Charlie McCreevy (Kildare North, Fianna Fail)

The purpose of these recommendations is the indexation of the tax bands and certain tax credits. Such a move would be costly for the Exchequer. For example, if a figure of 4.6%, representing the best available estimate of the rate of growth in the CPI for 2002 over 2001, was to be assumed, the full year cost of indexing the standard rate band would be about €192 million in a full year. In addition, a similar increase in the main personal credits and allowances would cost approximately €165 million in a full year. Overall, at such a rate of annual increase, costs of almost €363 million per annum could be expected to arise. Clearly, tax expenditure on such a scale would severely limit the Government's flexibility in determining budgetary priorities having regard to the economic realities in any given year.

It is important that the Government retains flexibility as to the size of the personal income tax package as against other priorities and the composition of any package. For example, in this year's budget the employee credit is being increased by 21% to ensure, in light of the limited resources available, 90% of the increased minimum wage is exempt from taxation, although it was increased again in 2002. It now stands at €6.35 per hour. If limited resources were spread equally across all bands and credits, it would be more difficult to target resources in this way.

The overriding aims of the Government's budgetary and economic policy, as set out in An Agreed Programme for Government, are clear. It is committed to sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment. Responsible fiscal policies are central to the achievement of these aims and it is not clear that making statutory provision for the indexation of bands and credits would be consistent with this approach. The most recent data from the OECD pertaining to 2002 and concerning a single person on the average production wage show that Ireland has the lowest tax rate in the European Union.