Brian Cowen (Laois-Offaly, Fianna Fail)

As I present my third budget to this House, I am delighted to report that Ireland's economy is strong.

Introduction

Growth is running at 5%, its ideal, sustainable level, and more than 2 million people are at work. We are making unprecedented investment in our infrastructure and this will enhance our competitiveness and improve our quality of life for years to come.

Our public services are being expanded, improved and reformed, and more doctors, teachers, nurses and gardaí are employed than ever before. At the same time, the public finances have never been in better shape. The success we enjoy now has been brought about by the hard work of our people, responding to the policies of this Government. The purpose of this budget is to use that success as a platform on which we will continue to build a fairer and stronger Ireland.

Economic Context

In 2007, our country will extend its record of outstanding economic progress. The economy will grow by 5.25%; we estimate that 72,000 new jobs will be created next year, representing a 3.5% increase in the numbers at work; unemployment will remain low at 4.4%, among the lowest in the EU; and inflation, as measured on the harmonised EU basis, will moderate from 2.7% on average in 2006, to 2.6% in 2007.

Of course these projections are subject to some degree of risk from international factors. These include a possible sharper than expected downturn in the US economy; a slower growth rate than is currently forecast in Europe; further ECB interest rate increases; and the ever present unpredictability of oil prices and exchange rates. There are also domestic risks of losing competitiveness and from unbalanced economic growth. This budget addresses those risks by taking a long-term, sustainable approach to our economic management.

The Government's primary economic aim has been to create more jobs and facilitate more business being done. The additional revenues generated by such a strong economy enable us to sustain ongoing improvements in our public services year in, year out. The success of our policies is best highlighted by the hundreds of thousands of new jobs created, and the changes to our tax policies which have rewarded work and allowed people take home a greater share of their pay. We have also been able to provide for the less well-off in ways which no Government has ever achieved before. We have built up the productive capacity of the country by investing in capital spending; thereby helping us to compete better in the long term also.

At the same time that we have been doing all this, we have more than halved the national debt burden, an example of responsible Government at work. Our strategy has been remarkably successful by any measure and is the firm foundation on which we can build in the future.

The year 2006 has been an exceptional year for the public finances. It is true that although tax revenues are well ahead, some of the buoyancy is due to one-off windfall gains. Against this backdrop, we must firstly ensure any increase in spending is used efficiently and effectively. We must continue to insist on value for money in public spending and we must be careful not to inject so much spending that we create additional inflationary pressures, and in so doing reduce the impact of additional expenditure.

I am not proposing that because we have extra resources we should spend it all now. That would be irresponsible and short-sighted. Responsible Government involves finding the balance between meeting immediate priorities and making provision for future uncertainties. Of the additional resources at my disposal this year, I am returning some to the taxpayer and committing some to additional support in the social welfare and health areas, in care of the elderly and in improving services for the disabled. I am also using some of the additional revenue to run a very substantial budget surplus. In the event of a global slowdown, we will be able to use some of this flexibility generated during the good times to protect jobs and public services at home.

For these reasons, I will provide for the following fiscal targets in 2007: a projected general Government surplus of 1.2%; an increase in gross current spending of 11.5%; an increase in capital spending of 13%; and a gross debt to GDP ratio of under 25%, one of the lowest in Europe.

Balancing responsibility with ambition has brought us to our present position of economic strength and this Government is determined to maintain that approach. It is the only means of prolonging and extending the best period of sustained economic growth in our country's history.

Rewarding Work

Income Tax

Regarding rewarding work, as I stated, Ireland's economic success is driven by the hard work and collective efforts of the people. There is no doubt in my mind that our national economic potential has been boosted through a transformation of our tax system generally and our income tax system in particular which has dramatically increased the rewards of work.

During our ten years in office so far, we have made our income tax system fundamentally fairer by introducing tax credits, widening tax bands and cutting tax rates. We lifted hundreds of thousands of people out of the tax net. We introduced and increased the minimum wage and ensured that people on it do not pay income tax. We cut the income tax burden on average earners by more than half. We removed the average wage from the higher tax rate. We reached our target of 80% paying an effective tax rate of no more than 20%.

We abolished many property-based and other tax relief schemes and introduced restrictions on the reliefs available to high earners as part of our continuing tax reform measures. We will continue to assess the role time-limited tax relief schemes can play in supporting public policy objectives. In short, this Government has achieved a fairer, more progressive and more rewarding income tax system. Thanks to the strength of our economic performance, we can now go further.

I wish to announce the following income tax changes to the House. Today, I am increasing the personal tax credit by €130 to €1,760 each year for single people and by €260 to €3,520 for married couples. I am increasing the employee tax credit by €270 to €1,760 per year. The entry point at which people will start paying income tax is being increased to €17,600 per year——

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