Address by Brian Cowen, TD, Minister for Finance, to the Annual Dinner of the Dublin Chamber of Commerce 19 October 2006
Ladies and Gentlemen, I am delighted to have the opportunity to join you at this event again this year. The numbers attending and the positive vibe in the room are testament to the strength and vigour of our economy and our capital city.
Look at the journey we have travelled together. Over the course of the past decade, the combination of this Government’s sound policies and the hard work of Irish people has transformed our country:
The numbers at work have surged to two million, a landmark achievement for the Irish economy
Taxes on work and enterprise have been reduced dramatically
Our growth record is the best in the developed world
The public finances are in excellent shape, and at the same time,
Unprecedented resources are being committed to health, to education, to social inclusion. Ireland, once a byword for economic failure, is now a paradigm of economic and social progress.
It’s natural after a journey of this nature to take a rest, to regroup, to revive our spirits. However, if we are to consolidate the gains made and enhance quality of life for generations to come, we must keep moving forward. Having built a great economy, we must now complete the building of a great society. Then we will have completed the Republic, a task which started 90 years ago this year.
However, we can only sustain a great society on the back of a world-class economy. That is why we must continue to follow the policies that have brought us such economic success. In essence, they are sound budgetary management and a taxation system which rewards and encourages work and enterprise.
Prudence has been the watchword of the Government’s fiscal policy with budget surpluses delivered in eight of the last nine years. As things currently stand, we will be able to extend that extraordinary record to nine out of ten when final numbers for 2006 become available. Now, everybody in this room knows that 2007 is going to be a very important year. It will be twenty years since Fianna Fail in government launched the Programme for National Recovery, brought fiscal chaos to an end and put the economy back on the right track. It will be ten years since this Government started to overhaul our tax system, reward enterprise and work, as well as generate and commit unprecedented resources for essential social services. And of course, we have the issue of a contest in the Summer!
The latter event is getting people excited already. In fact, some people are counting seats long before the votes have even been cast not to mention tallied. (Or at least they were until the last set of opinion polls appeared!) But seriously, there is an element of excitement about the electoral context in which my forthcoming Budget will be rolled out with some commentators suggesting that I have almost limitless resources to share with the electorate next year.
Let’s get a few things straight: Responsible leadership is about planning for the long-term. Responsible leadership does not involve temporarily forgetting the lessons of good economics when it might be convenient politically to do so. I have no intention of threatening this country’s success by engaging in irresponsible short-termism, by seeking out a quick fix or by employing a soft-option strategy. My budget will continue the successful policies of the past nine years: to repeat, they are sound budgetary management and a taxation system which rewards and encourages work and enterprise.
Earlier today, my Department published the Pre-Budget Outlook. This document is an important contribution to both reform and the transparency of the budgetary process. It sets out the economic parameters within which I will frame my next Budget in great detail.
The Outlook is positive with growth projected to average 5% over the 2006 to 2008 period. Projected growth rates which my Finance minister colleagues in the European Union are very envious of. Employment growth and personal consumption are forecast to remain robust. The debt burden is expected to continue declining with a ratio to GDP of 23.6% being reached in 2008, one of the lowest in the EU. Finally, if anyone is in any doubt about the commitment of the Government to sound fiscal management, the Pre-Budget Outlook is targeting a surplus of 0.4% of our Gross Domestic Product. I hope you forgive the economic-speak, but as business people I am sure that you appreciate sound economic management principles. The Outlook highlights once again that we remain firmly focused on the long-term needs of society rather than the short-term temptations of others.
Once budgetary prudence is secured, I can then turn my attention to part two of our successful formula; efficiency and fairness.
Adam Smith, the father of economics, set out a set of criteria by which any tax should be judged. He called them the canons of taxation and they require that a good tax:
raises more than it costs to collect
is certain in relation to timing and amount of payment
is convenient on the same grounds to the taxpayer
and is fair.
In essence, he argued that good taxes are characterised by their efficiency and their fairness: Over the course of the past decade, this Government has driven tax reforms which have enhanced both.
Taxes in Ireland have been cut dramatically. I am not going to rehash that progress tonight. However, it is important to recall that those moves in terms of corporation, capital and income taxes have substantially improved the incentive to work and to invest. This has had obvious and positive consequences for employment, for business, for our overall prosperity and for budgetary health. Clearly, our tax reforms pass the efficiency test.
When it comes to fairness, our record, once again, is a proud one. Inevitably, attention seems to settle on actual cuts in rates. But a widening of bands or an increase in credits is also a tax cut. What has happened as a result of our tax reforms?
Workers on the minimum wage are out of the tax net completely. Workers on 2/3rds of the average industrial wage pay 2.8% of their income in income tax, PRSI and levies, a cut of 5% in their tax burden since the Rainbow left office. For those on the average industrial wage, the income tax burden has fallen from 20.3% in 1997 to 7.7% today. They now take home more than nine euros in every ten they earn.
Workers, most obviously the lowest paid, are being allowed to enjoy the rewards of their labour. That is good economics, that is real social justice and it makes sound business sense.
Thanks to the reforms which we have introduced, we now have a taxation system which rewards work and enterprise. I want to see it continuing to do so. Where resources allow, I will ensure that incentives are enhanced. Efficiency is critically important – it generates resources for social services and makes Ireland a far better place to live, to work and to invest. However, it is when you combine efficiency, fairness and prudence that you have a powerfully successful formula.
Each of my budgets has been constructed using this formula. The 2007 Budget will be no different. By matching efficiency and fairness we will see not only our economy, but more importantly our country enjoying increasing prosperity and opportunity over the years ahead.
Budget 2007 will be a continuation of the policy of prudence, efficiency and fairness. I realise that this might disappoint those who are attracted to short-term solutions or easy excitement. However, the Government has a broader responsibility, a responsibility not only to those currently working, retired or in school but also a responsibility to the future of our nation. These polices have delivered for Ireland. By sticking to the efficiency and fairness agenda, they will continue to do so.
Thanks you for your attention and enjoy the rest of the evening.
An Roinn Airgeadais
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