Time to end Government's programme of tax and spend

NEWRY and Duadalk are just 12 miles apart. In terms of tax policy, however, they might as well be on separate continents.

There is a now a wide gap between the personal taxation regimes in the Republic and the UK. This means that an ordinary single worker living in Newry on gross wages of £300 per week takes home some £20 per week more than his counterpart living in Dundalk on the same wages.

Clearly, there is not much incentive to effort for those living on the southern side of the Border.

This is not the whole story, however. Employers in both jurisdictions have to pay payroll taxes. These are significantly higher here than in the UK. The net result is that while it costs the company in Newry £1.67 to give its worker an extra pound per week in take home pay, the equivalent cost for the company in Dundalk is £2.54.

The message that we are sending to employers via our tax system is, clear if you want to create jobs, do so in the UK. This kind of economic partition must cease. We will never succeed in creating a single island economy while we persist with crazy policies like this.

At present, two separate economies share this small island. Any significant divergence between them in personal tax rates will, all other things being equal, tend to push jobs out of the high tax economy and into the low tax economy.

For the last 25 years this was not much of a problem. The civil strife and terrorist activity meant that Northern Ireland was a singularly unattractive place in which to do business. All that has now changed. The peace process has transformed the image of Northern Ireland as a home for mobile international investment.

THE biggest inequality of ail in Irish society is between those who have work and those who do not. If we are serious about creating more employment in this country then we must start tackling the huge tax differential between here and the UK. If we fail to do so, then we are going to see jobs drifting north of the Border or across the Irish Sea.

The Progressive Democrats put forward a clear and coherent strategy for dealing with this problem in our document An End to Tax and Spend last week. Our main proposals include:

. reducing the basic rate of tax from 27 per cent to 20 per cent.

. reducing the top rate of tax from 48 per cent to 40 per cent.

. abolishing employees' PRSI and the health and employment levies.

. cutting employers' PRSI from 12.2 per cent to 7.5 per cent.

These measures would be phased in over the five year lifetime of a government. We provided detailed projections as to how they would be funded.

The tax changes which we outlined would transform the economics of work in this country. A single worker on the average industrial wage of £238 per week would gain an extra £30 in take home pay. A married couple with one earner, on £308 per week, would gain an extra £39 in take home pay.

In most countries people in these income categories would not be classified as highly paid. Yet some of the more hysterical attacks on our proposals from Labour and Democratic Left give the impression that these people are well off.

Essentially, we believe that the fruits of economic growth should not be entirely used up in increased Government spending. They should be applied to improving the lot of ordinary workers.

Prudent management of the public finances is the key to achieving this. There is no need to cut public expenditure: we must merely ensure that it does not rise beyond the rate of inflation.

Social welfare recipients would benefit significantly as, with unemployment falling, available resources would be divided among fewer people.

The package of tax reforms which we announced was designed to close the competitiveness gap between Ireland and the UK, between North and South.

The essence of this argument was admitted by Vincent Browne in his critical appraisal of our proposals in this newspaper on Wednesday, when she said: "We cannot ignore market forces, if only because we operate in international markets which we cannot control, and thus some recognition has to, be had for pay levels elsewhere."

INSTEAD of closing that gap, the present administration seems determined to widen it further.

This month's Budget is unlikely to see any significant moves towards reducing the tax burden on Irish workers. By contrast, there is now considerable political support for reductions in personal taxation at Westminster.

It is not only the Tories who are committed to getting rates down. The British Labour Party - for which Dick Spring went over to campaign during the last UK general election - is now talking about having an initial tax rate as low as 10 per cent.

The Labour ideology marketed in this country is clearly very different from the brand across the water.

The present Coalition is unable to reduce the burden of personal taxation because it has been unable to control public spending. To put matters in context, since the Labour Party came to power three years ago, Government spending has risen by more than £2,300 million.

Labour fervently believes that more public spending equals better services. But is this really the case? Take the example of the health service. Health spending has risen by 65 per cent, or almost £900 million, over the last five years.

The present administration lacks any coherent economic policy. The various ideological positions of the coalition parties means that the Government is often facing in two, or sometimes three, different directions.

The Minister for Social Welfare gave a briefing to journalists about the forthcoming Budget on Tuesday last. He refused to accept that reductions in PRSI had any role to play in improving the competitiveness of Irish industry vis a vis the UK.

Instead, the Minister argued that the exchange rate and wage levels were the main factors hurting the competitiveness of Irish firms. The implication would appear to be clear. The Democratic Left solution to our competitive problems is wage cuts and devaluation. Yet all three Coalition partners are supposed to have signed up for sound money and EMU.

Both Labour and Democratic Left have come out strongly against the Progressive Democrats' proposals to reduce taxes on work. That much was to be expected.

Fine Gael, by contrast, has been strangely silent. That party used to be committed to tax reform in the dim and distant past - the 1992 election campaign, to be precise. Now, they appear content to go along with whatever tax and spend policies their coalition partners want.

Such is the price of office, it seems.