Brian Cowen (Laois-Offaly, Fianna Fail)

Deputy Rabbitte made a point about the deflationary impact of the measure. Clearly, taking money out of the economy has an adverse impact in some respects, but unless we bring some type of order to the public finances, the drift in the deficit means our position is not sustainable. We have had to be careful to emerge with a deficit of 10.75%, taking into account the deterioration in the public finances since the beginning of the year. The mix we have brought forward in terms of tax take and expenditure, without unnecessarily decimating services, is the best way in which we could begin to address this process over a period of years. As people's tax take has increased as a result of these levies and their disposable income has correspondingly decreased, we are beginning to see costs coming down. By reducing costs, we are improving the relative position of those being asked to pay more tax in the present circumstances. It is a point that can and should be made in terms of assessing the ultimate relative position of taxpayers in regard to the measures we have introduced.

The introduction of these measures comes against a background of reduced tax take from workers in all income groups as a matter of policy during good times, which is the correct approach to take during periods of growth. Now that we are in recession and in a situation where the economy is quite fragile, we do not have the option of simply stepping back and making no decisions in regard to taxation and spending in this financial year. That would be an irresponsible approach which would allow the deficit to increase and would sap the confidence of the international community in terms of the determination of the Government to address the issues.

As I said, we have faced a difficult situation in recent months. However, on every occasion, even without the full support of the House, we have brought forward initiatives which have helped to bolster international confidence in the preparedness of the Government to take whatever decisions are necessary. We all agree that unless there is restoration of order to the public finances, the prospect of economic recovery lengthens further and further. As we saw in the late 1980s, corrective measures can have an adverse effect on an already difficult economic situation. However, this does not take away from reality that we must take the necessary steps, even in these difficult circumstances. Not to so do would weaken the economy to an even greater extent in terms of our ability to fund the widening chasm between taxation and expenditure that has arisen. There seems to be agreement in the House that the structural problem is of the order of 8% to 8.3%. We can at least have a rational debate about what should be the proper response to eliminate that structural deficit over the period of the plan. We all hope the recessionary cycle will go into a growth phrase over the course of 2007-13 and provide buoyancy in regard to the cyclical aspect of the deficit.

Deputy Noonan had a question on the impact of individualisation. To clarify, in respect of his reference to a person earning €80,000, the income levy rate of 4% applies in respect of income above €75,000 and not to the full €80,000. Assuming his calculation to be based on the 4% being beyond that-----

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