Brian Cowen (Laois-Offaly, Fianna Fail)

I thank all Senators who contributed to the debate and I want to reply to some of the key points that have been made. I disagree with Senator John Phelan that we have not reformed our tax spending. The opposite is the case in that the tax burden has reduced considerably for all earners in the past ten years, directly as a result of the policies pursued by the Government. Many more people are working than were working ten years ago and they are paying much less tax on what they earn. Those on the minimum wage pay no income tax and those on the highest incomes cannot use tax relief schemes excessively to avoid paying any tax. I include the charitable donations scheme in this regard because, while it is very laudable, it could be used disproportionately such that the exemptions available would enable some to pay no tax on their incomes. This would defeat the purpose of the exercise.

Our record on taxation is evident to all. This year, nearly 846,000 persons will be outside the tax net, compared to just 380,000 in 1997. This represents a significant achievement in the context of a workforce of more than 2 million. Some 600,000 new jobs have been created in the past ten years. Allied to this achievement, the Government has maintained its commitment to keeping business taxes low to strengthen and maintain the competitive position of the economy, and it will continue to do so.

Senator John Phelan implied that taxpayers are highly taxed because the Government, through some form of stealth, is using VAT to increase the Exchequer's tax yield. This is not the case. In 1997, under the Rainbow coalition, indirect taxes, comprising VAT and customs and excise duty, amounted to 45% of the total tax take. In 2002 they amounted to 46% and the forecast for 2007 is approximately 43%. This represents a slight fall in the share of the overall tax burden accruing from indirect taxes since 1997. A slight increase in Exchequer taxes as a percentage of GNP, of approximately 2.8%, is expected in 2007. The increase is entirely attributable to capital taxes — about 3.3% for taxes as a percentage of GNP.

Senator John Paul Phelan made a point about effective tax rates and the number of income earners paying at the higher rate. Unlike the old allowance system, the tax credit system works by first calculating the tax liability at 20%, and 41% where applicable, and then deducting from the tax so calculated the value of the individual's tax credits. The allowance used to be applied before one got into the marginal tax rate. For some people, when the credits are taken away, they are left with no tax liability, others are left with a liability which, as a percentage of their pay is less than the standard rate and for the remainder they will pay somewhere between 20% and 41%, on average.

The bottom line is when people earn €30,000 a year and they pay €6,000 in tax, they pay 20% of their income on tax. It is semantics to suggest we have not made this commitment. Not alone have we made the commitment, we have taken 40% of taxpayers out of the tax net altogether. It was a central part of our taxation policy during the course of this tenure of office to exclude people on the minimum wage from the tax net, and to do so two and three times in a row because it is in the interests of social equity to do so. Whether one can do that ad infinitum is something we will have to consider. A certain point may arrive after which one may not be able to continue to do that. During our term of office we said we would take people on the minimum wage out of the tax net. We have done this for 846,000 people compared with 380,000 ten years ago out of a much lower number of people at work at that time — 1.34 million compared with 2.066 million, which is the third quarter figure from the Central Statistics Office.

I do not accept the points made either in regard to criticism of our spending programme. Overall, we have succeeded in keeping public finances within sound and sustainable overall parameters — which we will continue to do if we are returned to office — to the extent that this country's overall economic and budgetary position is now the envy of Europe and, as Senator Quinn stated, perhaps even further afield. The national debt is among the lowest in Europe, we are running a healthy budget surplus, the economy is strong and unemployment is low. The Government has put in place a comprehensive value for money framework that addresses every aspect of public expenditure from the planning phase right through to implementation and delivery. We are taking concrete and innovative steps to promote value for money and to link public expenditure with public service outcomes.

Regarding forecasting, Senator John Paul Phelan referred to underestimations of tax revenues. Senator Mansergh made a comment on that which is probably accurate. It is difficult to get these estimates correct for a variety of reasons. First, if one looks back 30 years under all Governments, we find in fact that one of the biggest errors was made in 1976 by a Fine Gael and Labour Government when the forecasts were more than 10% out. The recent poor forecasting performance has been due to rapid increases in stamp duties and capital gains tax. There is no political input into these forecasts under this or previous Governments of any colour. As for the methodology for tax forecasts, I have instigated a root and branch review using the resources of the Department, the Revenue Commissioners, the ESRI, the Central Bank and the European Commission. The last review we carried out was in 1998 and we published that report.

For the record, we have forecast VAT, income tax, corporation tax and excises, the big four which represent 85% of tax revenue, fairly well and this is encouraging to some degree. I am conducting a review to find out what is the best forecasting projection, given the rate of growth we are achieving, the different nature of the economy and the varied levels of business in which we are engaged. I want accurate figures too. It is nonsense to suggest we are purposely underestimating. If one takes a tax base of anything more than €50 billion and one is 2% out, that is €1 billion. That is a lot of money but it is only 2% on a base of €50 billion. These are projections based on statistics and one does the best one can.

Trends can change. For example, the slowdown in the property market that would happen if we were to introduce Fine Gael's stamp duty regime would put my figures out of kilter pretty quickly. I certainly will not be underestimating if that is introduced. This idea is just not thought through. I ask that it be reconsidered. How can one introduce a stamp duty regime over a three-year period and suggest it will not dislocate the market? In effect, this would signal to people who want to get into the housing market that they should stay out for as long as they can because the longer they stay out, the better will be the deal on stamp duty. That is crazy. It does not make any sense. It was not thought through. I respectfully ask, as the Fine Gael Party concentrates on currying favour with the 50,000 people who are in the transaction market this year and annually, what will be the effect on the equity that has built up in their properties in recent years of the 1.6 million householders who are not in the business of buying or selling property?