RECENT Irish Budgets have gone some way towards cutting the tax burden. But taxes on income on this side of the Irish Sea are still far greater than in Britain, despite the rather cautious budget introduced by the British Chancellor Kenneth Clarke this week. And in key areas the Irish tax system is still blatantly anti-work.

Overall the burden of taxation in Britain - taking into account local taxes, VAT, business taxes, etc as well as income tax - is only slightly lower than in Ireland, as a percentage of national income. And Britain, of course, is a low-tax country by international standards.

But the comparisons with Britain highlights key failings in the Irish tax system, which must be addressed. The need to do so is now urgent with monetary union on the horizon.

If the participants in the talks on a replacement for the new PCW recognise the competitive implications of the move to a single currency, they are showing little signs of it in their opening negotiations.

Entering monetary union along with the economic powerhouses of the EU will put a long-term competitive squeeze on the Irish economy. And if we go in and Britain does not, we will face an extra threat from sterling swings and from a lower cost and more flexible competitor on our doorstep.

All this brings us back to the tax system, as one - but only one - of the key areas to be addressed. Some progress has been made in recent years. The latest NESC report on Strategy into the 21st Century" shows that average tax rates on single people earning between £10,000 and £30,000 have fallen by between 2 and 4 percentage points since 1993/94.

Lower earners have gained by 5 to 6 points while those on high income have gained proportionately less. A similar pattern is evident for married couples. Marginal tax rates - the rate paid on an extra pound of income - have also fallen slightly.

Reductions in employers' PRSI, together with the income tax cuts, have also reduced the so-called tax wedge, which is the difference between what the employer pays out and the employee takes home. For example the wedge for a single employee earning £20,000 has fallen from 46.3 per cent in 1993/94 to 43.3 per cent this year, while for a married couple with one earner on the same income it has fallen from 35.7 per cent to 33.4 per cent.

So much for the good news. There are still crunch issues to be addressed in the tax system. The main one is that high tax rates are still levied on relatively low incomes. A single worker in Ireland (assuming basic allowances) still moves on to the higher-tax rate at income of £12,850. His British counterpart must earn about twice that before he moves onto the higher 40 per cent rate.

The comparison is not so dramatic for a married couple with one spouse working, as shown in the graphics. But where both spouses are working the calculation again swings back dramatically in favour of the British workers.

The second key area to be addressed is in employers' PRSI and corporate tax. On PRSI, the lower 8 per cent rate introduced in Ireland on those earning £13,000 or less helps, but the burden on most British employers is still much lower. And the new smaller company British corporation tax rate of 23 per cent is well below the 30 per cent rate levied on the first £50,000 of profits of small Irish non-manufacturing firms. Manufacturers here still benefit, however, from the 10 per cent rate.

The third crunch area is the interaction between the tax and welfare systems and the impact on the incentive to work.

The NESC report has some interesting recommendations on increasing personal tax allowances and doing away with the existing system of exemption limits and marginal reliefs. As the row over how to pay for the residential property tax shows, there is little prospect of tax reform in the sense of raising money in one area to pay for cuts in another.

And scope to raise excise duties next year is severely limited by the need to keep inflation low to qualify for the single currency. So if taxes are to be reformed, then spending must be held in check, which is why the Government must make a stand in the talks on public sector pay. Controlling the public pay bill is crucial to allow some of the fruits of growth to go towards tax reductions. If the Government does not win this battle, it will lose the war.

In the run up to monetary union every effort must be made to address the key failures of the tax system. For if the single currency goes ahead and we enter, any competitive failings will, sooner or later, be cruelly exposed.