Brian Cowen (Laois-Offaly, Fianna Fail)

The tax strategy group and the Revenue Commissioners independently conducted an exercise, which found that even for those whose tax is calculated at 42%, the effect of the new fairer tax credit system brought in by the Government in 1999, combined with the other income tax changes to rates and bands, means that four fifths of earners pay no more than one fifth of their earnings in income tax. The tax credit is deducted from the gross liability to compute the effective rate of tax and, therefore, four fifths of income earners pay an effective rate of tax of 20% or less. It was different under the old allowance system. The tax free allowance was subtracted from the top rate of tax to prevent people from entering the top rate more easily. Under the fairer tax credit system, which creates the net liability once the gross liability is computed, four fifths of people pay an effective rate of tax of 20% or less. The effective position if that if a worker is earning €50,000 per year, he or she pays €10,000 in tax or at a tax rate of 20% or less.

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