Ahern warns against tax cuts and pay rises

Recent improvements in the economy should not be seen as a basis for tax cuts or substantial wage increases, the Taoiseach, Mr Ahern, has warned.

He told an audience of American Chamber of Commerce members that he was "aghast" to hear calls for lower taxes when the Republic was already a low-tax state.

He said tax cuts must always be balanced against improvements in services, hinting that such improvements were not in evidence in the State.

"People in this country are not paying high taxes," he said, remarking that Irish taxpayers cannot expect to have "Christmas on most days of the week".

"While it is important that we celebrate our success in coming safely through a perilous period, we must not let our expectations get out of control," Mr Ahern warned.

He indicated, however, that the Government may be prepared to target tax bands for change this year by ensuring that they are widened or indexed to the rate of inflation.

The Government left the tax bands unchanged in the past two budgets, creating a "fiscal drag" effect.

This has seen workers lose out as inflation has pushed their wages into the higher tax bracket, leaving them paying higher taxes without gaining any real additional income.

The Tánaiste, Ms Harney, pledged earlier this year to tackle the issue.

Mr Ahern said yesterday that the "Celtic Tiger" had brought "an extraordinary period which allowed us to do some extraordinary things".

He insisted that the new "growth profile" should bring more realistic expectations.

Mr Ahern told the American Chamber that confidence in the Irish economy was "palpable", acknowledging that early predictions of 4 per cent growth rate this year were now looking on the low side.

He said growth could climb to 6 per cent in 2004, but he again tempered the prediction with caution.

"Ireland's growth looks set to exceed levels which would previously have been regarded as optimistic," he said. "That said, we are not going to see a return to the hectic pace of activity which characterised the late 1990s and opening years of the new millennium.

"We must keep this changed growth profile in mind when making demands for higher Government expenditure, more tax cuts or higher wages."

Referring to the ongoing national pay talks between the social partners, Mr Ahern said it was incumbent on the participants to realise that the success of social partnership has always been based on "engagement and compromise".

"That involves defending and underpinning our corporate tax regime through budgetary common sense," he said. "It also requires restraint in the setting of prices and wages."

Mr Ahern declined to comment on reports of an imminent 4 per cent pay deal.

"Let's wait to see what comes out of the talks," he said, adding that it was important to "watch competitiveness".

He said that social partnership was about "the subsuming of sectional positions in the national interest".