The Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney, said yesterday there will be drastic income tax cuts in the Budget to reward the pay moderation shown by Irish workers. Addressing a conference on Economic and Monetary Union in Killarney, the Tanaiste said: "There must be a continuation of tax reform if we are going to make a success of EMU.
"If employers and unions agree to modest increases in nominal wages in order to boost national competitiveness, then it is up to the Government to channel some of the fruits of economic growth into pay packets, via the tax system."
She was speaking at a conference of senior Irish managers and trade unionists on "The Euro: Implications for Human Resource Strategies in the 21st Century".
Ms Harney told them that "maintenance of social partnership will have a key policy priority" in the Government's EMU strategy. "I want to see a new partnership agreement when Partnership 2000 runs out.
"I believe a continuation of consensus is essential if we are to build on what we have already achieved and if we are to deal with the challenges of life within EMU," she said.
Turning to the prospect of dwindling European Structural Funds after 1999, she said there was scope to develop the infrastructure by greater private investment. SIPTU vice-president Mr Des Geraghty said that "most trade unions in Europe support the single currency as a means of sustaining economic growth, maintaining low inflation and assisting job creation". But he warned that Irish workers and consumers would not tolerate EMU if it was paid for "through cuts in public expenditure, social services or job creation measures".
"Great care must be taken to ensure that our entry point into the Euro currency is at the correct level to protect our competitiveness. Irish workers will not accept pay cuts, or cuts in social services to fund bad political decisions."
European Commissioner for Social Affairs, Mr Padraig Flynn, said that Europe must modernise its employment policies if EMU was to succeed. High employment rates were as essential to the longterm economic success of the EU as price stability.
EU economies were increasingly competitive but governments had failed to match this with effective economic policy management.
As a result the US had been able to pull out of the last economic recession much more quickly than the EU. Much of the credit for this must go to its central monetary authority, the Federal Reserve. The advent of EMU would give the EU a similar mechanism.
Many commentators ignored the role of the Federal Reserve in US economic performance and concentrated on flexible labour markets. In the EU states, "too little emphasis on employability policies and too much weight given to unemployment insurance and other income maintenance schemes have, together, weakened our capacity to adjust".