Derek McDowell (Labour)

The boom fed our capacity to reduce income tax. It did not happen the other way around; lower income tax did not cause the boom. That is a simple matter of fact, and it is interesting to speculate why people are suggesting it was lower taxes. The argument principally comes from the stockbroking community, if I might refer to it as such, and the Minister for Justice, Equality and Law Reform, Deputy Michael McDowell. This evening's motion is the first example I have seen of that appearing strictly under the name of Fianna Fáil, which seems to be suggesting that lower taxes were the boom's primary driver.

It is a more interesting and complicated argument to examine whether they sustained the boom through the 1990s and into the early part of this decade, and I agree that one can clearly make the case that increased consumer spending by people with more money in their back pockets added to demand, which added to growth. However, this evening's motion and some of the rhetoric I have heard recently talk it up far too much.

We all know what factors have sustained the boom and where employment has come — in what they call "the modern sector", including ICT, chemicals and pharmaceuticals, the multinationally owned sector of the economy. More recently it has come in the domestic sector, financial services and construction. Income tax rates do not impact one way or another on most of those sectors, which by and large have highly paid jobs. Income tax rates have made very little difference. Of course, one can argue that people having more money impacts on services, but they have not by any means been the primary cause of our sustaining our high rates of economic growth through the 1990s and into this decade. It has been the result rather than the cause.

We must treat the argument repeated in this evening's motion with considerable care. Incidentally, it is interesting to consider what the major influences will be on sustaining the boom in future. Fiscal policy impacts only to this extent. We have to have what the Department calls prudent economic policies, for example, ensuring that we do not have current budget deficits. However, I am not sure that income tax policy makes a damn bit of difference, unless we are to do something really fairly radical, and I do not think anyone is suggesting that. Senator Mansergh is partly right to say that there is something of a consensus on corporation taxes. This measure was originally proposed by the rainbow Government and subsequently implemented by the Fianna Fáil-Progressive Democrats Government in its first term. I would have argued for a rate of 15% or 17.5%, as that would be sustainable over a long period of time.

The rate of 12.5%, which represents an increase for many of those paying corporation tax, would be extremely difficult to reverse. This is especially the case since many recently acceded eastern European countries have lower rates. Competitive advantage is gained from a lower rate, but we must look at how to sustain it for even a short period of time. I do not think we will be able to do so indefinitely. The best way to sustain it, even for the next ten to 15 years, is to agree to a measure of tax harmonisation. This argument may seem counter-intuitive, and may not have held true ten years ago. However, it would be the case now. Corporation tax is perhaps making a greater contribution now than it did ten or 15 years ago in terms of being sustainable.

We must ask ourselves the fundamental question of why we tax. We tax to provide public services and infrastructure, which is a greater need in this country than in most. We tax in order to redistribute wealth and opportunity within the economy and society. We also make various targeted interventions.