Cowen defends decision on cigarette taxes

The decision not to increase Vat on cigarettes in the Budget was defended by the Minister of Finance, Mr Cowen this morning.

Mr Cowen said he was the first Minister for Health to promote serious increases in the cost of cigarettes but this year, in his first Budget, had decided it was not necessary.

"I am coming to the view that it is a behavioral and lifestyle issue for people. I don't think if I put it put by 10 or 20 cents it was going to be the deciding factor . . . we have made our point on the price issue."

He was responding to a point from Prof Luke Clancy, chairman of the Ash group, on Pat Kenny's Todayprogramme on RTE Radio 1.

Prof Clancy expressed his disappointment with this decision saying its sent out the wrong signal, as price was the most important determinant in helping people to reduce or quit smoking.

Asked about the retention of tax breaks, Mr Cowen said it was important to distinguish tax reliefs that shouldn't be regarded as for the rich, such as mortgage interest relief and VHI relief used by ordinary taxpayers.

Incentive schemes were introduced for specific reasons such as the regeneration of inner city areas, said Mr Cowen. The question now was does the economy still need them, he asked?

"There is an interaction going on where you have the greater activity bringing you more VAT more stamp duty in the sale of units that are built, the indigenous construction industry itself, all the benefits of employment and PAYE as against the benefit clearly to the individual investor."

He also noted while some high earners reduced their tax liabilities under some of these schemes, the top 1.5 per cent of earners paid 28 per cent of all tax. This was higher than the 20 per cent the same group paid in 1997.

The Budget was criticised by a caller to the programme for its lack of support for parents requiring childcare, which was now the only necessary work expense without any tax relief. This was a key element of the IBEC and Siptu pre-budget submissions, and one of the few on which they agreed.

Mr Cowen responded that tax relief only benefited those with a taxable salary, which not everyone has. More than €1.9 billion would be spent on child benefit with the Government providing 40,000 child care places and supporting 50,000 more. He said he was hoping for another 16,000.

He also described as "a fair effort" the €535 million ear-marked for Overseas Development Aid (ODA) next year. The Government recently admitted it would not achieve its stated target of providing o.7 per cent of the GNP to ODA.

"The problem here is we are a victim of our own success. The growth in GNP is accelerating - thankfully - and obviously that makes it all the more difficult to reach the targets that were set."

He said by 2007 the state will be contributing some €695 million to ODA, a "significant fund by any stretch of the imagination.

"We are seventh in the world per capita in ODA funding. I don't think anyone should question the commitment of Ireland as a country through this ODA mechanism. "I am sorry we didn't make 0.7 per cent . . . had we been in recession we would have made it," he quipped.