Brian Cowen (Laois-Offaly, Fianna Fail)

I propose to deal with amendments Nos. 11 to 13, inclusive.

These propose changes in respect of the standard rate bands. The costs of the increase in the income tax bands, as proposed by Deputy Bruton, would be €438 million in a full year. The proposal would increase the standard rate band for a married one-earner couple to €46,000, which is €5,000 more than was envisaged in the budget. The proposal would also reduce the non-transferable band available to the lesser earning spouse in a married two-income couple to €22,000, as compared to the figure of €23,000 envisaged in the budget.

I appreciate the Deputy's concern in respect of married one-income couples, however, the budget introduced several income tax changes which will benefit married one-income couples. For the second year in a row, married one-income couples have seen substantial increases in their tax credits and standard rate band. The standard rate band for such couples was increased by €2,600 to €41,000. The personal employee tax credits were increased by €50 to €1,630 and by €220 to €1,490, respectively. These changes ensure that a married one-income couple in the PAYE system who receive the home carer's tax credit may earn up to €27,600 without any liability for income tax arising. As a result of the budget, the income tax bill for a married one-income couple with an income in excess of €41,000 per annum is reduced in 2006 by an additional €892 per annum.

When the Government set itself the target that 80% of PAYE taxpayers would pay tax at the standard rate of income tax, the income tax landscape differed from the current landscape. People in the tax net at that time were afforded tax allowances at their marginal rate of tax. Thus, if the personal allowance was increased by €1,000 per annum, it was worth €480 to the higher rate taxpayer and €260 to the lower rate taxpayer. The effect of this was that increases in personal allowances removed higher rate earners from the higher rate as more of their income was exempt from tax at 48%, which was the higher rate at the time. In the 1999 budget, those tax allowances were standard rated and were worth a uniform €260 to all taxpayers, regardless of whether they paid tax at the higher or standard rate. This was seen as a fairer system and hailed as such at the time. The standard rate of allowances were later relabelled tax credits. One side effect, however, was that increases in the standard rate of tax allowances no longer acted to remove higher rate taxpayers from the higher rate band. The only way this could be achieved was by widening the standard rate band. Over time, without other reforms, the number and percentage of higher rate taxpayers would have risen inexorably.

Providing greater equity has made the 80% standard rate target more difficult to achieve. The solution reached was individualisation in 2000. Before 2000, a married taxpayer received double a single person's tax band and double their tax allowances. Individualisation of the standard rate band meant each person would be treated as an individual taxpayer with an appropriate standard rate tax band. At the time, the standard rate bands were €14,000 for a single person and €28,000 for a married single earner and €28,000 for married double earners. The individualisation proposal only affected the standard rate band. There was never a proposal to individualise personal allowances. Married earners still receive twice the allowance or tax credit of single people.

The other major reform has been to undertake to keep those on the minimum wage out of the tax net. This was part of the social partnership agreement in 2001 and 2002. The principal way to achieve this was by increasing tax credits. It absorbs resources that might otherwise have gone to widening the standard rate band. Given that tax credits are calculated at the standard rate band, increases in these credits does nothing to remove one from the higher rate.

This is the context in which we must deal with these issues. After budget 2006, the average tax rate for a person on the average industrial wage will be 12% lower than it was when the Government came into office. The average tax rate is 15% for those on the average industrial wage compared to 27% previously. This is a major advance in terms of equity for average workers, which cannot be denied. In 2006, a PAYE person on the average industrial wage will have seen his or her pay increase by more than €12,000 compared to 1997. Even allowing for the pay increase of €12,600, the tax bill is down by more than €400 per year compared to 1997. In real terms, when the cost of living as measured by the CPI is taken into account, a person on the average industrial wage will have seen his or her take home pay increase by 44%, of which approximately half is due to tax reductions. These are significant achievements in terms of reform of the income tax code. It is more favourable and equitable to people on average and lower incomes.

After budget 2006, the percentage of the income tax yield coming from those earning at or under the average industrial wage is 6% compared to more than 14% in 1997. The total yield from people in that wage bracket, and under, is less than half of what it was when the Government took up office. This is a reduction of 57%. The reality is that people on average incomes, or lower, are much better off now under the income tax changes introduced since the Government came into office than was possible or envisaged by those who have opposed us since then and prior to that. When one examines all the income tax reductions that have taken place, 31 of the 32 have been under Fianna Fáil-led Administrations over a long period.

While it has not been possible to reach the goal of 80% on the standard rate, our tax policies have ensured we have the lowest tax wage in the European Union, and one of the lowest in the OECD. Since 1997, the average tax rates for all categories of taxpayers has decreased significantly. Earners retain a greater proportion of income and take home pay. The average tax take from income tax, PRSI and the health levy is a proportion of gross income. While in the past it was approximately 27% for someone on the average industrial wage, it is 15% as a result of successive changes since the Government took office. This is a record the Government can defend and be proud of.

The structural change of moving to tax credits has made that target much more difficult to achieve. It must also be considered in the context of other priorities or needs. I could have left 25% of people on the minimum wage outside the tax net, as was the case previously. These people who are now on a higher minimum wage are outside the net tax, which is a greater priority than some of the issues raised by the Deputy. This is not to say that these people were neglected. Their take home pay is also better. One must make these decisions.

I stand over the Government's record in regard to the income tax code as it applies to average workers and the overall tax yield from workers. One of the reasons this has been achieved is that there is a greater number of people at work in the economy. This is creating wealth and tax revenue and enabling us to spread the benefits to a greater extent than would otherwise be the case if the jobs were not being created.

It is fine if people want to debate whether we are too pro-enterprise or not sufficiently pro-enterprise. We can have that philosophical debate on a party political basis. However, the point is that there are far more people at work, far more people with more disposable income and far more people in a better position than was the case previously as a result of the income tax changes that have been introduced. I will defend the structural changes we introduced and the further priorities we have identified.

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