Brian Cowen (Laois-Offaly, Fianna Fail)

I have stated that they are set out in order of priority. If one considers the spirit of what we are trying to achieve and my predecessor's introduction of the tax credits system, which gives the same value to every taxpayer regardless of remuneration, one sees that it is much fairer, since those at the lower end of the scale gain proportionately more from the tax credits system than from the tax allowance system. That is an indisputable fact, and I am very proud that a Fianna Fáil-led Government was involved in making those fundamental changes to our tax system, which everyone has now accepted.

Many spoke about it and got the opportunity to do something about it, but in different circumstances. I will not admonish anyone but say that when responsible we proactively made those changes. If one goes back to the 1997 commitment that 80% of people would be on the standard rate, one sees that under the tax allowance system that was an easier target to achieve than under the tax credits system. There are people present with detailed knowledge of how that works out without my going into greater detail. Those are facts regarding tax administration and its impact.

The criticism in the other House was aimed at nailing me on the 80% target. I could have gone in that direction to the exclusion of other targets if it had been the paramount consideration. Had I done so, I would now have 200,000 more low-paid people paying tax who are currently outside the tax net. I stand by my choice. I had several objectives, and the Sustaining Progress agreement is the most up-to-date statement of public policy on the issue. As well as removing people on the minimum wage from the tax net, we wished to move towards the target where 80% of all earners pay tax at the 20% rate.

It is not the position of other stakeholders that I must achieve the 80% target by the time this Government's tenure has ended, should it serve its full term. There is an understanding that those issues and priorities are not mutually exclusive. Progress has been made on some, and I stand by the far more definitive statement of tax policy that those on the minimum wage should not pay tax regarding its statutory level in 2005. From Easter 2006, the minimum wage will be increased as a result of the partnership process, and I have again removed those on it from the tax net. Whether one can do so while the minimum wage continues to increase is a matter for priority and decision by the Government and the Minister for Finance at any given time. People might ask why I am not extolling it as a principle. For example, Senator McDowell stated my response to individualisation does not suggest I regard it is as a principle while the Fine Gael spokesperson stated the 20% target should be regarded as a principle. One man's principle, therefore, is another's pragmatism. In the context of the matrix involved and the impact tax changes have, particularly in the area of personal taxation, the overall thrust in my two budgets is clear.

The increase in the PAYE tax credit is another indication of how I can help thousands of workers in manufacturing industries that came to Ireland in the 1960s, 1970s and early 1980s. They are in the most exposed sector of the economy and we hope they will be a feature of our industrial landscape for as long as possible. The means by which I significantly increased the PAYE tax credit based on representations by trade union leaders and others, including my party colleagues, indicates where I stand on how low paid workers can be helped and ensures we make a contribution towards the competitiveness of their firms by exempting them from PRSI requirements by increasing the threshold to €400 per week. No specific commitments were given on those issues in the programme for Government but they were brought to my attention based on legitimate representations during the preparations of budgets, which I addressed.

I am prepared to be judged on the choices I made and future Ministers for Finance may make other choices. Members of the Opposition parties may take a different view if they take up my responsibility. That is fine because that is part of the democratic debate in which we are involved but I can stand over what I have done as a greater promoter of social justice with an emphasis on those at the lower end of the scale. In the times in which we live those in the higher and middle income groups are able to cope. They are in a much better position than previously while others, for a variety of socioeconomic reasons related to qualifications and opportunity, are not remunerated as well and do not have wider choices. One then decides to help them to a greater extent proportionately. When someone says I did not help him as much as someone on a lower income, I reply that is my choice and he can make a decision to support me afterwards. That is my choice and it is the right choice.

The ESRI stated it was the most progressive budget in years in this regard, which is precisely what I tried to achieved, and I stand over that. I can do that in better times than might have been the case for previous Administrations but I will not get into that debate. However, I can stand over the choices I made in the circumstances given the room for manoeuvre. This year's tax package is 30% higher than that for 2005. If we spent all the resources we used in the past four budgets on band widening alone, more than 200,000 fewer income earners would be outside the tax net today. As a result of what was done, more than 740,000 earners are outside the tax net, which equates to more than one third of all earners. A total of 360,000 were outside the tax net when we took up office. The number of people who do not pay tax has increased by 280,000. While that is good, it also suggests that a significant number of people are not on very high wages. We should, therefore, do whatever we can to assist them relative to those who are remunerated at a higher rate.

The assertions that the Government is not doing enough on taxation and we do not have a low tax economy do not stand up to scrutiny. More than one third of earners are outside the tax net in 2006. Assertions made about the numbers paying the marginal rate of tax have often been articulated but what matters is the tax a person pays. Since 1997 the average tax rate, i.e., tax, PRSI and levies as a proportion of income, has reduced significantly for all income earners. The average tax rate for a single average earner has reduced from 27% to approximately 15%. If that is not regarded as significant, I do not know what is.

With regard to tax bands and inflation, in budgets 2005 and 2006, I increased the bands by more than double the projected rate of inflation for those years. The bands have increased by between 10.8% and 14.3% whereas cumulative inflation for the two years is projected at 5%. In budgets 2003 and 2004, when we faced a much tighter budgetary environment, we chose to devote available resources to those on low incomes, helping us to move towards the current position where those on the minimum wage are outside the tax net completely. That move began during my predecessor's tenure, although his position has often been misrepresented. In international terms, Ireland is acknowledged as having the lowest tax rates on labour in the European Union. The more recent 2005 edition of Structures of the Taxation Systems in the EU, published by the European Commission, points this out. In addition, the most recent data available from the OECD highlights that in 2004 Ireland had the lowest tax wedge in the EU for a single person on an average wage and one of the lowest in the OECD. A low tax wedge makes it easier for employers to take on new employees. Our unemployment rate is half the European average and Members will be aware of the difficulties across the channel this week. They are no coincidence in terms of how the taxation system impinges on employability and the ability of employers to take on more workers.

The principal factor has been the significant increase for earners taken out of standard rate taxation and exempted from income tax altogether. Progress has been made in the other areas, although perhaps not as much as I would like, but one cannot do everything. It is important to send the right message.