I welcome the opportunity to speak this evening and address the motion before the House. This Government has a record second to none on taxation in both reducing the burden and making the system work more fairly.
On income tax over the past seven years, we have reduced the standard and higher rates of tax by six percentage points each; introduced a fairer system of tax credits and increased the value of those credits substantially so that no one in the PAYE system pays tax on less than €246 per week; significantly widened the standard band; reduced the average tax burden for all taxpayers; and put in place a regime where, in 2004, a third of all income earners are outside the tax net as compared with a little over a quarter in 1997.
Senator John Paul Phelan stated that half of income earners are paying at the higher rate, but that is not true. Of 1.8 million people in the workforce, 622,000 people are exempted from the tax net. That is basic maths. This Government has also more than doubled the tax exemption limits to €15,500 for single people, and €31,000 for married people and those aged 65 or over.
I was glad to hear the contributions of the Fine Gael Senators. The average single industrial worker earns almost €10,000 more now than in 1997. He or she still pays over €250 less in taxes and levies. If people think what we are trying to achieve is unfair, the facts are not on their side, particularly with regard to taxation.
In an international context, the most recent data from the OECD shows that in 2003 Ireland had the lowest tax wedge in the EU and one of the lowest in the OECD for a single person on the average production wage. That is an important advance in terms of the progressiveness of the tax system. I am in no doubt that the Government's tax policies, endorsed by the electorate, have been right for the economy, business and individual citizens. Low direct tax rates are also appropriate going forward in the context of an increasingly competitive international environment where an open economy such as ours must be able to attract and retain investment and skills in order to underpin our economic development.
However, it has not all been about tax bonuses. I do not question Senator McDowell's position. As Labour Party spokesman on finance, he has held a consistent position in both Houses, even if it was not always in line with some of his colleague's comments. That is the nature of any business.
By not having an informed debate on tax in this country, those in favour of a lower taxation regime are portrayed as less committed to public services. That is not the case. It is not an either-or argument. Between 1997 and 2004, economic growth generated an extra €29 billion in annual resources for the State. That is €29 billion more for resources such as social welfare and the provision of public services. This Government put in place a lower tax regime. Of the €29 billion generated, €19 billion, or two thirds, has been used to fund extra spending on services. We have used the increased resources brought about by greater buoyancy and economic activity. Two thirds of it is going towards the provision of public services.
It is phoney to suggest people should vote for a party because it is prepared to tax at a higher rate to ensure better services while the Government is not. Our economic model has generated unprecedented additional annual resources, two thirds of which is going into the provision of public services. A total of €4 billion went towards substantially higher public investment. This was much needed in terms of the social and economic infrastructure deficit. Approximately €6 billion went towards tax reductions. The remainder went to build up the national pensions reserve fund. It was noted in the 2002 budget that of the €4.8 billion in tax cuts up to then, 43% went on increasing personal tax credits, which are of more benefit to the lower paid, again showing a progressive equity in the distribution of the tax reliefs towards such people. Some 16% of the €4.8 billion went on cutting the lower rate of income tax, 22% went on widening the standard band and just 11% went towards cutting the top rate of tax. The equivalent 2004 figure for the amount of tax relief given on personal credits is now nearly 50%. Again that shows a progressive improvement for those on lower wages, in terms of how the tax relief system is working.
Much has been made in recent weeks of the fact that a very small number of higher earners have managed to pay little or no tax through the use of legitimate tax shelters introduced by Governments of all complexions. There are legitimate and reasonable reasons for tax reliefs as a general principle. We know about them. Governments of all complexions have introduced them to regenerate inner cities, improve tourism prospects in areas where the potential was not being realised and so on. Let us not throw the baby out with the bath water and suggest we should not have tax reliefs as a general principle. As we often hear in this and the lower House, they are needed in areas where the Celtic tiger has not roared as loudly as in parts of this city or parts of the country.
The portrayal of these tax reliefs in today's newspapers and commentaries is quite distorted. The top ten reliefs cover pension contributions, stamp duty and capital gains tax exemptions on one's home, mortgage interest relief, non-taxation of child benefit, medical insurance relief and the special savings accounts. These come to over €5 billion and I do not think anyone is suggesting they are tax shelters for the rich. They are for ordinary people trying to make a living and rear their families, ordinary members of the public trying to do the best they can for themselves and their families. These are not tax reliefs for the rich despite what some ill-advised Opposition press releases say. Those who put out such releases are very much in opposition to members of the constituencies which they claim to represent.
I am conscious nonetheless of the need and desire for greater equity in the tax system. Since 1998, we have made 29 separate and effective moves to close off loopholes, limit reliefs, re-focus allowances and ensure that a proper balance is struck. We will keep all these reliefs and incentives under regular review to ensure that they are fulfilling the purpose for which they were intended and to modify or abolish them as appropriate as we move forward. The Opposition did precious little to limit reliefs when last in power. One has to place the rhetoric beside the reality when the opportunity arises. Those are the people who had the responsibility which I am now privileged to possess.
The measures we took are having an effect. The most recent projections from the Revenue Commissioners in respect of the present tax year indicate that the top 1.5% of income earners will contribute over a quarter, some 26%, of all income tax attributable to 2004. I welcome that. At the same time, those earning the average industrial wage or less are expected to contribute no more than about 6.5% of the income tax for 2004, down from over 14% when this Government came to power in 1997. That is another solid example of greater tax equity for those who can most expect it and who are entitled to have it.
Since 1997, the present Government parties have brought about a position where the proportion of those exempt from tax, taken out of the tax net altogether, has increased from over a quarter to about a third of all income earners. The latest estimates indicate that there are about 622,000 earners exempt from tax this year compared with 380,000 when we came into office. These policies are often berated as being against the interests of ordinary people, but an extra 240,000 people, almost a quarter of a million, who were paying tax when this Government took over from the previous administration, no longer pay tax. That is against a background of huge growth in numbers in employment — an increase of about 400,000 since 1997 — a substantial growth in per capita incomes over the period and the introduction of a statutory minimum wage.
It is no harm to remind everyone that it was the present Government parties which introduced the minimum wage in 2000. In that year, around 64% of the minimum wage annualised was free of tax, yet in the past two years or so the Government has ensured that 90% of minimum wage has been kept outside the tax net. In assessing whether that is a reasonably good performance to date, with more to be done, we must also note two increases in the minimum wage value since 2002.
The present Government parties are committed in the agreed programme for Government to exempt the minimum wage from the tax net over our current term of office and it is our clear intention to meet that commitment in the context of a responsible approach to fiscal policy which is also part of the Government programme. That is not often mentioned when people talk about commitments. Every commitment in any credible programme is based on an overall budgetary framework, as we have also outlined in our manifesto commitments.
One media article last week complained about the alleged inequity of taxes, not on income, but on expenditure, VAT and excise. These, it was claimed, bear more heavily on the poor, but the facts suggest a different picture. Our VAT rates are zero, 13.5% and 21%. The zero rate applies to many essential purchases for those on low incomes, especially food and children's clothing and footwear, the lower rate applies to labour intensive services and the top rate applies to remaining items, many of which, such as cars, are obviously purchased more by the better off. This is a socially progressive tax structure which I am sure all sides of the House can and should readily support, based as it is on a social partnership network which seeks to ensure that all stakeholders in society have a real stake in the policy formation by Government.
When workers or their representatives are making their contributions to society that is not just about their relationship with management, nor simply about wages, but about access to education for their children, proper health services and the room for improvement which we can discuss and acknowledge in many of these areas. Let us also acknowledge the substantial improvement in relative terms that has been achieved because of that approach, instigated by the party which I represent, and to which we are fully committed as a fundamental aim of our organisation.
As for excise, 41% of excise revenue in the first ten months of 2004 came from duties on petrol and diesel and 22% from VRT on cars. Neither of these can be said to bear most heavily on the poorest of the poor. Some 20% of revenue came from alcohol and 16% from tobacco. If any excise impacts more on the lower income groups, it is these two. However, no Government since 1994 has increased excise duty on the plain person's pint of beer and the trade itself can take the honours for running up prices there. In the case of tobacco, increases in excise have been made for social policy reasons supported by all in this House tonight.
Some people say we have gone too far in cutting tax and should move up to EU levels. We are not as far below these levels as usually portrayed if we use GNP as the measure, since that is the relevant measure. Even so, why should we want to reach EU tax levels? Do we want the 10% unemployment and 1% growth rates that go with it? Is this what some of those in Opposition want?
If the Opposition informed itself of what is happening in Europe, it would see that France, Germany and others are desperately trying to reduce their tax and spend rates of 50% or so of national income. These rates are not sustainable, especially in the light of the mounting costs of supporting a quickly ageing population in Europe. As we found in the past, high rates of tax and spend leave us with little room for manoeuvre when a downturn comes, along with the inevitable dislocation of services which results, and the great difficulty we have in retrieving that existing level of service before we can again build sustainable improvement into the future. Why should we go back to that sort of stop-start approach? That is the approach I saw in the first ten or 12 years of my political career and I do not want to return to it.
Those EU member states I mentioned are frantically trying to pull back from the cliff edge. Some in this country on the other hand seem to want to head in that direction by insisting we should increase our tax take to overall EU levels. It is a fallacy to suggest that the commitment to improve public services is dependent on one's commitment to higher tax rates. That is not true and the evidence is otherwise with regard to the model of this economy and how we have worked here for the past ten years.
Let me turn now to business taxation. Low business tax rates have a long history in Ireland. Export sales relief which exempted exports of manufactured goods from tax was introduced as far back as 1956. From 1980, for European Union reasons, we replaced it with a 10% rate of corporation tax for all the manufacturing sector, both Irish and foreign-owned. According to the latest IDA Ireland data, in 2003 there were over 1,000 IDA supported foreign-owned companies located here which employed almost 130,000 persons. This is due, in some measure, to our tax policies. In addition to the 10% corporation tax rate for manufacturing, the 10% rate for the IFSC has also been an outstanding success.
In combination with other important factors, this low rate of tax has led to the creation of approximately 11,000 jobs directly associated with the IFSC itself. The financial services and computer software sectors would see the tax wedge on labour and management tax rates as a key issue in attracting business and investment dependent on skilled labour. It is not the case that people are agnostic in respect of that matter. They are not. Those involved in the sector make that point clearly to the Government and through various avenues when there is any indication that the position might change.