Reducing the tax burden for the lower-paid should be the thrust of a substantial tax reform package in the 1999 Budget, the Tanaiste, Ms Harney, has said.
In a speech in Cork yesterday, she called for a Budget "that takes as many people as possible out of the tax net altogether, and one that leaves as many middle-income earners as possible paying tax only at the standard rate".
The Tanaiste clearly indicated that tax reductions in the 1999 Budget - to be delivered in December - will include a significant increase in personal income tax allowances - the amount of income exempted from tax.
She said that at present people enter the tax net after they earn £76 a week, but the Government should aim to increase this figure to £100 in a number of budgets.
Her speech also pointed to a widening of the standard rate income-tax band, to ensure that substantially fewer people pay at the higher 46 per cent rate.
While the details of the Budget have still to be negotiated, Ms Harney's speech indicates that she favours tax reductions on the scale of this year's Budget, where the cuts are worth over £500 million in a full year . She argued that substantial tax cuts need not be inflationary, as by aiming at the low paid they will help encourage unemployed people to take up work.
The focus of the 1999 Budget now looks set to move away from the Government's previous commitment to cut income-tax rates towards other measures, such as increasing tax allowances and widening the standard band.
Indicating her preference for continued substantial tax cuts, Ms Harney said that recent Exchequer returns showed we could afford "radical reform". She outlined what she said was a "three-stranded approach" to tackling both unemployment and labour shortages, as she also committed herself to introducing a national minimum wage from April 2000 and a welfare-to-work programme from next September.
Opposition parties were quick to seize on her comments as a U-turn by the Progressive Democrats leader.
Democratic Left said the speech marked a "very significant policy change" since last year's general election, when Fianna Fail and the PDs favoured cutting income tax rates in opposition to the rainbow coalition's preference for increasing personal allowances and widening tax bands.
Ms Harney said there was no evidence that personal tax reductions had "any real impact" in accelerated inflation, the more obvious source of which was the strength of currencies like Sterling against the pound. Adding that the PDs had "always been a tax reform party", she said it would be "perverse in the extreme if we were to abandon that philosophy at a time of record economic buoyancy, a time when we have the capacity to reduce significantly the tax burden on working people".
Meanwhile, Labour attributed the PD leader's comments to "political manoeuvring" from a party "clearly now resigned to a battle for survival". Labour spokesman, Mr Tommy Broughan, said the Tanaiste and her party had been instrumental in ensuring that tax reductions in this year's Budget were aimed at the better off. This had proved "deeply unpopular" and now the party was prepared to abandon any promises made prior to the general election.