AS we head towards May and the first budget of the new term of Parliament, debates over whether, and by how much, the Government should cut income taxes are set to become louder and more frequent. The animal clamour over personal income tax has become something of a ritual. Nevertheless, this should not disguise the fundamental issues at stake and the importance of income tax both for business and the overall economy. The first is the perennial issue of fiscal drag. As money incomes grow, a greater proportion of total income becomes subject to tax at higher marginal rates. As a rough guide, fiscal drag will add 1.25bn dollars to personal income tax collections in 2004-05.
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