Joan Burton (Dublin West, Labour)
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Question 106: To ask the Minister for Finance the position regarding his contacts with the EU Commission in relation to its preliminary opinion that the stallion tax exemption scheme would seem to constitute an aid that was not compatible with the Common Market; if he has received a final opinion from the Commission on this matter; when he will make a final decision on any changes to the exemption; and if he will make a statement on the matter. [26619/05]

Paul McGrath (Westmeath, Fine Gael)
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Question 114: To ask the Minister for Finance his position regarding the stallion tax exemption scheme; and if he will make a statement on the matter. [26197/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 106 and 114 together.

As I have already outlined to the House, the stallion stud fee exemption was introduced in Finance Act 1969 and amended in 1985. The stallion relief was included as part of annual reports on aid granted in Ireland to the agriculture sector sent by the Department of Agriculture to the Commission in 1982 and on a number of subsequent occasions. The Commission wrote to the Irish authorities on 24 June 2003 stating that a complaint had been received in relation to the relief and asked that full details on the exemption be sent to the Commission in order for it to be assessed as a potential State aid.

In a subsequent letter of 6 January 2005 to the Irish authorities, the Commission indicated that they had come to a preliminary conclusion that the stallion tax exemption would seem to constitute an aid scheme that is not compatible with the Common Market. The letter set out the Commission's reasoning and, against that background, invited Ireland to submit comments within one month together with any concrete proposals regarding how the scheme in question could be brought in line with Article 87 of the EC Treaty.

Officials from my Department and the Department of Agriculture and Food met with officials from the Commission Directorate General for Agriculture and Rural Development on 23 February 2005.

I, along with my colleague, the Minister for Agriculture and Food, met with the EU Commissioner for Agriculture and Rural Development in Brussels on 12 May last on this matter. At this meeting, I outlined the background to the relief and the development of the industry in Ireland over the past 30 years setting out the importance of the horse breeding industry here in terms of its contribution to employment and economic activity particularly in rural areas. I also took the opportunity to advise the Commission that, while I fully understood the Commission's obligation to examine the relief on foot of the complaint it had received, it is necessary that the broader European and international aspects of this issue should be taken into account. In particular, care should be taken not to disadvantage the Irish horse breeding industry, which is recognised as being a cornerstone of the European industry, relative to competitors from around the world.

I have reported on these discussions to my colleagues in Government and further correspondence with the Commission has been continuing over recent months, with the most recent communication being a letter from me to the EU Commissioner for Agriculture and Rural Development on 28 September 2005. However, the issues involved in relation to the tax exemption for stallion stud fee income are still under consideration, and I understand that the Commission has not yet concluded its deliberations on the matter. In the normal course, any proposals for change in tax exemptions are considered in the context of the annual budget.

Jan O'Sullivan (Limerick East, Labour)
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Question 107: To ask the Minister for Finance when the Government will honour the commitment given in An Agreed Programme for Government that 80% of all earners will pay tax only at the standard rate in view of the fact that the proportion of taxpayers paying at the higher rate is expected to increase from 32.61% in 2004 to 33.17% in 2005; and if he will make a statement on the matter. [26642/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Government programme, An Agreed Programme for Government, states that "over the next five years our priorities ...will be ... to ensure that 80% of all earners pay tax only at the standard rate". The five year period mentioned commenced three years ago when the Government were elected to office. I should also point out, however, that the commitment is given in the context of a broader economic and budgetary strategy which provides, among other things, that the public finances will be kept in a healthy condition and that personal and business taxes will be kept down in order to strengthen and maintain the competitive position of the Irish economy.

The position is that had the standard rate bands not been widened to the extent that they were in budget 2005, 35.9% of income earners would have been paying tax at the higher rate in 2005. The effect of the budget was to reduce the proportion to 33.2%. Indeed, the latest information from the Revenue Commissioners, using base data for 2002 adjusted for estimated growth in numbers in employment and wage levels, indicate that for 2005 the proportion of earners on the higher rate of tax will be less than 33%.

Further progress in this area will be a matter for consideration in the context of the annual budgets over the next number of years consistent with the Government's overall economic and budgetary strategy. However, I would remind the Deputy that, since 1997, average tax rates have fallen for all categories of taxpayer. For example, the average tax rate, that is, income tax, PRSI and health levy combined for the person on the average industrial wage has reduced by over ten percentage points from over 27.6% in 1997 to less than 17% in 2005.

In an international context, the most recent data from OECD relating to the year 2004 indicates that, once again, Ireland has the lowest tax wedge, that is, income tax plus employee and employer PRSI as a proportion of gross wages plus employers PRSI, in the EU and one of the lowest in the entire OECD. Furthermore, the personal average tax rate of the average production worker dropped in Ireland between 2003 and 2004, despite an increase in wages. Meanwhile, the average tax rate rose or remained the same in about 20 of the other 29 countries surveyed.

For the single worker on the average production wage in Ireland, the average tax rate is the third lowest after Korea and Mexico of the 30 countries studied. It is the lowest of the 19 EU member states surveyed. A married one-earner couple with two children on the average production wage in Ireland in 2004 in fact receives more money in cash transfers from the State than they pay out in income tax and social security contributions. Only Luxembourg is in the same league as Ireland in this respect and the OECD figures do not take account of the further improvements made in budget 2005.