Tax reform to focus on low and middle-income groups

The Government's commitment to cut income tax rates to 42 per cent and 20 per cent over the next three years still stands, according to the Minister for Finance, Mr McCreevy.

Both he and other senior sources have acknowledged a complete change in the direction of the Government's taxation policy, however, with the decision to introduce a tax credits system.

After an election campaign dominated by a debate on tax rates versus credits, bands and allowances, Mr McCreevy said that the Government had decided on a radical reform of the tax system to focus on low and middle-income groups in this year's Budget.

In his post-Budget briefing, Mr McCreevy stated that the Government had gone "90 per cent of the way" in the transition to a tax credits system in 1999. There would be very little to be done in next year's Budget to complete the changeover: the introduction of tax credits for lone parents, widows, dependant relatives, the blind and age allowances, some of which would have constitutional, as well as legal, implications.

The new taxation reforms would enable governments in the future to focus far more easily on different groups, Mr McCreevy stated. The focus this year had been on making the first £100 of a single person's income free from taxation and levies.

The effect of the Budget's tax measures would be to remove an extra 80,000 people from the tax net.

Turning to the proposal to reduce Corporation tax in stages to 12.5 per cent over the next five years, the Minister said that the rhetoric of people inside Ecofin meetings was different to what was said outside. Ireland had agreed a single low rate of corporation tax with the European Commission and there never was any debate about what that rate would be.

On the absence of any proposals to help young people into the private housing market, Mr McCreevy said that, following the Bacon report, the overall way to deal with this problem was to balance housing supply and demand. The Minister for the Environment, Mr Dempsey, and his Minister of State, Mr Bobby Molloy, had been allocated extra money for a serviced land initiative. This would build up the supply side of housing, he added.

Mr McCreevy clarified that an estimated £668 million of the Exchequer surplus this year and some £920 million next year would be targeted to alleviate the national debt.

On the Government's stated intention, in the Stability Programme, to prepare the public finances for the longer-term costs of an ageing population in the early days of the new century, Mr McCreevy explained that the population in the over-65 year bracket would rise from 400,000 now to 1 million in 30 years' time.

He would be receiving two reports on the social welfare, public sector pay and pensions implications of the changing age-profile next year and making plans to utilise Budget surpluses to address this problem in the future.