Written answers

Tuesday, 20 November 2007

8:00 pm

Photo of Brian HayesBrian Hayes (Dublin South West, Fine Gael)
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Question 63: To ask the Tánaiste and Minister for Finance if he has assessed the differential impact of recent inflation on certain families. [29682/07]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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At Budget time I forecast that inflation as measured by the Consumer Price Index (CPI) would average 4.1 per cent for 2007. The most recent inflation figures released by the Central Statistics Office are for October and show CPI inflation running at an annual rate of 4.8 per cent.

On foot of the information available at end September, I published a revised set of economic forecasts in the Pre-Budget Outlook, which forecast that the increase in the CPI in 2007 would average 4.9 per cent for the year as a whole.

By far the largest contributor to inflation as measured by the CPI over the last two years has been mortgage interest rate increases. Mortgage interest rate increases account for about 2 per cent of the current annual rate of CPI inflation of 4.8 per cent — so that excluding mortgage interest rates from the CPI would result in an inflation rate of 2.8 per cent. There have been seven interest rate increases by the European Central Bank since December 2005, which have doubled the Bank's rate to 4 per cent. These increases have of course been passed on by the lenders here. The ECB sets its rates independently of the euro area governments.

The Budget day forecast for the rate of Harmonised Index of Consumer Prices (HICP) inflation — the EU inflation measure — was 2.6 per cent. In the Pre-Budget Outlook the revised forecast for HICP inflation in 2007 was 2.8 per cent.

I assume that the Deputy is referring to those families whose main or only source of income is derived from social welfare payments, and perhaps also to families whose income earners could be classified as low paid.

While many of those families encompassed by the terms social welfare dependent and low income would not hold mortgages, it is estimated, based on Census 2006 figures, that only approximately 40 per cent of households hold mortgages. That 40 per cent can avail of mortgage interest relief, which currently applies at 20 per cent and to a ceiling of €8,000 single or €16,000 married for first time buyers for the initial seven years of their mortgage, and €3,000 and €6,000 for all others. The current level of mortgage interest relief for married first time buyers is sufficient to cover the interest arising on a mortgage of up to approximately €321,500 over 33 years at an interest rate of 5.0 per cent, which is well above the average mortgage.

In my time as Minister for Finance, I have consistently placed improving the position of the less well off at the top of my priorities. An example of this can be seen in respect of Budget 2007, which included social welfare increases ranging from over 8 per cent to over 12 per cent in weekly rates. Thus, even when compared with the revised inflation forecasts contained in the Pre-Budget Outlook, I have ensured that those in receipt of, and reliant upon, social welfare payments will have seen real net gains in 2007.

The changes to the tax system introduced by both myself and my predecessor, over the last 10 years, have ensured that all those on the minimum wage are exempt from tax in 2007. This means that almost 868,000 earners; that is almost two out of every five earners, are outside the tax net, as compared to 380,000, or one in four, in 1997. In addition, the income of the average worker in 2007 is not liable to the higher rate of tax.

Successive Governments' policies over the last ten years have focused on helping to ensure that families on low incomes are protected from the effect of inflation.

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