Richard Bruton (Dublin North Central, Fine Gael)
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Question 53: To ask the Minister for Finance if the tax targets set out in the Programme for Government 2002 continue to shape Government policy; and if he has satisfied himself that current tax policy is fair to ordinary families. [39575/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The answer to the Deputy's questions is yes. The Government's approach to tax policy is set out in An Agreed Programme for Government and in recent budgets and Finance Bills. In addition, the partnership agreement, Towards 2016, states the Government is committed to a taxation policy designed to maintain and strengthen the competitive position of the economy, foster improvements in productive capacity, economic and social development, and equity, while maintaining a sound fiscal stance.

With regard to the fairness of current tax policy, improvements in the tax system since 1997 have meant more than 776,000 income earners are out of the tax net compared with approximately 380,000 ten years ago. Those on the minimum wage are exempt from tax. In addition, the tax burden for the married one-earner on average earnings has fallen from 20% to 8% under our watch. The married one-earner on average earnings has seen his or her annual tax bill fall by almost €1,500 even though his or her annual gross income has risen by over €12,000 in that time. Even for those whose tax is calculated at 42%, the effect of the new fairer tax credit system brought in by the Government parties in 1999, combined with the other income tax changes to rates and bands, means that four fifths of earners pay no more than one fifth of their earnings in income tax.

Rates under most tax heads have reduced since 1997. At the same time, the tax yield to the State has continued to rise due to the extra economic activity accompanying this policy. In some cases, such as capital gains tax and corporation tax, the tax yield increased substantially after rates were cut. This extra tax revenue has been used, among other things, to reduce tax on the ordinary PAYE worker, remove lower income earners from the tax net altogether and fund the provision of increased public services. The Government's tax policies have been designed to promote the competitiveness of the economy, support enterprise and reward work. The practically full employment which the economy enjoys is tangible evidence of the success of these policies in delivering fairness and dignity to ordinary families.

Richard Bruton (Dublin North Central, Fine Gael)
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I refer to the Government's tax targets. Over the past four years, total tax as a proportion of national income has increased. Far from being a low tax Government, this has been a high tax Government. It is even worse for families. The proportion of their personal income taken in tax has increased by seven percentage points to 38.5%. The Minister has the unusual distinction of being the first Minister for Finance to have more people paying tax at the 42% rate than at the 20% rate, which is extraordinary. The reason is that a single person on 80% of average earnings is taxed at 42%, the same rate that applies to a millionaire. Where stands the commitment in the programme for Government to ensure 80% of all earners pay tax at the standard rate? Has it been abandoned or will the Government progress the reforms to deliver it, instead of regressing, which has been the case for the past four years?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The tax strategy group and the Revenue Commissioners independently conducted an exercise, which found that even for those whose tax is calculated at 42%, the effect of the new fairer tax credit system brought in by the Government in 1999, combined with the other income tax changes to rates and bands, means that four fifths of earners pay no more than one fifth of their earnings in income tax. The tax credit is deducted from the gross liability to compute the effective rate of tax and, therefore, four fifths of income earners pay an effective rate of tax of 20% or less. It was different under the old allowance system. The tax free allowance was subtracted from the top rate of tax to prevent people from entering the top rate more easily. Under the fairer tax credit system, which creates the net liability once the gross liability is computed, four fifths of people pay an effective rate of tax of 20% or less. The effective position if that if a worker is earning €50,000 per year, he or she pays €10,000 in tax or at a tax rate of 20% or less.

Joan Burton (Dublin West, Labour)
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That is a new interpretation. It is a good try on the Minister's part. He should read his own Department's Budget Statement last year.

Paul McGrath (Westmeath, Fine Gael)
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That is Clara economics.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Let us deal with the facts. The Deputies can play around all they like. Revenue has confirmed that of the 32% of earners who pay tax at the 42% rate, the tax liability of 11% of them is more than offset by the tax credit. Their effective tax rate, therefore, is 20%.

Richard Bruton (Dublin North Central, Fine Gael)
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That does not make sense. Talk about the devil reciting scripture.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Is it a fact? The tax strategy group——

Richard Bruton (Dublin North Central, Fine Gael)
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It is very clear——

Brian Cowen (Laois-Offaly, Fianna Fail)
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Excuse me.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is asking the question and I was going to volunteer an answer.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am answering, not asking, the question.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is not answering the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Four fifths of income earners have effective tax rates of 20% or less. This has been confirmed by the Revenue Commissioners and the tax strategy group. It is annoying the Opposition that this is the fact.

Richard Bruton (Dublin North Central, Fine Gael)
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Does the Minister agree that the commitment in the programme for Government made no reference to effective rates of tax, which have been produced like a rabbit out of a hat to pretend that something promised was not promised? That is the reality. The programme stated the Minister will ensure 80% of all earners pay only at the standard rate, without a mention of effective rates of tax. I am reminded of Animal Farm. The pigs who took control had a slogan, "Four legs good, two legs bad," but when they decided that did not suit them, they changed it to, "Four legs good, two legs better," because they were moving on two legs themselves. The Minister has adopted the same strategy and his advisers are changing the citation, like the sheep in Animal Farm, to effective tax rates. That is not the Minister's commitment. He has not delivered on his promise and he stands indicted for failing to even attempt to deliver.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is not true. The Deputy has suggested that everyone with a gross liability at the market rate pays all taxes at that rate, which he knows is untrue. The Revenue Commissioners——

Richard Bruton (Dublin North Central, Fine Gael)
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I did not suggest that. I read the Minister's promise from the text.

Séamus Pattison (Carlow-Kilkenny, Labour)
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Order.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I did not interrupt the Deputy. Through the tax strategy group mechanism, the Revenue Commissioners have independently brought forward information that, despite the Deputy's blather, confirms that 80% of income earners pay tax at rates of effectively 20% or less. The bottom line——

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister is introducing a new concept. It is not the concept in his promise.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am not introducing a concept.

Richard Bruton (Dublin North Central, Fine Gael)
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He is spinning.

Brian Cowen (Laois-Offaly, Fianna Fail)
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When one speaks about tax, one discusses credits, bands and rates. If one asks an ordinary person on the street earning €50,000 per year with a tax liability of €10,000 about the rate of tax, he or she will say that it is 20%.

Joan Burton (Dublin West, Labour)
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What if they do overtime?

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is 20% of that person's gross income. The logic of Deputy Bruton's position——

Richard Bruton (Dublin North Central, Fine Gael)
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I am asking the Minister to honour the commitment he made in the programme for Government, not to create a new concept and target that he has not mentioned until today. The only reason it suits him to create the concept is because he has failed to honour his commitment to the people just as the Government failed to put children in classes of 20 pupils and to end to waiting lists. These bogus promises have been exposed.

Brian Cowen (Laois-Offaly, Fianna Fail)
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More than 750,000 low income earners pay no income tax compared to less than 400,000 when we entered office. Ireland has the lowest tax burden on single persons on the average wage in the European Union and one of the lowest in the OECD. For a married couple with one earner, two children and average earnings, we have the lowest tax rate in the OECD. After inflation has been taken into account, a person on the average industrial wage——

Séamus Pattison (Carlow-Kilkenny, Labour)
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We must proceed to the next question.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister made false promises that have been exposed.

Brian Cowen (Laois-Offaly, Fianna Fail)
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——has seen his or her take-home pay increase by more than 40%, approximately half of which is due to tax reductions.

Séamus Pattison (Carlow-Kilkenny, Labour)
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We must proceed to Question No. 54.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Some 80% of income earners are paying at rates that are effectively 20% or less. These facts have been validated by the Revenue Commissioners.

Richard Bruton (Dublin North Central, Fine Gael)
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The Minister's false promises have been exposed.