Brian Cowen (Laois-Offaly, Fianna Fail)

I wish to deal with the issues that were raised by Members and much work has been done to achieve that.

The relief to which I referred when fully operational in 2008 is expected to support the use and production of around 163 million litres of biofuels per year. This is 20 times the current level of biofuels that is relieved of excise. We are starting from a very small base, but if I bring forward an initiative that increases capacity twenty-fold, it is a just question of building up that capacity to deal with the increase. I also introduced, for a pilot two-year period with effect from 1 January 2006, VRT relief of 50% for new flexible fuel vehicles, that is, vehicles capable of running on both conventional fuel and high-grade biofuels.

Senators Ross and Mansergh recognise the success of this Government in managing the economy. As has been rightly pointed out, our taxation regime regarding personal income tax and business tax has had a significant role in the success of the Irish economy in recent years. Senator Mansergh pointed out that we are at an important stage in our political development when the Green Party has decided that it will not be seeking increases in income tax rates or corporation tax rates. I presume that is not because it wants to get into Government, but because it is the right thing to do.

Our taxation regime has had a significant role in the success of the Irish economy. A low income tax wedge is vitally important for employment because by lowering costs it makes it easier for companies to take on additional employees. This is an important part of Ireland's competitive edge. Senator Quinn suggested a note of caution in future economic planning. The major challenges for the next five years include continuing to achieve high growth, rising living standards and full employment, supporting families and achieving cost-effective and world class public services. These are challenges which the Government will strive to meet. We acknowledge that the job is not complete, but we must work towards it all the time.

The Senator wondered whether we are making the right decisions for the long term and I believe we are doing so. He stated that it was not a dramatic budget. There have been changes in pension relief. Tax changes have helped the low paid and the ESRI stated that this is a most progressive budget in that respect as it has favoured lower income groups more than others.

There have been changes in the rental market and landlords must now register under the Private Tenancies Residential Act 2004 if they are to receive tax relief. A strategic innovation fund of €300 million has been set aside for higher education over the next five years. A significant package has been provided for child care, costing over €1.5 billion. These decisions are right for the long term because they reflect the greater economic participation by women in our society and the need to cater for policy initiatives to deal with that social change.

Long-term decisions have also been made on the National Pensions Reserve Fund. This strategic decision has been examined by my colleagues who are in the midst of pension crises in their own countries within the European Union. Long-term decisions have been taken in other areas, such as the strategic innovation fund and the setting up of the NTMA.

All of those significant, milestone decisions are being taken with a view to the long term. When we hit a bad patch in 2002 during an international recession, the Opposition told us to raid the National Pensions Reserve Fund immediately. The advocates for short-termism were on the Opposition benches rather than the Government side. However, the Government insisted on maintaining the statutory autonomy of the National Pensions Reserve Fund regarding our paying at least 1% of GDP into it annually and enabling it to decide its own investment portfolio within the usual international investment criteria.

All those decisions provide confirmation of our need to look forward to demographic changes over the next ten, 15 or 20 years, thus avoiding the problems and learning the lessons of what has now come about in continental countries, which have a more advanced demographic profile than ours. We have an opportunity to cater for the future by making provision over successive years up to 2055 under the legislation that established the National Pensions Reserve Fund.

I contend that there are strategic decisions, and not only regarding how we have attracted foreign direct investment and achieved the lowest taxation wedge for workers. It has all been done in the context of social partnership, where the macro-economic consensus is followed. One hopes that next year's election will help people see that there is broad macro-economic consensus as a result of the Green Party conference last weekend, and I am sure we will hear the same responsible noises from the Labour Party this weekend.

In Opposition and even Government, people contended that high taxes were the litmus test of commitment to public services. Low rates have increased the overall taxation take, enabling us to make sustainable improvements in public services year-on-year, rather than the boom-and-bust situation that we had previously because we lacked a consistent overall approach. I agree with Senator Quinn's suggestion that it must be the foundation of progress, as well as a benchmark of sustainability.

It reflects the direct experience of Government and how this country's economic affairs have improved, as well as being a measure of our political maturity, that people recognise that if we want to keep 2 million people working rather than 1.2 million, such taxation and fiscal policies best guarantee the prospect. Some Senators have referred to the need for taxation equity in the code. In response, I wish to say that, since 1997, average taxation rates for all categories of taxpayers have decreased significantly. Earners retain a greater proportion of income and take-home pay. Since 1997, a single person on the average industrial wage will have seen his or her pay rise by over €12,600 and a tax bill cut by over €400 per annum against that year. In the same period, the person's average tax rate has dropped by 12% percentage points, from 27% to an effective tax rate of 15%.

A person on the minimum wage and working a standard week no longer pays income tax. That is a third of the current working population, up from a quarter in 1997. A person on the average industrial wage does not pay above the standard rate of 20% on an average working week. Ensuring equity in the taxation system must be among the Government's main objectives. It is important to point out that in 2006, the top 1% of income earners will pay approximately 20% of all income tax collected, compared with 15% before we took office. There is a progression when it comes to ensuring that those on higher wages, the top 1%, pay a greater proportion of tax while those at the lower end either do not pay any tax or do so at a rate they can afford.

As Senator Minihan has pointed out, the Government's commitment to equity is underlined by the rules that I am introducing in this year's Finance Bill aimed at ensuring that taxpayers are unable to use specified reliefs to reduce their tax bill in any year below approximately 20%.

It has been suggested that I did not go far enough in capping pensions, but I do not agree. This Finance Bill contains significant pension reform. From now on, the size of an individual's pension fund will be limited to €5 million, and a tax-free pension lump sum may not exceed €1.25 million. Moneys kept in approved retirement funds, which could hitherto be used to defer tax payments on pension provision, will now be subject to tax on the basis of a notional draw-down from the funds concerned.

The effect will be that an individual can no longer take enormous lump sums tax-free, use tax incentives to build up an unreasonably large fund, or indefinitely defer the payment of tax by holding moneys in approved retirement funds. I am confident that those changes will have the intended impact and create greater equity in pensions tax relief. Regarding general pension provision, the Government will be considering the recently published national pensions review in considering how to move forward in this very complex area.

I thank Senators for their contributions to the debate. I have listened to Senators Brian Hayes and O'Toole since the drafts were prepared, and I will take up the points that they have raised, in addition to the many constructive points made by Senators during this debate, which I always find refreshing compared with that in the Lower House.