Kathleen Lynch (Cork North Central, Labour)
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Question 113: To ask the Tánaiste and Minister for Finance if, in view of persistently high inflation, averaging nearly 5% for 2007, he will take steps to protect real incomes of ordinary workers; and if he will make a statement on the matter. [2310/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by the Consumer Price Index, averaged 4.9 per cent in 2007.

Of this 4.9 per cent, 2.2 per cent was contributed by increased mortgage interest repayments. Including the impact of mortgage rate increases in the CPI not only masks the underlying inflation rate but also highlights the short-term impact of interest rate increases which are designed to bring down inflation. A better measure of inflation than the Consumer Price Index is the Harmonised Index of Consumer Prices (HICP) which excludes, among other things, mortgage interest. The HICP is also the measure used by the EU and ECB to compare inflation across member states. The average increase in the HICP in 2007 was 2.8 per cent.

My Department's inflation forecast for 2008 is for CPI inflation to average 3.0 per cent and for HICP inflation to average 2.4 per cent.

I have continued in successive Budgets to increase the rates of social welfare payments significantly and to make improvements in the living standards of average workers. Having regard to general round increases under the pay elements of the last two partnership agreements, and to Budget changes in the areas of tax, child benefit and the early childcare supplement (where appropriate), income earners have seen significant real growth in their take home pay since 2003. Also, in Budget 2008 I have, yet again, ensured that the income of the average worker is kept well outside liability to the higher rate of tax, and those on the minimum wage remain outside the tax net.

The best way to protect the real incomes of ordinary workers is to pursue policies that sustain competitiveness and employment. Maintaining a moderate rate of inflation remains a key priority of economic policy because of its importance in restoring competitiveness. We must always seek to ensure that our domestic cost base does not undermine competitiveness. Seeking to maintain low inflation, the pursuit of sensible incomes policy, and keeping public spending growth at sustainable levels in the medium term are essential. Doing this will allow us to keep the burden of taxation low, thus helping to maintain competitiveness and to maximise our economic potential.

A moderate rate of inflation is a key priority of economic policy because of its importance for competitiveness. Pursuing responsible fiscal and pay policies is important in that context.