Charlie McCreevy (Kildare North, Fianna Fail)

Senator Mansergh must have taken my speaking notes. However, I will outline why I cannot accept Senator Browne's recommendation.

The purpose of this recommendation is the indexation of certain tax credits. Such a move could be costly for the Exchequer depending on the indexation factors in the given year. For example, taking the September figure of 2.9%, representing the fairly modest rate of growth in the CPI for 2003 over 2002, the full cost of indexing the release would be €80 million in a full year and €56 million for 2004. Clearly, the mandatory earmarked tax expenditure at such a scale will severely limit the Government's flexibility in determining budgetary priorities having regard to the economic realities in any given year. No Minister for Finance would wish to be so constrained.

It is important the Government retains the maximum flexibility as to the size of the personal income tax package, as against other priorities, for the composition of the budget proposals for any particular year. For example, in this year's budget, the income tax package amounted to a full year cost of €287 million of which €282 million was used to ensure that 90% of the increased minimum wage continues to be exempt from taxation. On the other hand, it was necessary to allocate resources equivalent to a full year cost of €630 million for social welfare purposes. The tax expenditure was predetermined to the extent that to accept this recommendation it would be more difficult, if not impossible, to target limited resources, as was done this year. Senator Browne may wish to note, however, that the indexation of credits alone to the consumer price index in budget 2004 would have delivered significantly less of a budget tax package in 2004 than was actually spent. From the figures already quoted, the difference would be nearly €207 million in full year terms.

The overriding aims of the Government's budgetary and economic policy as set out in An Agreed Programme for Government are clear. The Government is committed to sustaining economic growth, strengthening and maintaining the competitive position of the economy while maintaining full employment. Responsible fiscal policies are central to the achievement of these aims. It is not clear that locking the Exchequer into an annual indexation of tax credits would be consistent with this approach. The Government already has policy priorities in place over its present term of office with regard to personal taxation, including the achievement that all those on the national minimum wage are removed from the tax net and ensuring that 80% of all earners pay tax only at the standard rate. However, the achievement of these aims is subject to the overarching requirement of sound economic and fiscal policies and keeping public finances in order. I cannot, therefore, accept this recommendation.