Tax-reforming Budget on the way

Speaking in Cork today (Friday,17th July 1998), Mary Harney, Tánaiste and Minister for Enterprise, Trade and Employment, said:

The problems in the labour market now represent a real threat to our economic growth.

Increased prosperity and growth, both economically and socially, require us to make significant labour market reforms.

We must continue to build on the progress of recent years.

• The tax on work has reduced dramatically but much remains to be done;
• the level of unemployment has fallen significantly, but still remains high, condemning many to a life of exclusion, and
• while pressure on skills availability is being addressed through a range of significant initiatives, supported by a heavy additional investment programme in education, the challenge to anticipate and address shortages will continue to test our systems.

Nevertheless, many firms are finding it difficult to fill vacancies, even for unskilled positions. Indeed, after countless decades of Irish people going abroad to find employment many are coming back home to live and work, and as a testament to our economic success, nationals from other countries are also coming here to Ireland seeking opportunities.

However, at the same time we still have over 200,000 people here on the Live Register and our unemployment rate is still high by international standards. I remain unhappy with a system when we have a labour shortage and a labour surplus at the same time.

In Government I am putting a coherent strategy in place to deal with this problem. I am adopting a three-stranded approach:

• A National Minimum Wage: I am committed to introducing a national minimum wage from April, 2000. This will ensure that every job offers a reasonable reward and that every unemployed person is given a real incentive to take up the job opportunities on offer.
• Reform of the Welfare System: From September the State will take a much more active role in assisting those who are unemployed. We have a responsibility to help people move off the Live Register by giving them a path back into the land of work through training, education, work and counselling opportunities - equally, the unemployed also have a responsibility to participate in our supports.
• Tax Reform: I want to see a continuation of our programme of tax reform in our December budget to transform the economics of welfare and working in this country.

This year's Budget must be designed to support our Employment Action Plan and in conjunction with the other two measures achieve a real change in the welfare or work calculation of those on low pay or unemployed. The thrust of the tax package must be to alleviate the tax burden of lower-paid workers. I want to see a budget that takes as many people as possible out of the tax net altogether, one that leaves as many middle-income earners as possible paying tax only at the standard rate.

I am not satisfied that a person should enter the tax net at just £76 a week. Equally, a tax system that has a person entering the top rate band at just £268 a week is in need of change. A radical package of reform is needed to deal with this situation

Recent exchequer figures indicate that Ireland can afford to deliver a radical package of reform over the next three years. I believe that our Employment Action Plan submitted to the EU demands tax reform. Such reform does not have to be inflationary.

Indeed, if properly designed, tax reform would support our partnership agreement in curtailing wage inflation and would improve the efficiency of our labour market.

Radical reform could be an essential element of inflation control. Since 1987, Ireland's consumer and wage inflation has been curtailed by a shared approach to managing the fruits of our economic success. This partnership model and the practice of supplementing wage moderation through income tax reduction has provided the spur to our economic success. It has proven itself over the last decade; and we must build on that success for the future.

There is no evidence that personal tax reductions have had any real impact on driving up inflation in Ireland during the last few years; the more obvious source of Irish inflation is the recent strength of currencies such as Sterling against the Irish pound.

I believe that a tax package, with the bulk of the benefits targeted towards the lower paid, will head off inflationary pressures on the wage front. This is essential if we are to maintain and improve our competitive position in international markets.

Reducing the burden of personal taxation is a key component of the social partnership process and it is important that the Government continues to make significant progress on this front.

The Progressive Democrats have always been a tax-reform party. It would be perverse in the extreme if we were to abandon that philosophy at a time of record economic buoyancy, a time when we have the capacity to reduce significantly the tax burden on working people.

This Government has ambitious targets to reduce significantly the level of unemployment in Ireland over the next few years. The objective is to promote social inclusion by enabling as many people as possible to participate in our current economic boom.

But it will not be possible to achieve that objective while our tax system still imposes penal levels of taxation on people who earn quite modest incomes.

It is vital, therefore, that Budget 1999 gives a clear signal to everyone that it is worthwhile to work, and that there is a real reward for all those who go out to work.

A tax-reforming budget, together with the introduction of a national minimum wage and the reform of our welfare system, will have a very significant impact on the Irish labour market and will help many thousands of people to make the transition from welfare to work, from exclusion to inclusion.