By Paddy Clancy

FIANNA Fail this week spelt out its financial policy for the next five years and pledged billions of dollars worth of tax cuts, most to be introduced next year, if returned to power in the summer general election.

Although Finance Minister Brian Cowen said tax reforms will be implemented over five years, he also promised to set aside €1.2 billion for tax-rate reductions for low and middle-income earners in 2008.

He insisted that at the same time a Fianna Fail-led government will put strong emphasis on the reduction of public debt as part of the policy of securing Ireland’s economic gains.

He said his proposals will not involve borrowing money and will result in a net debt of less than 3% of GDP by 2012 from the present figure of 14.5% of GDP. Cowen said that will mean the country being relatively “debt-free.”

The plan is based on assumptions that inflation rates will be low, more jobs will continue to be created and wage increases will be kept under tight control. The rate of increase of day-to-day government spending will be halved to 7% per annum for the plan to work.

Cowen insisted the plan was prudent and affordable. “There is no question of cuts in services here whatsoever. We are talking here about increasing and building on a much bigger base which we have put in over the past 10 years,” he said.

Key commitments include a 1% reduction in the bottom tax rate to 20% of income next year, and a further 2% reduction to 18% over the next few years.

In a nod to the environmental lobby, vehicle registration tax will be further weighted in favor of vehicles with lower emissions.

Cowen, Taoiseach Bertie Ahern and their advisors based their figures on assumptions that there will be an average economic growth of 4.5% per year in real terms, an average annual earnings growth of 4.5%, yearly employment growth of 2.5%, an average increase in base current expenditure of 6% a year, and an average rate of return on the National Pensions Reserve Fund of 7% a year.

Labor Party finance spokesperson Joan Burton was scathing in her criticism of the plan which she claimed lacked credibility.

“Even a first-year accountancy student would know that you cannot cut expenditure growth and provide extra services at the same time,” Burton said.

The Green Party said the Fianna Fail economic policy “should only be read as an election document with all the characteristics of any other work of fiction.”

And Sinn Fein claimed that, despite unprecedented resources, Fianna Fail had chosen not to deal with poverty and inequality.