Two words describe the Irish economy today: strength and opportunity. The economy is strong and getting stronger, in a fundamental way. This is no undeserved and fleeting boom. Instead, the economy and our national finances are undergoing a sustained structural change, with the result that we can as a people ensure our own succeeding generations' prosperity.
The opportunity that a strong, competitive economy delivers is something that many people are only beginning to see, and one that some commentators and politicians are sadly unable to appreciate. In the 1990s, we pulled ourselves out from the abyss of the 1980s' legacy of economic mismanagement. Now, the Government's agenda is to put in place a sustainable economy which transforms the scale of opportunity available to all.
The unprecedented opportunities cut across all areas. For the first time in living memory in Ireland we can feel confident we will never return to mass unemployment and emigration. We can plan and implement public services and public infrastructure secure in the knowledge that our national finances are sound and resilient. We are putting in place the financial reserves to meet pension obligations for many years ahead. We are cutting the national debt to pay off the bills of the past and allow maximum flexibility in the future.
We are now building world-class health and education services, and a new transport system, things we longed for before but could never afford. We are setting personal income tax at levels which are fair, neither discouraging effort nor undermining success.
We can credibly promise that business tax will be kept at levels that will facilitate enterprise and competitiveness.
A strong economy, sound finances and strong, effective social services go together. This has always been the philosophy of Fianna Fail, and the correctness of our vision is borne out in the state of the economy today.
A central feature is the remarkable growth that we have achieved in employment. The record since the Fianna Fail/Progressive Democrat coalition came to office speaks volumes about our economic policies: unemployment has been cut by more than half, down to 4.5 per cent from 10 per cent in 1997. Some 200,000 more people are in jobs since 1997.
We are only beginning to appreciate what sustained high employment will mean for people and families in every part of the State.
We must continue to work to help people in long-term unemployment to be able to take up jobs. One thing is clear to the Government's great satisfaction: sustained employment is having, and will continue to have, a great effect in reducing poverty.
This impact will show up in statistics before long. Already we know that more and more people are able to leave behind the poverty trap because of new employment.
There will always be challenges in sustaining a strong economy and sound finances. These challenges and difficulties should not blind us to the tremendous opportunity we now have.
This is the context in which I will be framing December's Budget, the fourth of five of this transforming Government. It is the context in which we are addressing the issues of the day such as inflation, transport, childcare, tax policy, health and education services.
Our approach is built on two basic commitments: first, the electoral mandate that each TD of the coalition parties carries to implement the policies we put before the electorate in 1997. Second, we have entered a commitment in the Programme for Prosperity and Fairness.
Our commitment to lighten the burden of income tax, particularly for the low paid, will be honoured. The standard rate of tax has been reduced as never before by this Government, from 26 per cent to 22 per cent in only three years. The top rate has also been cut by 4 points. We have said we will bring rates down further, if economic circumstances permit.
As a radical change in the fairness of the tax system, we have introduced the tax credits system to replace the old allowances. This means that reliefs can now benefit everyone equally, rather than help top rate taxpayers disproportionately.
We will keep to our ambition that 80 per cent of taxpayers should pay tax on the standard rate only. With support from the social partners, we are introducing a single standard rate income tax band for all individual taxpayers. This is the type of transformation in people's financial situation and the tax system that the Government is making on the basis of our strong economy.
Underlying all our commitments in economic and social policy is to manage the public finances prudently. The inflation challenge is a pressing one at present. We must always avoid any policies that would push inflation up to unsustainable levels. In this regard, I agree with the principles set out lucidly in Dublin last week by the president of the European Central Bank, Wim Duisenberg.
We have to be careful, equally, not to withdraw from our electoral and partnership commitments on tax and wages due to a misreading of the economic signals. We have to assess precisely the extent to which inflation is caused in our economy by additional consumption, and the extent to which additional consumption arises from particular tax policies. We must also analyse very carefully the role of indirect taxes in alleviating inflation.
At the same time, we must be mindful of the problems facing people and businesses behind all the macroeconomics statistics.
This is a common task across the EU. Each EU finance minister has to carry out the same analysis in a national context to ensure its fiscal policy is tuned to our shared goals in the EU Stability Pact and the management of the euro.
So, in tackling inflation, the Government is taking account of the role of every aspect of economic policy, from tax to competition, from price rules and the labour market. It is clear the best defence against inflation is an even more open and flexible economy, where artificial barriers are minimised. Wim Duisenberg also highlighted this in his speech last week.
The ECB president rightly emphasised that small, open economies should make sure to remain open and flexible to maintain their continued competitiveness.
In building sound finances for the future, I am very proud that this Government has decided to put in place a separate fund for public pensions starting at nearly £5 billion now.
It uses prudently the proceeds of the sale of Eircom, and will receive a contribution of 1 per cent of GNP each year. This fund will add to the ability of present and future generations to look forward to retirement security. I am also personally very pleased to have been able to increase the amounts people can save tax free for personal pensions.
I believe strongly in pensions' reform, in pension improvements for older people today, in particular the social welfare pension recipients, and for today's workers later in life.
There is a lot yet to be done. We are well on our way to building one of the strongest and most sustainable economies in the world. That strength will be the basis for bringing about the inclusive, fulfilling, and rewarding society we seek.
Charlie McCreevy is Minister for Finance
Kevin Gardiner's concluding article in this series will appear tomorrow