The Taoiseach, Mr Ahern, has signalled that he would prefer to widen the tax bands and increase allowances rather than cut income tax rates. He said he would be happy to achieve tax rates of 40 and 20 per cent over the next decade.
In an interview on RTE yesterday, Mr Ahern said that while the Programme for Government was based on reducing the standard rate to 20 per cent by 2002 and the top rate to 42 per cent or 40 per cent depending on economic conditions, the priority was to ensure that the lower paid were removed from the tax net.
"The big difficulty with the Irish taxation system is not so much the rates any more but the salary limits that people, particularly young people, enter the top rate of tax," he said.
If the Government got tax rates and tax bands right over the next few years, it could ensure that people on low incomes were not going to pay the top rate of tax, he said.
"If we do that over this decade we will have achieved a situation where we have moved from very excessive tax rates of 65 per cent and 35 per cent down to 40 per cent and 20 per cent," he said. This would radically change the Irish taxation system, he said.
Mr Ahern's stance differs considerably from the aggressive tax cuts favoured by the Tanaiste, Ms Harney. Last week, she indicated her support for significant income tax cuts in the December Budget saying she wanted to see two percentage points taken off the top and standard rates of tax, bringing them to 42 per cent and 20 per cent.
She endorsed ambitious targets set by the Attorney General and former Progressive Democrat TD, Mr Michael McDowell, to bring the standard rate of tax to 16 per cent and the top rate to 33 per cent over five years.
The Taoiseach said there was no difference between his views and those expressed by the Tanaiste. Both were focused on removing workers on the minimum wage from the tax net. Meanwhile, the Labour Party is drawing up its tax proposals. Its finance spokesman, Mr Derek McDowell, said it wanted the Government to deliver on the Programme for Prosperity and Fairness.
