Brian Cowen (Laois-Offaly, Fianna Fail)

Yes, and given that Senator Ryan brought the House through astrological eras, I can refer to the last few years as a more realistic timeframe in which to assess one's commitment to social justice.

I am grateful for the opportunity to address the motion. Over the past eight years, the Government's clearly focused tax policy has proven to be a remarkably successful economic tool and has undoubtedly been a major contributory factor to our economic growth. The move to a lower direct tax burden for individuals and for business was a key element of the fiscal approach outlined in the previous Government programme, An Action Programme for the Millennium. The present programme, An Agreed Programme for Government, maintains the momentum in this regard. The motion acknowledges the commitment set out in that programme to keep down personal and business taxes and to strengthen and maintain the competitive position of the economy.

While there is a consensus in the House on these low tax rates, they were opposed consistently following every budget in which they were introduced by a Fianna Fáil Minister. Perhaps we should not pass too many remarks on the voting records of Opposition Members, if that is their stated position.

To put the progress we have made in context we should examine a few facts. Between 1982 and 1988 the standard corporation tax rate was 50% while, during the same period, the top rate of income tax was never less than 58% and it reached 65% in 1984. When the Government parties took up office in 1997, the rates of business and personal taxes were still high compared with current rates. The standard corporation tax rate was 36% and income tax rates were 26% and 48%, respectively. Over the past eight years, corporation tax has been reduced to a standard 12.5% and the income tax rates reduced to 20% and 42%, respectively.

Senator Ryan stated he did not feel a specific rate denoted enterprise. However, as a member of the Government, I have met foreign direct investors in many countries over the past number of years. The corporate tax rate is a landmark issue for them. A move from a rate of 12.5% would be regarded negatively by international mobile investment in terms of how the country is viewed for further investment. There is a rate beyond which a strategic direction would be detected by international investors as being less favourable than the current rate. That is one of the reasons we have stoutly defended tax sovereignty in the European Union debate. That is of fundamental importance to us.

With regard to personal income tax, since 1997 the tax bands have been widened and the system of tax allowances has been replaced by tax credits, favouring those on lower incomes proportionately. The value of the main personal credits has increased significantly to take many more people out of the tax net. The Government introduced the minimum wage in 2000 and, consistent with the Government programme, exempted it from tax in the last budget. We increased the exemption rate in previous budgets until the last budget when we were in a position to take those on the minimum wage out of the tax net altogether. Last May, we further increased the value of the wage to €7.65 per hour, which is the second highest minimum wage in the European Union. In 1997, when Deputy Quinn was Minister for Finance, the entry point to taxation for a single PAYE person was under €98 per week. Following budget 2005 the entry point is €274 per week, an increase of almost 180%, a not inconsiderable achievement. By comparison, inflation since 1997 is projected to be approximately 31% to end 2005.

With regard to individuals on the average industrial wage, our tax policies have meant that take home pay has increased by more than €11,000 since 1997, an 82% increase, and the average tax rate for a single PAYE person on the average industrial wage has been reduced by more than ten percentage points from more than 27% in 1997 to less than 17% in 2005. The same person has seen his or her after tax income increase by about 40% in real terms since 1997. About half of this increase is due to lower taxes.

The motion before the House refers to the generous tax and welfare system for single income families on the average wage. The latest data available from the OECD relating to 2004 indicate that a married couple of one earner with two children on the average production wage in Ireland in fact receive more money in cash transfers from the State than they pay out in income tax and social security contributions. This is an important indication of the levels of social justice we are achieving through tax policies that have been misrepresented by the Opposition as against the poor or those on average wages. The contrary is the case.

Only Luxembourg is in the same league as Ireland in this respect. The OECD figures do not take account of the further improvements we made in the 2005 budget. Since 2000, Ireland has had the lowest tax wedge in the 15 EU member states before enlargement for the average single worker. Workers can keep more of what they earn and for employers the cost of employing staff is kept down. The tax reforms have been functional in providing more employment and dealing with the tax and wage problems inherent in our system from previous eras.

The motion also refers to the high numbers of income earners who are now out of the tax net. The latest information from the Revenue Commissioners indicates that over 720,000 income earners are likely to be out of the tax net this year. This is one in every three income earners and the lowest third of income earners are removed from the tax net. This compares with 380,000, or one in every four income earners, in 1997 when Fine Gael, the Labour Party and Democratic Left were in Government. This is clear evidence of our proven commitment to those on lower incomes and an indication of our commitment to and achievement in improving social justice.

For the economy, the impact of a lower tax burden at personal and company level, combined with a number of other factors, has contributed to higher levels of investment from abroad and to economic growth being sustained at levels higher than our EU counterparts. The other relevant factors include greater investment in education and training, favourable demographics, a well-developed social partnership process and a relatively light regulatory regime.

Allow me to outline some facts and figures that demonstrate the success of this Government's economic and taxation policies. As measured by GNP, the economy grew by almost 28% in the first five years of this decade up to 2004. This year my Department expects growth of around 5% meaning the economy will have grown by one third in cumulative terms since 1999, a significant achievement.

This economic growth, underpinned and supported by our employment-friendly taxation policies, has led to strong job creation. In the five years to the March to May quarter of this year, total employment in the economy grew by over 250,000 to reach almost 1.93 million. In the face of a rapidly growing labour force, now over 2 million, we have maintained close to full employment. Our unemployment rate stands at just 4.2%, compared with an EU average of approximately 9%. It is no wonder the Opposition has given up on the ideological battle and these facts show how the economy is doing.

We have consistently pursued a disciplined fiscal policy. Between 2000 and 2004, our average general Government balance was in surplus to the extent of 1.3% of GDP. Our general Government debt ratio has fallen from 48% of GDP in 1999 to an estimated 29% by the end of this year. This Government's economic policies have worked. The economy has performed very well and delivered in terms of growth, jobs and higher living standards.

This is not just my view but that of respected and authoritative international commentators. I was happy to hear the governor of the European Central Bank recently citing Ireland as a "magnificent performer" when he was making the argument for structural reform in the EU and euro zone economies. It is not a coincidence these taxation reforms have delivered the lowest unemployment rate in the European Union. The structural reforms necessary in many larger EU states are evident. We have observed the difficulties they have had in dealing with this issue. Ireland has an economic model that works far better by providing more employment, more take home pay, the second highest minimum wage in Europe and a taxation system that ensures the lowest third of the workforce is exempt from the tax net.

In its recent review of the Irish economy the IMF commended the continuing impressive performance of our economy which it said was "the result of sound economic policies". If the IMF or the European Central Bank governor were saying other things, these would be quoted to me. These statements give an indication of the comparative performance of the Irish economy vis-À-vis our competitors.

Economic developments have continued to be positive this year, especially in respect of jobs. The most recent data from the CSO show that employment up to May grew by some 93,000, or over 5%. Many of these jobs were in high-skilled, highly-paid sectors, for example, employment in the financial and other business services sector grew by 20,000. Another positive this year has been our inflation performance with the rate of increase in prices here likely to be no higher than the euro zone average for the year as a whole. This is an important milestone and one we need to build on in the years ahead.

The motion before the House also refers to the comprehensive programme of reviews of a broad range of tax incentive schemes and tax exemptions which I announced last December in my budget speech. The vast bulk of taxpayers in this country pay their fair share. It is unacceptable that some of the wealthiest residents in Irish society should be able to use property and other tax incentives to avoid paying any income tax while at the same time enjoying the services provided by the State. The tax system must be seen to be fair and must apply to everyone, regardless of their contribution to the development of the economy or more generally to society.

Accordingly, I put the programme of reviews in place last year. The purpose of the reviews is to evaluate the impact and operation of relevant tax reliefs, including their economic and social benefits for the different locations and sectors involved and to the wider community. The reviews are also examining the degree to which these schemes allow high-income individuals to reduce their tax liabilities. A number of the schemes are being reviewed internally within the Department of Finance and the Office of the Revenue Commissioners. Following a competitive tendering process, two external consultancy firms were retained to conduct reviews of the range of property-based tax incentive schemes. The complete report from the consultants is being finalised. On this basis, the reviews are being completed in time for consideration in the 2006 budget and the Finance Bill.

Let there be no doubt that properly structured tax incentives can make a positive contribution to economic and social development by directing private capital to areas of wider community benefit as well as providing a benefit to the potential investor, without which an investment would not be made. However, I have signalled that I intend to address any abuse of such property and other tax incentives in the forthcoming budget.

I will also consider the need for horizontal measures such as a cap on the total allowances which will limit the amount any individual can claim from these incentives. Any decisions in this regard will be taken in a thoughtful and balanced manner. I am glad to note the agreement in this House on the need to do this in order to minimise the impact on employment, particularly in the construction sector and with a view to ensuring that the positive role tax incentives can play in social and economic development is maintained.

There are grounds for cautious optimism in respect of the economic outlook for 2006 and beyond. This is not just my view but also that of other domestic and external commentators. In its recent world economic outlook the IMF projected GDP growth of 4.9% here in 2006. I am mindful of a number of risks facing the economy including: the possibility of further increases in oil prices from their current elevated levels which would adversely affect international trading conditions and inflation; the imbalances in the international economy including the twin deficits in the US economy and the risk of a sharp fall in the dollar and appreciation of the euro; and in the domestic economy, the rate at which the house-building sector adjusts to a normal or sustainable level of output remains an uncertainty.

We cannot do much about some of these factors, some of which relate to international conditions outside our control. We must retain the disciplined policy mix that has worked so well and won the endorsement of key international bodies, to which I referred earlier. We must also seek to reinforce and improve our competitive position.

When addressing this House last year, I made the point, which remains the case today, that low personal and business taxation have been good for economic growth. They are a key part of our overall economic policies which have been proven to work well and which make us the envy of other countries in Europe and elsewhere.

I am glad the old political canard is no longer being trotted out here by the Opposition — at least in that part of the debate I have heard so far — that is, the myth in Irish politics that if one wants to show a commitment to public services one must believe in a high tax economy. The fact is that lower taxes have brought greater resources and greater economic activity, as well as sustainable improvements in public services beyond our thoughts or dreams less than a decade ago. That is an important point and I welcome the fact that it is no longer being contested. The evidence is clearly against those who might seek to contest it. People talk about the difference in capital taxation rates, but I do not agree with the assertion that there was not much greater activity when the rate went from 40% to 20%. I can forward the details to the Senators concerned. From memory, however, if one goes back to 1995 or 1996 there were about 7,000 notices of assessment at the 40% rate bringing in £158 million. In the 2000-01 period, one is looking at 24,000 notices of assessment bringing in far greater amounts than that. Currently, we have a tenfold increase in capital taxation as a contribution in terms of volume, quite apart from the increase as a percentage of the tax take. That should be welcomed by those who want to see capital taxes making a greater contribution to the State's total tax take. The tax take, not the tax rate, is the issue. If I want to bring about a greater contribution of capital taxes, I want to know what it is as a percentage of my total tax take in any given year, and whether it is a greater tax take than was the case in the past. The answer to that question is "Yes, it is a considerable improvement".

If one goes back to the period when the Opposition parties were in office, only €1 in €25 was being collected in capital tax, whereas the current figure is approximately €1 in €11, or even less. I will have to check those figures, however, as I am working form memory.