"A lot done, more to do" was the slogan of the Government in the 2002 election. Next summer the current social partnership agreement, Sustaining Progress, runs out and tomorrow's Budget is the Government's last chance to implement any of the agreement's outstanding commitments. One of the most relevant to budgetary policy relates to the question of stealth taxation.

The words "stealth taxation" are often used pejoratively by opposition politicians to condemn what they see as the Government stealing back what it gives in income tax cuts.

Increases in VAT and duties on the use of credit cards are two examples. But this is a sloppy use of the term: increases in VAT and other taxes are not done by stealth. They are explicitly sanctioned by Government and announced to the public (albeit sometimes not very loudly).

What really puts the stealth into stealth taxation is the age-old enemy of taxpayers and savers - inflation.

Because the Government does not index tax bands to inflation, thousands of workers who are income tax exempt will drift into the standard rate even if their incomes only rise by enough to keep pace with inflation.

For the same reason, thousands more on the standard rate will drift into the higher rate. In the wake of Rip-off Republic the Government might feel that taxpayers want more transparency in how the income tax system works.

The issue of tax band indexation may be to Brian Cowen what the abolition of the Groceries Order was to Micheál Martin - an opportunity to bring the voters of Middle Ireland back into the Government fold.

The Government has committed to the goal of having a low and stable proportion of income earners on the top rate of tax.

The Sustaining Progress document makes the following commitment: "To the extent that there is any scope for personal tax reductions, progress will continue to be made over the three budgets contained within the lifetime of this agreement towards removing those on the minimum wage from the tax net, moving towards the target where 80 per cent of all earners pay tax at not more than the standard rate." The commitment is also stated in the Fianna Fáil-Progressive Democrats joint Programme for Government.

Since that commitment was made, the Government has moved further away, not closer, to this goal. The proportion of high income taxpayers has actually risen, not fallen, since these commitments were made.

According to figures given by the Department of Finance in response to a parliamentary question from Labour finance spokeswoman Joan Burton, one in three earners now pays income tax at the top rate compared to one in four in 2002, when the Government gave its commitment.

In numerical terms there are 160,000 more earners on the higher tax rate since then. Probably around one-fifth of these are new jobs, so it is fair to say that around 120,000 have suffered from a lack of indexation.

To see how inflation has done its work, consider that, as defined by the Consumer Price Index, prices are now approximately 8 per cent higher than 2002. But since then the threshold for the higher rate has risen by only 5 per cent and actual wage growth was considerably higher.

But over time, the problem has led to the higher rate of tax kicking in at income levels that are very modest.

The situation before 2002 could not have been more different. In that period the threshold for the higher rate of tax was increased by a whopping 50 per cent.

'The Government's emphasis on other areas of spending in more recent budgets has partly come at the expense of keeping tax bands in line with inflation. The large increases in the bands in earlier years of the Government were achieved in a few jumps.

The marginal effect of non-indexation in any one year is modest. By approximate calculations, a previously tax-exempt PAYE earner who moves into the standard band as a result of a 5 per cent pay increase would lose just €90. For a married couple with one earner and no children the loss would be €190.

But over several years, non-indexation can represent a significant erosion in take-home pay, other things being equal. The dramatic increase in the thresholds in the late 1990s was a significant contributor to Ireland's present low level of unemployment.

The Government is unlikely to achieve its stated aim of bringing 80 per cent of earners out of the top rate of tax by the end of its term. But with full employment virtually intact and the Government flush with tax, it can at least move to end an anomaly that has persisted for far too long.