Brian Cowen (Laois-Offaly, Fianna Fail)

I wish to make a further point. It was not a case of either-or. We more than doubled the tax band to improve the lot of people within the tax net as well as making the decision to exempt those on the minimum wage outside the tax net. We did not just decide to improve the lot of one section of the community to the exclusion of others. We did, however, crystallise the particular commitment I have outlined from the programme for Government and the social partnership agreement as indicating a priority direction I felt needed to be completed, based on the promise my predecessor had made on making up to 90% of the minimum wage exempt from tax. He did considerable work in terms of tax reform during his highly successful tenure of office.

On the argument of the tyranny of the percentages, it should be borne in mind that in looking at the percentage of cases paying tax at the higher rate, it is more appropriate to talk in terms of income earners rather than taxpayers. In that regard we are talking not only about those who pay tax in a given year but also those who are exempt from taxation. The alternative approach, which considers only those who pay tax in the year, fails to take account of progress made in removing those on lower incomes from the tax net. Also, as I said earlier, under a tax credit system, the more people who are exempted from tax, the higher the percentage of taxpayers in the top rate, even if there is no increase in numbers.

We should look at it in that respect and apply the commitment. If we take more people out of the tax net, by definition the percentages paid by those in the tax net increases, even though the volume of taxpayers has not increased. This illustrates how we can sometimes slip into a rather superficial argument and not see the wood from the trees.

Considerable progress was made in the years 2000 to 2002 in reducing the percentage of income earners paying tax at the higher rate. By 2002, a position was reached where fewer than 27% of income earners paid tax at the higher rate. After budget 2005 that figure has risen to a projected 33.2% who will pay a higher rate of tax this year. However, with rebasing of the Revenue Commissioners' cost model, that has decreased slightly to 32.85%. With incomes forecast to grow in 2006, the position is that if there is no change to the value of the standard rate band, 36.3% of income earners are likely to pay the higher rate of tax this year. The changes we have made have taken more than 3% out of the higher band into the standard band.

These are the facts of the matter. Income growth must also be taken into account. We have a tax system which rewards people who work and incentivises them to earn more without being hammered on the tax end. Making the decision on the widening of bands which brought everyone on the average industrial wage onto the 20% band rather than people on the marginal rate having to pay tax was another priority or benchmark which helped govern the shape of the budget in terms of personal taxation. This was another example of how we tried to ensure that people on the average industrial wage should pay the 20% rate and was an intermediate posting towards the greater objective of getting 80% eventually paying tax at the 20% rate.

What we will do in the third of the three budgets for which I have responsibility during the tenure of this Administration is a matter on which I will decide closer to the time, based on the returns and what the priorities of Government are deemed to be. We are a collective authority and there are pressing needs for continued investment in public services, not simply in resource terms but also in terms of reforms and service delivery models that are better than what we have achieved thus far. That requires the agreement of social partners and stakeholders.

Indeed, it is a test of the quality of our social partnership to be able to move beyond the commitments about reform of the delivery of public services to actual implementation and instigation on a sustained basis. It is an enormous challenge which has yielded many benefits to date. It has brought moderate wage increases, an ability to create room for manoeuvre for tax reform, increased employment and a sustainable basis for prosperity and social inclusion. We need to ensure that the social partnership model can deliver real reforms in public service delivery and an ability to be open about it.

I am concerned by some of the discussions I hear and some of the points raised because of difficulties that have arisen in recent months, which have prompted an understandable reaction but one from which we must move on. We need to be open about the role that the public and private sectors can play in delivering better services for our citizens. Everyone, whether trade union members, workers, company directors, self-employed people, professionals, trades people or whatever, uses our services and we need to provide a better quality of delivery than we have at present. It is a collaborative, co-operative process on which we all need to deliver.

There is too little preparedness to take on professional bodies and professionals in this country and too often emotional blackmail is utilised, as I saw when I was Minister for Health and Children, in an effort to obfuscate the issues, with people continuing to advocate the status quo plus rather than real change in terms of work organisation, methods and practices to deliver the quality of service people are entitled to expect. This is especially the case given the level of resources that they as taxpayers and we, as a Government, are willing to provide for the provision of such services. Regardless of who is in Government or Opposition in the next few years, that reality will not change.

We need to establish real methods of change in terms of public service delivery. That is a fundamental requirement if social partnership is to be deepened and widened in our society and I say that as a committed proponent and supporter. I hope it can be achieved, despite the background difficulties before negotiations began on a proposed new agreement. It is to be hoped that progress can be made in the coming weeks.

With regard to the specific point, it is not a question of either-or. This is a work in progress in terms of the commitments we have made but there is an overarching context. Decisions on improving the delivery of public services, providing further tax reform or greater tax equity will have to be made on the basis of maintaining a responsible budgetary position. The fact that newspapers and media outlets throughout Europe are looking to the Irish model as being one which should be followed or considered by other countries which are far more powerful and resource-rich than we are, indicates that we are on the right track, although not every problem is solved, not everything is right and there are deficits which we have identified.

One can talk about €700 million or €800 million that could have been put back into the economy and the pockets of taxpayers but, as Senator Mansergh pointed out, that would have a consequent impact on inflation. The potential inflationary impact of increased spending on the economy is a consideration that must be borne in mind by all Ministers for Finance.

We have given significant priority to our infrastructural deficits. Our Transport 21 ten-year plan was dismissed as having no real prospect of success. Ambitious it may be, but it is costed and a lot of work went into its preparation——