week, after lengthy and difficult negotiations between Fianna Fail and the Progressive Democrats, no agreement had been reached on details of the Budget's income-tax package. However, a meeting was arranged on Saturday between the Taoiseach, Mr Ahern, the Tanaiste, Ms Harney, and the Minister for Finance, Mr McCreevy, in a bid to reach agreement. It was not clear last night whether the entire package had been finalised.

Figures published on Saturday suggested that the budgetary arithmetic would be tighter than expected. But it is now thought that Mr McCreevy will increase his room for manoeuvre next Wednesday by counting in cash from the expected sale of State shareholdings.

Detailed discussions of a range of options for the income-tax package are understood to have taken place right up to the end of last week. The two Government parties promised in their election programmes to aim for significant reductions in income-tax rates and the PDs have been continuing to argue that this should be the priority.

Cuts in both the standard 26 per cent and higher 48 per cent income-tax rates are thus expected, although there has been haggling up to the last minute on the extent of these reductions. Personal tax allowances are also to be increased to benefit lower earners and the standard-rate income-tax band will be widened so that fewer people pay at the higher rate.

Corporation tax will also fall, with both the standard 36 per cent rate and the 28 per cent rate likely to fall by at least two percentage points. And reforms in capital gains tax are expected, aimed particularly at benefiting employee share ownership schemes. Meanwhile a major "social inclusion" programme will include higher payments for the unemployed, extra spending on health and a significant increase in pension payments.

The pre-Budget White Paper, published on Saturday, estimated that before any of next Wednesday's measures, the Exchequer was heading for a surplus of £223 million next year. The addition of expected receipts from asset sales will now boost this figure. The Government is likely to budget to sell a majority stake in ACCBank and possibly all of ICC. With the idea of a State-created third banking force now dead, the Government is understood to believe that there is no reason now not to proceed with these sales.

However, while the ACCBank and ICC would both be keen to proceed down this road, no agreement has yet been reached with the trustees of the Trustee Savings Bank on the mechanism to be used to sell it. The ACCBank, which has its roots in the agricultural sector, has recently been developing as a wider-based financial institution. Meanwhile the ICC serves the small business sector and is heavily involved in providing venture capital