Press conference:Minister for Finance Brian Cowen confirmed last night he had agreed with the Progressive Democrats to reduce the top tax rate by another 1 per cent next year if they get back into Government and if the current economic circumstances prevail.
Mr Cowen denied that introducing a 0.5 per cent increase in the health levy for people earning more than €100,000 a year in the Budget was a quid pro quo for giving the PDs a 1 per cent top rate tax cut.
"There was no quid pro quo. This commitment to move and reduce tax rates from 42 to 40, having already come down from 48 to 42, is a commitment from Government in 1997 and 2002 if the economic circumstances were appropriate, and the economic circumstances are appropriate to reduce by 1 per cent. If we maintain our economic strength we will reduce that by another 1 per cent next year," Mr Cowen said at his post-Budget press conference.
He said the overall long-term objective of Government was considerable reform of income tax involving moves to 20 per cent for the basic rate and 40 per cent for the higher rate - "and that is where we have to get to".
Asked whether the commitment to reduce the top tax rate by another 1 per cent will stand if Fianna Fáil are in government with a party other than the PDs next year, he said:
"The Programme for Government is the Programme for Government. . . and it is the Government who will decide. We have every intention of trying to get this Government re-elected.
Mr Cowen said the 0.5 per cent health levy for high earners will be ringfenced for the health service and will help develop services.
"We have an ageing population and we need to look after them," he added. On the issue of first-time house buyers, Mr Cowen said he tried to find a mechanism that would exclusively benefit buyers.
"I felt it was important to look at first-time buyers already in the market as well. It seemed to me mortgage interest relief was the best mechanism of transferring the benefits . . . we wanted measures that wouldn't inflate the market at this time and if this happened it wouldn't have been of any benefit to first time buyers.
"We had to see what is the state of the market and the economic circumstances in which we find ourselves."
On taxes on tobacco, Mr Cowen confirmed he had talks with Minister for Health Mary Harney to find a formula for increases which would not affect inflation.
He said he hoped the social partners would help agree a formula to achieve this.
He added that the 50 cent increase was a health promotion measure.