Brian Cowen (Laois-Offaly, Fianna Fail)

I will make a few points in reply to the Deputy's comments. We live in exceptional economic circumstances. The income levy is a progressive effort to ensure those on high incomes pay proportionately. The progressive nature of the levy, which applies to gross income, would not have been possible to achieve if one had used the tax rates, given the availability of shelters and allowances.

The Deputy is correct that an additional 0.5%, to be paid in the third phase, was negotiated by the unions in respect of low and modest pay. It is important to point out that this differential remains. On the basis that a 1% levy will apply to people on low pay and a 2% levy will apply to those earning more than €100,00 per annum, the differential between these groups will be 1.5%. If the Deputy's argument is that the differential must be maintained, that is already being achieved.

If the Deputy's subsequent question is about the extent to which we can protect incomes at the lower level, as I indicated, the Government is prepared to contribute to that objective by ensuring levy does not apply at or below the minimum wage. At the time of the signing of the agreement, the inflation forecast was 3% for 2009, whereas the inflation now forecast for next year is 2.5%. In fact the problem next year will not be inflation, but deflation — we are seeing inflation going down as a result of reduced activity and the flattening out of export markets in terms of activity as well. That differential is being retained and the 0.5% in terms of the protection of living standards will now be available next year to a greater extent, in addition to what was already negotiated.

When one looks at this in the continuum, the fact is that we have achieved an enormous amount during the good times, in terms of taking people out of the tax net altogether. Some 500,000 people on low and modest incomes who had previously paid tax were taken out of the tax net, as a result of the Government's policies. There is also the point that the average industrial wage has increased by €15,000 in that period as well, yet the amount of per capita tax paid is €1,000 less. That is a very important fact. In 1983 the average industrial wage was €18,000 and now it is around €35,000. As regards those on low pay as well, there is the question of increasing the family income supplement, FIS, eligibility arrangements for working families with children. This ensures that a family on FIS in receipt of €20,000 in wages, now gets an additional €726, if there are two children. These are important "other mechanisms", when one looks at how the taxation impacts on take home pay, along with the fact that so many people have been taken out of the tax net, when in the past — before the Fianna Fáil-led Administration came back into office in 1997 — after pretty meagre allowances, people were paying a standard rate of 26%.

There is, therefore, an indication of a very concentrated effort when times were good to lighten the load of workers and the tax take of the average industrial wage was reduced from 27% to 15% as a result. We now face exceptional times, and an income levy was introduced which maintained the differential. The fact that there will be lower inflation next year than at the time of its negotiation is a further indication as to why people should have a positive disposition towards having the pay agreement ratified. I hope all of these issues and information can be taken into the mix, as well as the fact that we are living in exceptional times. It is important in terms of participatory democracy that people are in a position to pay according to their means, recognising the weight we give to social partnership. As I said, I was in a position to announce today that it would not apply to those on the minimum wage or lower.

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