Earlier this year, I welcomed the publication by the Combat Poverty Agency of its report "The Distributional Impact of Ireland's Indirect Tax System" and the associated policy statement "Promoting Equity in Ireland's Tax System". The report addressed whether and to what extent the Irish system of indirect taxation, namely VAT and excise duties, is regressive. The report outlines that over the period 2000 to 2005, the share of total Current Exchequer Revenues represented by VAT and excises duties combined has remained unchanged at 44.5%.
The authors concluded that the indirect tax system appears to be regressive in the sense that households in the lowest decile pay a higher proportion of their income in indirect taxes relative to households in the higher deciles. However, they also noted that the indirect tax system includes some elements of progressivity such as low tax rates on food and fuel and zero tax rates on children's clothes and footwear. They also pointed out that changes to some tax elements could have negative effects elsewhere. For example, lowering taxes on drink and tobacco could have a negative health impact. In conclusion, the authors do not recommend adjustments to indirect taxes.
Over the period since 1997, the Government has greatly increased the levels of income support provided through the social welfare system and this was again evident in the increases announced last week as part of Budget 2007. In this Budget, the personal and qualified adult rates of payment were increased by unprecedented amounts. The lowest rates of social welfare payments were increased by €20 per week to €185.80, or by 12.1%. This increase is nearly 3 times the expected rate of inflation next year and, therefore, improves and enhances the living standards of all recipients.
Since 1997, the lowest rates of welfare payments have increased by almost 117%, well ahead of the 53% accumulated inflation over that period. In addition, the Budget included a child support package of nearly €244 million which involved major improvements for low-income families and for single parent families. We now have delivered, on time and as promised, on our commitments in the Programme for Government by bringing the basic State Pension to €200 a week and realising the 2007 target for the lowest social welfare rates. The 2007 Budget package is a strong statement of this Government's commitment to the elderly, children and all those who, for one reason or another, are more vulnerable in our society.