The Government must recognise that we are entering "extremely dangerous territory" from next January, the Irish Exporters Association has warned.

The association, which is meeting the Government and social partners this week to discuss the parameters of the 1999 Budget, said Government expenditure and taxation levels are becoming extremely important as foreign exchange and interest rate management move outside our control.

"They must be pursued actively rather than re-actively," the association's chief executive, Mr Colum MacDonnell said. He added that the Budget must provide tax reduction for the lower paid, further tax cuts for businesses and funding for industrial design.

The association is proposing that the tax bands should be broadened so that no employee at or below the average industrial wage enters the higher tax bracket.

However, the lower tax rate of 24 per cent should also be reduced. "This would help to reduce the numbers on the live register, reduce the black economy and make our exports more competitive against UK suppliers," according to Mr MacDonnell.

He added that both the exporters of services and the suppliers of services to the home market suffer "severe" fiscal discrimination. Even allowing for the reduction in the standard rate of tax from 36 per cent to 32 per cent in the last Budget, the tax rates do not reflect national priorities, he said.

The association is calling for a 12.5 per cent tax rate for the first £50,000 of profits and a substantial reduction in the standard rate.