Fine Gael has advocated the introduction of a new middle rate of tax at 33 per cent in its £1.2 billion budget proposals published yesterday.
The removal of people on the minimum wage from the tax net through tax credits and increasing tax exemptions, especially for pensioners, is also proposed.
The party's finance spokesman, Mr Michael Noonan, said the Government must fulfil its commitment to reduce taxes. "Fine Gael believes that tax reductions and improved public services in exchange for wage increases are still the best strategy for economic growth."
In its document Fairer All Round, the party has also proposed a VAT rate cut of 2 per cent, bringing it down to 19 per cent. This proposal would bring down the Consumer Price Index and might also lead to the temporary deferment of expenditure plans by consumers. Mr Noonan said this was also needed if Ireland was to become a European centre for e-commerce as proposed by the Government. He said that to sell over the Internet the VAT rate which applied was that in the country of origin.
Currently Ireland's rate was 1.5 per cent above the EU average rate of 19.5 per cent.
On tax, Fine Gael said there should be an extension of the standard rate band to remove significant numbers of taxpayers from the higher rate. It also proposed the increasing of tax exemptions, especially for pensioners, and the provision of additional mortgage relief for families with dependants.
"Fine Gael believes that the removal of people on the minimum wage from the tax net should be the primary incometax objective. This should be achieved over two budgets. The use of tax credits ensures that all taxpayers, and not only those on the minimum wage, will benefit equally from this," Mr Noonan said.
This year the overall balance of the budget and its effect on inflation had to be carefully measured.
"Fine Gael has already proposed that some of the incometax relief granted this year should be paid through the allocation to taxpayers of interest-bearing bonds, which would not be cashable for three years. Additional interest would be paid to persons who held these bonds for longer than three years."
The party's proposal to focus the bulk of tax relief in this year's budget on low and middle-income earners would have less of an impact on inflation than tax relief for the better off, he said.
Mr Noonan said a way to improve the inflation rate would be to encourage a switch from spending money to saving it, and this could be done by not applying DIRT tax to the first £5,000 of interest on deposits.
On tax individualisation, Mr Noonan said the party proposed the restoration of parity of taxation at the standard rate between families with one spouse working and families with two spouses working, and Fine Gael in government would restore that parity.
"We are against individualisation as proposed by the Minister last year which, of course, was not individualisation at all."
Mortgage interest relief did not reflect at all the type of family which might be living in a house, a single person, or a family, or various dependants. There should be the provision of additional mortgage relief for families with dependants, lifting the cap by units of £500 for every dependant living in the home, he said.
In response to the proposals, the Minister of State for Finance, Mr Martin Cullen, said that seldom had budgetary proposals fallen so short of expectation or created such a palpable sense of disappointment.
"After three years of holding its breath, Fine Gael has produced what amount to shortsighted, short-term solutions which tinker at the edges of an issue that warrants far wider analysis and consideration than Fine Gael appears to realise."