Pat Carey (Dublin North West, Fianna Fail)
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Question 164: To ask the Minister for Finance the way in which income tax policies since 1997 have benefited the least well off in society here; and if he will make a statement on the matter. [39069/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The position is that since 1997, the income tax policies pursued by this Government have resulted in more low-paid earners being outside the tax net than ever before. There are now over 776,000 income earners (about 36% of all earners) who are completely out of the tax net compared with about 380,000 (about 25% of all earners) ten years ago. In 1997 there was not even a statutory minimum wage in existence but this Government put one in place in April 2000. We also replaced tax allowances with tax credits which are fairer to those on low pay because the credits have the same value to all taxpayers.

As the Deputies will be aware, the position today is that the minimum wage in its annualised form is entirely free of tax. This is due to the fact that we have substantially increased the aggregate value of the employee and basic personal tax credits. In addition, in Budget 2006 the PRSI weekly threshold was raised to €300. It is now the case, therefore, that a person on the minimum wage keeps 100 per cent of what he or she earns. I understand that, of those countries in the European Union which have a minimum wage, Ireland is the only country where this is the case.

Besides the increases in the value of the tax credits, we have reduced the standard and higher rates of tax by six percentage points each and widened the standard rate bands considerably. Taken together, the positive changes to credits, rates and bands have meant that since 1997 average tax rates have fallen for all categories of taxpayer, including those on lower incomes. The position now is that four fifths of income earners pay no more than one fifth of their income in income tax.

The Deputy may wish to note that taking account of tax, PRSI and the health levy, the average tax rate for a married one-earner couple with two children on 67% of the average industrial wage in Ireland is now 2.8% as compared with 7.8% in 1997.

The average tax rate for a married one-earner couple with two children on the average industrial wage is now 7.7% as compared with 20.3% in 1997.

Furthermore, the single employee on the average industrial wage has also gained considerably. In 2006, such a person will have seen their take-home pay rise by over €12,300 since 1997 but their tax bill actually cut by almost €500 as compared with 1997; not only has take-home pay risen substantially, the actual amount of tax paid has fallen.

Besides the tax changes, we have increased the health levy threshold so as to ensure that lower earners are not subject to it. In fact, since 1994, the health levy threshold has increased by almost a quarter. It now stands at €440 per week and €22,880 per annum in 2006.

In line with the commitment in the current Government Programme, we have prioritised available resources towards elderly persons as well as those on low pay. In the last five years, the age exemption limits, under which those aged 65 or over are exempt from tax up to specified limits, have increased by over 57% whereas inflation for the same period is expected to increase by about 17%. Indeed, these limits have almost trebled since this Government came into office in 1997. For 2006, the limits stand at €17,000 for the single person and €34,000 where at least one spouse in a married couple is aged 65 or over.

The tax, PRSI and levies changes which this Government has introduced since 1997 have resulted in a position where, in international terms, for the single worker on average earnings, Ireland has the lowest tax wedge in the EU. This has been the case in each of the six years 2000 to 2005. We also have one of the lowest tax wedges in the entire OECD.

For a married one-earner couple with two children on average earnings, Ireland has the lowest tax wedge in the entire OECD. In addition, when cash transfers from the State are taken into account, such couples face a negative burden in Ireland because they receive more in the cash transfers than they pay out in tax and social security contributions. Ireland is the only OECD country where this is the case.

Finally, may I point out that in its commentary on the Budgets of the last three years, the ESRI expressed the view that these were progressive in nature, favouring those on lower incomes to a greater extent than those higher up the income range.