Address by Minister for Finance, Brian Cowen T.D.,
at the ACCA
16th February 2007
Ladies and Gentlemen:
I am delighted to have the opportunity to speak to you this evening.
You might have noticed that we are getting ever closer to a big event. The flags are out, the players are getting restless and the supporters are exercising their vocal cords. The columnists and commentators are already making guesses about the quality of individual performances and in some cases forecasting the final score-line. I am not referring to the Ireland-England match next weekend in Croke Park. No, I am talking about an event that is drawing even wilder speculation and more bullish forecasts than that particular historic occasion. I am of course referring to the general election.
A day doesn’t pass without a further billion euro being committed in additional spending and just in case that spending is not enough to whet the electorate’s appetite we now have been treated to the bizarre spectacle of the tax-loving Labour party promising to cut taxes. And we still have four months to go to polling day! God only knows what largesse will have been firmly committed to the people before we actually get to cast our votes.
The soft politics of the easy promise hold very obvious attractions. Make endless promises, heighten the interest levels, make even bigger promises, up the ante and don’t, whatever you do, don’t worry about the consequences until you have bid your way into office.
I want to make one simple, hard commitment here tonight. We in Fianna Fail will not participate in auction politics ahead of this year’s general election. We will not be putting down publicity-seeking, unaffordable bids. We will not allow our hard-won prosperity to be sacrificed on the altar of short-term political expediency. We will put
Our country has travelled a great distance in the past ten years. All the citizens of this country are entitled to be proud of our joint achievements. Together, we have transformed our country to the point where it has one of the greatest economies in the developed world. Low unemployment, high income levels, buoyant business conditions, excellent opportunities; these are the defining characteristics of our country today. The scale of the transformation is extraordinary. So too is the pace when you consider that we have travelled such a long journey in such a short period of time. Against that backdrop, there is, perhaps, an understandable temptation to sit back, relax and enjoy the fruits of our success. However, in the highly competitive international marketplace in which we operate, if you are not moving forward you are slipping back. That means we must continue to pursue the right policies, the responsible policies which will use our current success as a platform on which we can build a better country.
As Minister for Finance, my first responsibility is to secure the gains already made. That means ensuring that the right policy mix is in place to protect jobs, to keep taxes low and to fund social services that make a vital difference to the lives of this country’s citizens. That balance has been struck successfully over the past ten years and underpins our current prosperity. However, we cannot take that prosperity for granted. Promises to change that policy balance, whether through unaffordable spending commitments, a return to deficit financing or a higher taxation burden, put that prosperity at risk.
That is why we will only make commitments which are affordable today, tomorrow and in the long-run. We will not make spectacular promises now only to reverse them down the road. The economics of stop-start, boom-bust are corrosive and hold no attractions for us.
Once our current prosperity is safeguarded, policy must seek to build for the future by raising our productive capacity and in so doing improve our potential to enjoy a better quality of life. That is in the context in which the new National Development Plan was framed. With a total cost of €184 billion over 7 years, the Plan involves a major acceleration of Government Capital Investment from 4.7% of GNP in 2006 to 5.9% in 2009 and an average of 5.4% over the Plan period.
The Government is strongly of the view that the period to 2013 represents a major window of opportunity in resource terms to tackle, in particular, our infrastructure deficits before other expenditure pressures such as Health and Pensions appear more intensively on the horizon. At present
In essence, the National Development Plan involves the building of a public wealth which both reflects and supports our economic success. I believe that the full implementation of the NDP must be the first priority of the next administration and should take precedence over whimsical, short-termist, promises or gestures. The NDP will make our economy and our society stronger and will substantially increase the probability that our good fortune will benefit future generations. It will protect and sustain our prosperity, not threaten it.
On taxation, I am sure you do not need to be reminded of this Government’s record, a record underpinned by a core belief in the power of low taxes.
We believe fundamentally, not expediently, that low taxes work. They promote economic activity, reward workers and encourage investment. They are central to our current economic success and they are underpinning our future economic success by making
Tax cuts allow workers to keep more of their earnings and encourage people to participate in the labour force. Despite the massive reductions in the income tax burden, the increase in earnings and in the numbers at work have generated increased tax revenues which are funding vital social services across the country.
Since 1997, we have overhauled the taxation system by cutting income tax rates (26% to 20% for the standard rate and 48% to 41% for the marginal rate), dramatically widening tax bands and by replacing the unfair tax allowance regime with an equitable tax credit system. Of the 34 percentage point reductions in the income tax burden in the past twenty years, the score-line reads FF/PD 33 – Rainbow 1.
Of course, rate cuts are only one element of any complete tax package. Commitments that are loud on rates but silent on bands and credits are meaningless. I have to confess that I am surprised at Pat Rabbitte’s claim to be in favour of tax cuts. As recently as December 7th last year, the day after I presented my latest Budget, Mr Rabbitte told the Dail, referring to the cut in the higher rate of tax that “There is no efficiency case for this cut. Where reform is needed is in the standard rate band.” Now, less than three months later, Pat Rabbitte is telling us he will cut rates and is saying nothing about credits and bands. Given it took only three months to perform this backflip, I wouldn’t be surprised if we are treated to another somersault ahead of the general election.
Our tax changes have made
All workers have benefited from our tax reductions. In 1997, a single person on the average industrial wage paid over 27.5% of their earnings in taxes, levies and social insurance. This year, that worker will pay just 14.5% of their earnings.
For married couples where both husband and wife are in paid employment and on the average industrial wage, we have reduced the average tax rate from over 15% in 1997 to just 1.8% today.
Our taxation reforms have seen the tax burden shift away from work. This makes good sense economically and makes good sense socially. It promotes employment and prosperity while ensuring that resources are generated to fund increased expenditure on health, welfare, education, justice and transport.
In 1997, income taxes contributed 36.6% of total tax revenue. Last year, they contributed 27.2% of total tax revenue. Clearly, we have reduced the burden of tax on work by over a quarter. At the same time, the increased prosperity of our country has seen increased wealth. Despite reductions in tax rates, the contribution of capital taxes has increased dramatically to 15.7% from 4.6% ten years ago. The tax burden is now more fairly distributed and more supportive of a strong economy.
We understand how important low taxes are to our economic success. That is why we reduced the income tax burden. That is why, under Fianna Fail, low taxes will continue to be the centrepiece of our economic policy as
Ladies and Gentlemen, we are a very fortunate generation of Irish people. However, we must be ever vigilant. No one owes us a living. We must earn it. The way some parties, most notably Fine Gael and Labour, are making promises at the moment you would think that the Exchequer was funded by some very benevolent, very rich and very distant relative. Of course, the Exchequer is funded by the hard work of the people of this country and it is ordinary taxpayers who will pay the price for political promises. Dipping into Exchequer resources means dipping into their pockets today through higher taxation or tomorrow through higher borrowing. There is no other way. Sustainable economic policies, affordable economic policies are the bedrock of responsible governance. They have served us well in the past and will, I hope, be allowed to serve us well in the future.
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