Brian Cowen (Laois-Offaly, Fianna Fail)

Inflation, as measured by the CPI, averaged 4.9% in 2007. On budget day, 5 December 2007, my Department forecast that consumer price index inflation would average 3% this year. This forecast was based on the normal technical assumption of unchanged interest rates and is predicated on the rate of inflation moderating as this year progresses, and it remains my Department's forecast for 2008.

Including the impact of mortgage rate increases in the CPI not only masks the underlying inflation rate but also highlights the short-term impact of interest rate increases which are designed to bring down inflation. As such, a better measure of inflation than the consumer price index is the harmonised index of consumer prices, HICP, which excludes, among other things, mortgage interest and is a more realistic measure of inflation. The average increase in the HICP in 2007 was 2.8% and the forecast increase for 2008 is 2.4%.

In terms of those families whose income earners would be classified as low paid or who are dependent on social welfare payments, I remind the Deputy that the Government's priority has been firmly focused on protecting the most vulnerable.

I have continued in successive budgets to increase the rates of social welfare payments significantly. In budget 2007, social welfare increases ranged from over 8% to over 12% in weekly rates. Thus, even when compared with the inflation outturn for 2007, these increases ensured that those in receipt of, and reliant upon, social welfare payments will have seen real net gains in 2007. Budget 2008 provides for social welfare increases of between 6% and 7% in weekly rates, again ensuring that those in most need should be more than insulated against the effects of inflation.

The changes to the tax system introduced in this year's budget continue to ensure that all those on the minimum wage are exempt from tax in 2008. In total, some 878,100 earners, that is almost two out of every five earners, are outside the tax net, as compared to 380,000, or one in four, in 1997. In addition, the income of the average worker in 2008, estimated at approximately €34,000 per annum, is placed well outside liability to the higher rate of tax.

In addition to ensuring continued increases in the living standards of those relying on social welfare payments and the lower paid, I have also acted to provide extra support to mortgage holders. Following the improvements in budget 2008, those with mortgages can avail of mortgage interest relief, which currently applies at 20%, and to a ceiling of €10,000 for a single person, or €20,000 for married or widowed persons who are first-time buyers for the initial seven years of their mortgage, and €3,000 and €6,000 for all others. The current level of mortgage interest relief for married first-time buyers is sufficient to cover the interest arising on a mortgage of up to approximately €400,000 over 35 years at an interest rate of 5%, which is well above the average mortgage.

In summary, in order to build on the policies of the previous Government, I have continued to bring forward policies designed to protect those on lower incomes from the impact of inflation.

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