Budget Speech By Mary Harney, Tánaiste and Minister for Enterprise, Trade and Employment Thursday 7th December 2000

Four down and one to go.

Back in 1997 this Government set out to deliver five reforming budgets. We have now delivered four of them and we are on course to deliver the fifth in ten months' time.

We set out to increase employment and to reduce unemployment. We set out to promote social inclusion and to prevent social exclusion. We set out to create economic prosperity and to use the fruits of that prosperity to help all those who need a helping hand.

We made great progress towards all of these objectives in our first three budgets and we are making further progress in Budget 2001. I would like to start by talking about personal taxation.

Personal Taxation

The last four budgets have seen dramatic progress in the area of personal tax reform.

Rates have been cut. Bands have been widened. Allowances have been raised. The PRSI burden has been reduced. More than 77% of earners have now been removed from the top-rate tax net. Some 38% have been taken out of the tax net altogether. That is real tax reform by any standards.

In addition to that we have introduced tax credits, the most significant and far-reaching reform of our personal tax system in a generation. With this year's budget the transition to tax credits, first signalled two years ago, is now complete.

And we haven't finished yet. This Government will deliver its fifth budget next October and I can assure the House that it will be well worth waiting for. For that budget will take all those on the national minimum wage out of the tax net completely.

This is the Government that brought in the minimum wage. This is the Government that will make the minimum wage tax-free.

The rate of progress has been spectacular over the last three-and-a-half years. And it compares more than favourably with what happened under the previous administration.

The main opposition party huff and puff about tax reform these days but they did precious little about when they had the chance. Indeed, I think it is true that say that when Fine Gael were in power tax reform proceeded at a snail's pace.

The fact is that the Rainbow coalition achieved virtually nothing on the taxation front. When the Progressive Democrats and Fianna Fail came to power in 1997 we inherited a tax system that had been left almost unchanged over the previous three budgets, a regime which bore down very heavily on people on modest and middle incomes.

Consider the situation as it was back in 1997.

A single person still entered the tax net at just £77 a week. I am very pleased that this Government has been able to raise that figure to £144 a week and that we will be able to push it higher again in next October's budget.

Back in 1997 a single person still hit the top rate of tax at an annual income of just £13,600 - little more than £260 a week. Again, I am very pleased that this Government has been able to widen the band and raise that figure to £20,000 a year. Further band widening in our next budget will push that figure higher again and ensure that the vast majority of people on middle incomes no longer have to pay tax at the top rate.

Back in 1997 the basic rate of income tax was still pitched at a punitive 26%. In four budgets this administration has been able to get that rate down to a much more reasonable level of 20%, in line with the commitments set out in our joint Programme for Government.

The two main opposition parties now preach about raising allowances and broadening bands. But why didn't they practice what they now preach when they were in government ?

The Rainbow increased the value of the basic tax and PAYE allowance by just 17% over three budgets; we have doubled it in four.

The Rainbow raised the value of the standard-rate band for a single person by less than 20% over three budgets; we have increased it by almost 50% in four.

Yes, this Government is committed to cutting tax rates; but we have also done more to increase bands and allowances than any administration in the history of the state.

The tax debate is not between those who favour raising bands and allowances on the one hand and those who favour reducing rates on the other. A look at the figures shows that this is not the case. The real debate is between the progressive forces in the present coalition who seek to promote tax reform and the conservative forces in the previous coalition who sought to prevent it.

I would say this to the parties opposite: if raising bands and allowances is your game then we've taken you on at your own game and beaten you handsomely.

Much of the budgetary debate in recent years has centred on the top rate of income tax.

The position of the two Government parties on this issue is clearly set out in the joint Programme for Government and we have consistently delivered on the commitments enshrined in that Programme.

We believe that low marginal rates are an important economic incentive. We believe that low marginal rates contribute to the competitiveness of the Irish economy. And we believe that in the long run low marginal rates generate more revenue for the Exchequer.

The position of other parties is not so clear. This year the Labour Party argued strongly that the top rate of tax should remain fixed at 44%. Last year they argued that it should remain fixed at 46%. Two years before that they argued that it should remain fixed at 48%.

And just for good measure in 1998 the party argued in favour of reducing the top rate to 42%. Given their confusion on the subject it is probably understandable that they left the top rate unchanged when they were in Government.

One of the key contributors to Irish economic success has been our low rate of corporation tax.

The IDA has been able to use the 10% rate - and now the 12.5% rate - as a magnet to attract mobile investment into this country. That policy has been spectacularly successful by any standards, proof positive of the success of economic liberalism in an open market economy.

We have used low tax rates to attract companies to this country. It is now time to use low tax rates to attract people to this country.

If we want Ireland to develop as a high-skill, high-income economy then it is obvious the way we have to go. We will focus more and more on modern high-tech industries in sectors such as information technology, telecommunications, international financial services and biotechnology.

If we want to keep Irish people with the requisite skills at home, if we want former emigrants to return here, if we want new people to come and work in this country, then it is vital that we offer them an attractive personal tax regime.

The Social Democrat-led government in Germany is now committed to substantial reductions in tax rates for higher earners in order to stimulate their economy and improve their competitive position. They know that that policy makes sense.

The question for Labour and the other left-leaning parties in this House is clear. This Government has cut the top rate of tax from 48% to 42% since 1997: would you reverse those cuts if returned to government after the next election ?

Judge this Government by any yardstick you choose and our record on tax reform stands up well.

Look at average tax rates, a measure sometimes favoured by those on the opposite side of the House. By pressing ahead with tax reform on all fronts - bands, allowances and rates - we have reduced average tax rates right across the board:

• Under the Rainbow government a single person on £10,000 a year faced an average tax rate of 19%. We have reduced that to 5%.
• Under the Rainbow government a single person on £20,000 a year faced an average tax rate of 34%. We have reduced that to 17%.
• Under the Rainbow government a single-income married couple on £30,000 a year faced an average tax rate of 28%. We have reduced that to 14%.

And - clear evidence of the fairness of our tax policies - we have delivered the biggest reductions in average tax rates to those on the lowest incomes.

That's the kind of record of achievement of which any Government can be proud.

Our PRSI system is incredibly complex.

There are no fewer than twelve different contribution classes and thirty-five sub-classes. The system is replete with ceilings, floors, allowances and exemptions and this complexity adds to administration costs throughout the economy.

The present system is riddled with anomalies and inconsistencies. Average PRSI rates, for instance, are lower for people on high incomes than for those on modest incomes.

The Government is committed to reforming our system of PRSI and levies. That reform will take place in a way which ensures that marginal rates are reduced for all earners and that the burden of tax and PRSI on individual workers is reduced.

We want to see a regime that is simple and clear, fair and transparent. We have made a start on the process of reform in this year and that process will be further advanced in next year's budget.

This Government strongly believes in the incentive power of low taxation in the business sector.

The standard rate of corporation tax has now been reduced by sixteen points since the Government took office and we are on course to have the new 12.5% rate in place by 2003.

In addition, this year's budget contains very generous measures to reduce the burden of corporation tax on the small business sector: the low-rate band is being broadened substantially, a move which will be of direct benefit to small firms.

We have now created in this country one of the most favourable climates for business to be found anywhere in the developed world. And society as a whole is gaining in terms of increased employment and increased prosperity.

The Government is very conscious of the need to keep inflation under control and to prevent it from taking root in the Irish economy.

Inflation is not just a thief which devalues the savings of pensioners and the incomes of people on welfare. It also damages our competitive position as an exporting nation and, left unchecked, would threaten the foundations upon which our economic prosperity is built.

The rise in inflation in the course of the past year was primarily due to external factors beyond the control of any Irish Government. The sharp rise in the price of oil and the sharp fall in the value of our currency have pushed prices up right across the economy in recent months.

The international backdrop is becoming more favourable now and the euro has rallied strongly against sterling and the dollar in recent weeks.In this budget the Government has demonstrated its commitment to combating inflation.

The standard rate of Value Added Tax has been reduced. Excise duties on petrol and diesel have been reduced. And excise increases which might have been expected in other circumstances have been foregone. All of these measures will have a significant impact on bringing down the consumer price index.

In addition, the reductions in personal taxation set out in the budget will underpin social partnership and help to control inflationary wage demands in the economy.

Independent forecasts already tell us that the rate of inflation is set to moderate significantly next year. The package of anti-inflationary measures included in the budget will help to ensure that that happens.

We must distinguish between short-term fiscal measures designed to take the sting out of inflation and the kind of long-term measures that are required to increase the productive capacity of the Irish economy.

We have already seen the benefits of liberalisation in air travel and telecommunications. We will soon be seeing the benefits of liberalisation in the taxi market. The same formula must be applied right across the economy if we want to see real competition delivering real benefits for the consumer.

Back in 1997 I gave a commitment as leader of the Progressive Democrats to raise the basic rate old-age pension to £100 a week over the lifetime of the next Government.

I am very pleased that in yesterday's budget we didn't just reach that target but actually exceeded it.

We all recognise that tremendous contribution which the present generation of pensioners has made to the social and economic life of this country. They had to endure great hardships and make great sacrifices and we all owe them a debt of gratitude.

This Government has sought to repay that debt by delivering substantial increases in the old-age pension. We have now raised the basic rate by £28 over four budgets. That's an increase of 36% in four years, well above the rate of inflation over the same period.

I note that the Labour Party have recently woken up to the needs of the older generation. All kinds of vote-buying promises are now being made. All kinds of commitments are being given.

I would say to the pensioners of this country: judge your politicians by what they do and not by what they say. Because when the Labour Party had the chance to do something for you they did precious little.

Their first opportunity arose in 1995 when they came to deliver the first budget of the Rainbow government. What did they do ? They raised the old-age pension by the princely sum of £1.80 per week. That works out at 26p per day.

I would like to assure all the old-age pensioners of this country that the days of the 26p-per-day increase are well and truly behind us and there will be no going back to them for as long as this government remains in office.

This is a great budget for pensioners.

They will benefit from the increases which I have spoken of. They will benefit from the extension of medical cards and free schemes. They will benefit from the extension of the fuel allowance.

And they will benefit from the tax changes in the budget. A single pensioner can now earn £8,500 a year without having to pay income tax. A pensioner couple can earn £17,000 a year without having to pay income tax.

These reliefs show the government's commitment to reducing the tax burden on pensioners. Our aim must be to remove the vast majority of pensioners on modest incomes from the tax net altogether.

Our Constitution commits us to cherishing all the children of this nation equally.

Child benefit is a universal benefit paid directly into the hands of parents. As such, it is the most efficient and most effective way in which the Government can channel help to children.

Ireland is now a very prosperous and successful country by international standards. We have the resources to achieve great things if we really want to do so. When it comes to children I believe, and this Government believes, that we should set our ambitions very high.

Child poverty should have no place in modern Irish society. Our objective must be to eliminate child poverty completely from this country within the next three years and we are making a real start towards that objective in this budget.

The basic rate of child benefit has been increased by £25 per child per month. To put this figure in context, it is greater than all the increases in the seven previous budgets put together.

And that £25 compares very favourably with the basic-rate increase of just one pound - I repeat one pound - given by the Rainbow government in its last budget. Twenty-five to one - sounds like the odds against the Rainbow ever getting back into Government again.

This year's increase is the first in a series of three that will take the basic rate to £117.50. You will get the second instalment next year and we will give you the third after the election in eighteen months' time.

I would now like to mention briefly some specific budget initiatives in my own area of ministerial responsibility.

Accommodation costs are a serious problem for young apprentices.

Current levels of demand for apprenticeship training are very high. In order to ensure maximum use of existing training capacity and to address current backlogs, it is increasingly necessary for apprentices to travel beyond their local catchment area.

FAS trainees currently receive £27.50 per week towards accommodation costs where they have to live away from home to access training. The existing payment has fallen significantly behind the cost of rented accommodation and is a disincentive to attend training.

Given the critical need to boost apprenticeship training it is proposed to increase the accommodation allowance to from £27.50 to £55 per week. Based on the figure of 7,000 apprentices and trainees eligible for support, this measure will involve an increase of £3.6 million in the level of support for apprenticeship.

Helping people with disabilities to integrate better into the workforce is a major priority for this Government.

In 2000 the training functions of the National Rehabilitation Board were transferred to Fas. The objective was to mainstream the vocational training of the disabled and to provide greater focus on their reintegration into the labour market. Following extensive consultation with organizations representing the disabled and training providers we are going to standardise training allowances paid to disabled persons At present the practice varies depending on the training provider. In future all disabled persons will receive the standard FAS allowance plus a training bonus of £25 and will retain full secondary benefits. This will cost an additional £2.55m in 2001.

Extra funding has also been provided to allow for increases in the Employment Support Scheme, Workplace Adaptation and the Pilot Programme for the Employment of People with Disabilities (PEP). Meeting these commitments will cost £1.7m.

Three-and-a-half years through its term of office it is now an opportune time to review this Government's track record in managing the Irish economy.

I think that any reasonable and objective observer would agree that our track record is good and that the social and economic achievements of the last three-and-a-half years has been spectacular.

We have sought to reward effort and enterprise. We have sought to encourage people to move from welfare to work. And we have sought to promote social inclusion so that all sections of Irish society can benefit from our new-found prosperity.

Our policies have succeeded and the figures speak for themselves. Since the Government took office in mid-1997:

• the number of people at work has increased by 360,000
• the tax burden on all workers has fallen significantly, with the biggest reductions going to those on modest incomes
• the number of people unemployed has halved
• the number of people in long-term unemployment has fallen from almost 90,000 to just 25,000.

In fact, we are well on track to achieve the effective elimination of long-term unemployment before this Government completes its present term of office in mid-2002.

Record increases in tax allowances. Record increases in social welfare. Record increases in child benefit. Record increases in the old-age pension. This administration likes setting records and we may yet set another one in 2002 by becoming the first two parties in a Coalition Government to be returned to office in the subsequent election.