Brian Cowen (Laois-Offaly, Fianna Fail)

I thank Deputies for their contributions. There has been a suggestion that the changes to the income levy are not progressive. The levy is progressive. Those with higher incomes pay the most and the burden on lower earners is much less. Around 30% of income earners - 670,000 people - remain exempt from the levy, as do medical card holders above the ceiling. That the principle of fairness was central to the Government's decisions is demonstrated by the fact that the top 1% of income earners - in other words, those with incomes greater than €175,000 - contribute 24% of the total income levy yield and those earning more than €50,000 contribute 70% of the total levy yield. The entry point to the income levy is still €750 higher than the entry point to the tax net in 2005.

I accept that these are impositions on people in various income bands. There is no question about that and it is not being disputed. However, from a wider perspective, the fact that one third of our tax base is gone means there is a structural issue that we must address. The progressiveness of the levy is demonstrated by the fact that people on €20,000 to €25,000 are going back to 2007 levels of taxation, while those on €50,000 are going back to 2005 levels of taxation and those on more than €100,000 are going back to 2002 or 2003 levels. There is a table in the documentation, showing average tax rates on annual earnings in percentage terms, which confirms this. People on €30,000 were paying an average of 12.9% of their earnings in tax in 2008. As a result of this supplementary budget this will increase to 16.9%, which equates to a 4% increase year-on-year. The average level in 2005 was 16%, and this was reduced to 12-13% over the following three years. Thus, there is a step back to a previous period, but that is what is required to make the correction. Given the constraints of a supplementary budget, the levy was the most effective way of doing this.

We will also consider what we can do in terms of tax rates in the future based on the findings of the Commission on Taxation. These will not dictate what happens, but it will give us an opportunity to have a systemic overview of our options for broadening the tax base. How can we achieve new sources of income? How can we ensure we remain pro-enterprise and pro-employment? As I said, the tax wedges still remain among the lowest in the OECD. In redesigning our tax system for the future - given the return to growth we expect, which will not be back to the levels seen in earlier years - we must have some increase in income tax contribution. In good times we see, rightly, continuing reductions in income tax, which means that more income is available for discretionary spending. However, as part of the redesign of our tax system, average tax rates must increase to those of three or four years ago for those on €50,000, while those on €25,000 return to the tax rates of two years ago and those on €100,000 return to rates last seen much longer ago. That illustrates the progressive nature of the income levy.

If we consider the levy itself we will see that the impact for people on low incomes of around €20,000 will be 1.1%, while the impact for people on more than €100,000 will be 8%. There is no question but that it is progressive. Second, it does not apply only to PAYE workers but also to those who are self-employed. It is calculated on the basis of their gross income, before any deductions, without allowing people to reduce their imputable income for taxation purposes. This has the effect of ensuring progressivity.

Deputy O'Sullivan mentioned that a family on an income of €30,000 would lose €1,900 per year. The table I have before me shows a reduction of €1,380 for such a family, although I am not saying that is insignificant.

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