A COMMITMENT to cut taxes in 1997 and beyond would be of crucial importance in securing a new national wage agreement, according to the Secretary of the Department of Finance, Mr Paddy Mullarkey.
Speaking to the Select Committee on Finance and General Affairs yesterday, Mr Mullarkey said continuing tax reductions were essential if agreement was to be reached with the social partners.
As the current Programme for Competitiveness and Work (PCW) moved into its final months, he said it was important for all of the social partners to consider their positions in the light of the "real success" of recent national programmes.
"The creation of the budgetary headroom for such concessions, of course, would require that an appropriate balance be struck between taxation and public expenditure," Mr Mullarkey said.
Based on pay moderation, the PCW, along with previous agreements, has contributed to improving competitiveness and strong economic growth and job creation in the Irish economy, he told the all party committee. "While nominal pay increases have been moderate, there have been real benefits to employees in take home pay as a result of changes in taxation and PRSI combine with real improvements in the level and quality of social spending," he said.
During the lifetime of the PCW, Mr Mullarkey said employment had grown by 130,000. Increases in take home pay, due to real improvements in tax and PRSI over the period, have been of the order of between 4 per cent and 6.5 per cent. Social spending has also increased, rising in real terms by 5.8 per cent over the two years, he said.
While the outlook for the 1997 Budget was a "healthy one", Mr Mullarkey warned that certain carryover costs from the previous Budget and public spending commitments would constrain the degree to which further concessions can be made.
Buoyant tax receipts in the current year must be used to strike a balance between spending commitments and further reductions in taxation, he said.
The carryover costs of the PRSI and tax package announced in the last Budget will be of the order of £130 million in 1997. Additional social welfare costs following on from the 1996 Budget would be around £81 million while the PCW will add more than £170 million to the pay bill in 1997. And items which substantially boosted Exchequer finances in 1996 - such as the £119 million savings made by the National Treasury Management Agency - will not be repeated.
An improved economic performance last year will, however, ensure that the Budget target for Exchequer revenues would be comfortably exceeded, according to Mr Mullarkey. But the overall outlook for spending next year, was likely to prove just as difficult as in 1996, he added.
"It is clear that decisions on the level of expenditure will require difficult choices in setting priorities, particularly with the need to make room for further improvements to address social priorities, notably long term unemployment and to enhance the level of transfers to those in genuine need."
