Speaking to the Leinster Society of Chartered Accountants, Mr. Charlie McCreevy, T.D., Minister for Finance, said:

"Today I would like to talk about the economic background against which the Budget is being prepared- the challenges and opportunities which the budget will seek to address."

Recent economic performance

Ireland has experienced one of the strongest and most sustained periods of growth in the industrialised world over the last few years and continues to exceed all expectations. Growth averaged over 8 per cent in the last five years.

At the time of last years’ Budget my Department and most other commentators expected the economy to slow. This was expected in response to the capacity constraints which are evident throughout the economy. Growth of 6.3 per cent was expected. It seems, however, that the out turn will be higher once more. The economy is now expected to grow by 8.3 per cent this year.

The reality of the global economy is that national governments have less influence on developments than in the past. Economic conditions are increasingly influenced by conditions internationally. During the ongoing debate on inflation this fact has been conveniently forgotten in some quarters.

Government finances

However I believe that a prudent approach to the management of the public finances is important in maintaining growth. We intend to continue running significant budgetary surpluses in the period out to 2003 and, as you know, this Government are also committed to set aside an annual provision of 1 per cent of GNP to secure the pensions in retirement of a progressively ageing population. The present health of the public purse must continue if our economic performance is to be maintained in the years ahead.

Employment

One remarkable aspect of the recent economic performance is the increase in employment. Total employment grew by around 70,000 per year over the past 5 years. The unemployment rate continues to fall from around 16 per cent in 1993 towards 4 per cent today. This is an exceptional performance and well in excess of that of our European partners.

Taxation

A pro-jobs pro-enterprise tax policy has also supported growth. This Government believes in rewarding work and promoting enterprise.

It is interesting to examine the reductions in taxation since Partnership began.

In 1987, the top rate of tax was 58% and the standard rate was 35%, and there was a middle rate of 48%

Today, the top rate of tax is now 44% and the standard rate is 22%.

Since 1997, we in this Government have reduced the top rate by 4 percentage points and the standard rate by 4 percentage points.

We have also increased personal allowances and the standard band while introducing tax credits and starting the first phase of individualisation. These policies have removed thousands from the tax net. They have also taken thousands more off the top rate of tax.

Taking account of reductions in taxation real average incomes of single people are up over 15 % since we took office. This is an average increase of almost 5 % per annum.

The take home pay of married one income couples with two children is up over 19 %, nearly 6 % per annum.

Pay Terms of PPF

Tax reductions have had a substantial impact. But pay increases are also having an effect in increasing living standards.

The first phase of increases under the Programme For Prosperity and Fairness came into effect on the first of October 2000. This provided for pay increases of 5.5 per cent.

Many sections of the public service also recieved an additional 3% under the "early settlers".

The second phase of pay increases, of 5.5 per cent, under the Programme for Prosperity and Fairness is due to come into effect on the first of October 2001.

The third phase of increases, consisting of 4 per cent, will come into effect on the first of July 2002 and covers the final 9 months of the agreement.

The approach of increasing real take home pay through the combination of wage increases and tax cuts has served us well.

Present Challenges

There are, of course, new challenges. We are all aware of the increased congestion and delays, the inability of the supply of housing to keep up with demand and the present rise in the rate of inflation.

Measures to combat inflation

This Government has acknowledged that the inflation challenge is a pressing one at present. We must always avoid any policies that would push up inflation. At the same time, we must be mindful of the problems facing people and businesses behind all the macroeconomics statistics.

We have to be careful, also, not to withdraw from our electoral and partnership commitments on tax and wages.

In tackling inflation, the Government is taking account of the role of every aspect of economic policy, from tax to competition, from price rules and the labour market. It is clear that the best defence against inflation is an even more open and flexible economy, where artificial barriers are minimised.

Conclusion

There will always be challenges in sustaining a strong economy and sound finances. These challenges and difficulties should not blind us to the tremendous opportunity we now have.

This is the context in which I will be framing December's budget, the fourth of five of this Government. It is the context in which we are addressing the issues of the day such as inflation, transport, childcare, tax policy, health and education services.

We will keep to our ambition that 80 per cent of taxpayers should pay tax on the standard rate only. With support from the social partners, we are introducing a single standard rate income tax band for all individual taxpayers. This is the type of transformation in people's financial situation and the tax system that the Government is making on the basis of our strong economy and its the type of transformation which can keep the economy strong!"