LEADING economists have called on the Government to abandon the idea of cutting income tax rates and instead concentrate on increasing allowances.

At the Economic Policy Conference in Kenmare at the weekend, a series of economists argued that the Government's supposed intention to cut income tax rates in the next Budget would not work as an incentive to persuade people to come off social welfare and enter the workforce.

Mr Brian Nolan of the ESRI outlined a range of proposals to improve the incentive to work. Cutting social welfare benefits, or making sure they rise more slowly than wages, was one route, he suggested.

He also advocated improving benefits for those in employment, particularly for families with children. The current Family Income Supplement had real problems attached to it. However, making the supplement dependent on income after rather than before tax and PRSI would help relieve the most severe poverty trap. This would cost between £20 million and £50 million, he said.

He also pointed out that in Ireland, because personal tax allowances have not been indexed, income tax was payable on relatively low incomes. Raising personal allowances at a faster rate then exemption limits could overcome this problem, he suggested. The cost of increasing the allowances to the exemption limit level would be about £290 million a year.

Dr Frances Ruane, of Trinity College Dublin, said that tax and welfare policy had not been well enough co ordinated over the last 20 years. She pointed to the policy of increasing the tax burden as well as social welfare benefits, had narrowed the gap between in and out of work incomes substantially.

She called for the next Budget to increase tax allowances rather than. reducing income tax rates. This was not a popular option with the politicians in an electoral year, as they felt voters responded far more favourably to visible cuts in the tax rates, she said, but was a better option.

Mr Felim O'Rourke, of Sligo RTC, called for a tax free allowance to be given to all those giving up the medical card when entering employment.

The fear of loss of the medical card was a major disincentive to working, he said. There were almost one million people in Ireland with neither a medical card nor VHI cover. A tax free allowance would be a simple solution to allow the ordinary worker have access to the system, he suggested.

He also called for the abolition of the Family Income Supplement which "only makes sense if you are on the fiddle".

Abolishing the system would release £17 million which could be used to increase personal allowances, Mr O'Rourke said.