The employers organisation, IBEC, has called for a Budget tax reduction package of £875 million (€1.1 billion) - smaller than last year's - in a bid to head off inflation.

In its pre-Budget submission, which it presented to Government last Friday, IBEC called for a 1p reduction in the standard rate of tax. It also took the same line as the Taoiseach Mr Ahern who said the package must be targeted at the lower and middle income groups.

There is no mention of a cut in the top rate of tax which the Tanaiste, Ms Harney, is seeking. This year's Budget is of "extraordinary importance - even more so than in the last number of years", said Mr John McNerney, chairman of IBEC's Ecotax committee and of Readymix.

He added that the Budget's two priorities must be tackling inflation which he said is hitting business in particular and meeting commitments in the Partnership for Prosperity and Fairness. The last Budget exacerbated inflation, according to IBEC. "A different approach in terms of timing and overall cost could have done what was needed without adding an unnecessary boost to demand. There is no doubt that the combination of actions in the last Budget exacerbated inflationary pressures, which were already mounting because of other factors."

This year, tax cuts should be conditional on the pay term being adhered to, Mr Turlough O'Sullivan, IBEC's director general, insisted.

The employers are still unequivocally stating that there is absolutely no room for further pay rises.

However, social welfare recipients, particularly pensioners, should be given full compensation for inflation.

Apart from the personal tax package of some £875 million, IBEC is calling for specific action on housing.

The package, if implemented, would deliver a 4 per cent gain to workers on up to £30,000 but that would quickly fall to gains of around 2 per cent for incomes in excess of that level.

This would pay for a £1,000 increase in tax credits, a reduction in the standard rate of tax from 22 per cent to 21 per cent, a widening of the standard rate tax band by £2,000 and a reduction in the standard rate of VAT to 20 per cent from 21 per cent.

The state of the housing market is now an "emergency", according to Mr Brian Geoghegan, director of economic affairs at IBEC. The organisation is calling for the establishment of a housing authority.

To encourage more women back to the workforce IBEC is calling for tax relief on childcare expenses, after-school facilities, the abolition of benefit in kind on childcare and grants to encourage private health insurers into providing creche facilities.

The full text of the IBEC pre-Budget submission is available from the homepage of The Irish Times website at: www.ireland.com