Government will continue with programme of radical tax reform

In its first budget this Government cut 2 per cent off the top rate and the basic rate of income tax and increased tax-free allowances significantly. The experts told us that these measures would cost more than £500 million in lost revenue to the Exchequer: in fact, income tax receipts shot up by more than £500 million the following year.

In the same budget the Government slashed the basic rate of capital gains tax from 40 per cent to 20 per cent. Again, we were told that this would cost the Exchequer money: in fact, receipts from capital gains tax jumped by more than 75 per cent. And that cut in capital gains tax will benefit hundreds of thousands of people who participated in the recent Telecom flotation.

We in Ireland have long recognised the incentive power of low taxation. Many factors have contributed to our industrial success, not least the high value which successive governments have placed on education. One of the key factors which has driven that success has been the special low rate of corporation tax for manufacturing companies.

More recently, the extension of the special rate to the Dublin International Financial Services Centre has been the driving force in the tremendous success of that venture.

If low taxes are good for companies, then surely they must be good for the people who work for those companies also. I find it bewildering that there are still people on the Irish left who are in favour of a 12.5 per cent tax rate for business but who say that workers should still pay tax at 46 per cent.

I believe that tax cuts have been one of the most important contributors to the emergence of the Celtic tiger. If you don't believe that, try turning the clock back.

In the late 1980s company profits were taxed at 50 per cent. The basic rate of income tax was 35 per cent and the higher rate was 58 per cent. It was almost as if the State wanted to discourage investment, discourage effort, discourage work.

Does anybody seriously believe that we would be enjoying our current rate of economic growth if we pushed tax rates back to those levels again? Personal tax rates have been reduced in cumulative terms by 18 percentage points in the last 10 budgets. I am proud of the fact that 17 of those 18 points were taken off when the Progressive Democrats were in government.

We have made progress on personal taxation, but much more remains to be done. For half-a-million people in this country an extra tenner in their wage packet is worth just £4.75: the Government gets more of it than they do. I don't think that's right.

If we want a high-wage, high-skills economy then we will have to make Ireland an attractive place in which to work; and that means further significant cuts in personal tax rates.

I am confident that this Government will continue with its radical and reforming programme on the taxation front. The Progressive Democrats are a radical and reforming force in a radical and reforming government. Look at what this administration has achieved over the last two years:

We have introduced tax credits, the biggest reform of our personal tax system in a generation.

In last December's budget we took 80,000 people on modest incomes out of the tax net altogether.

We have brought in the Employment Action Plan, which is proving to be spectacularly successful in helping unemployed people to find their way back into work.

We have delivered record increases in the old-age pension and we are well on the way towards our target rate of £100 a week.

We are about to introduce a national minimum wage.

These changes would have been unimaginable under the previous government. In fact, the rainbow was probably one of the most conservative administrations in recent Irish history. It said No to tax credits, No to tax-rate cuts, No to privatisation, No to market liberalisation.

WE have demonstrated conclusively over the last two years that tax cuts drive economic growth. It is that economic growth which creates the jobs needed to reduce unemployment and the extra revenues needed to fund better social services.

In other words, an enterprise economy is what creates an inclusive society. To listen to some commentators you would think that all social progress stopped the day this Government took office: the reality is very different.

Just look at last week's quarterly national household survey. Unemployment has fallen below 100,000 for the first time in almost 20 years. New jobs are being created at the rate of 1,400 a week. And the number of long-term unemployed has fallen by 40 per cent in the last 12 months to 43,600.

There is every reason now to believe that structural unemployment in the Irish economy can be completely eliminated within the lifetime of this administration.

Do we in Ireland want a liberal economy or a leftist economy? I would argue strongly that liberalism, not leftism, is what has transformed this country over the last 10 years. Politicians should have the courage of their convictions. As an economic liberal I believe that cutting taxes is the way to create growth, reduce unemployment and promote social inclusion. In short, I believe that people are the best judges of how to spend their own money.

True socialists believe the opposite. They believe that the state is the best judge of how to spend people's money. A true socialist, with the courage of his or her convictions, should be arguing for an increase in the higher rate of income tax. Are there any true socialists left out there?

Mary Harney is Tanaiste and leader of the Progressive Democrats