McCreevy rules out increase in public expenditure

The Minister for Finance ruled out increasing public expenditure during a debate on a Fine Gael private member's motion calling for a wide range of income-tax concessions.

Mr McCreevy noted that a Labour amendment to the motion called for the abandonment of the 4 per cent ceiling on public spending and its replacement by a higher figure, which, he said, implied spending the increased tax resources as they came in.

"I do not intend to pursue this course. The Government owes it to the taxpayer to continue to be prudent in the management of its resources while meeting clear and necessary public spending needs.

"To spend now would inevitably create problems later on, and would certainly reduce very considerably the resources available for the sort of tax measures in terms of substantially increasing allowances and widening the standard rate income tax band to £20,000 for single people and £40,000 for married couples, which the party is calling for."

He added that the Government's tax commitments were clearly set out in its action programme for the millennium and included the removal of low-paid taxpayers from the tax net altogether, reduction of the current income tax rates, increasing the numbers of taxpayers on the standard rate, and moving to a full tax credits system.

As far as the Government was concerned, the options of cutting income tax rates remained on the agenda and the level of the top tax rate was a factor which influenced work incentives and labour supply in certain important areas. "All the relevant aspects of the income tax system, as regards the equity and efficiency of the system, will be taken into account in framing the measures that I will announced on Budget day."

The Fine Gael spokesman on finance, Mr Michael Noonan, said that in government his party would negotiate moderate wage increases in return for a radical tax package along the lines of its proposals.

He said the Government's programme had promised that 80 per cent of taxpayers would pay income tax at the standard rate only. But instead of progressing to deliver on its commitment, the Government had galloped off in the opposite direction and in its new programme, published last week, had virtually abandoned its position with a new watered-down promise that it would ensure that "a large majority of taxpayers" were subject to no more than the standard rate.

Mr Noonan said the widening of social partnership agreements to include not only a pay element but also tax deductions and reform, improvements in social welfare, health and education, and a consensus approach to other social and economic objectives, had been of great benefit.

But he believed it would be difficult to renegotiate a successor to Partnership 2000. "Many workers feel that the benefits of the Celtic Tiger are passing them by. They believe that they are now working harder than ever before, and for rewards not significantly higher than in the past.

"They complain more about the level of income tax and PRSI than the level of wages. They believe that a small group of persons are reaping extravagant profits from the present economic boom and that an unfair tax system operates to the detriment of the working man and woman."

The Labour spokesman on finance, Mr Derek McDowell, said he would like to say that the debate served a useful purpose, but the truth was that it did nothing of the sort.

"Its primary purpose is to allow the Fine Gael party to engage in a bit of populism by promising tax reductions to just about everyone. In a sense it is difficult to blame them. It is not easy for any opposition party to resist the opportunity to write an imaginary cheque to their target voters with the promise of more to come at a later time. That said, I believe that that temptation is one that we should resist."

The debate on the Fine Gael motion resumes tonight.