The Labour Party and I want to be associated with the Taoiseach's remarks on the passing of Jimmy Magee who was a man of humour and knowledge who brought both enlightenment and entertainment to us all. We will certainly miss him.

I want to ask the Taoiseach about the forthcoming budget. With there being fewer than three weeks to budget day, it is important that we have an honest debate in this Chamber about the choices we face. During the past few days we have had the opening salvo in a phoney war between the Government and Fianna Fáil. On Monday the Taoiseach made it clear that he would like to increase the threshold above which people pay income tax at the higher rate. This proposal, designed to give no benefit at all to the poorest half of the working population, would clearly be regressive and its impact would be marginal. For someone earning €40,000, the gain would be the grand sum of €4 a week but only for the richest half of the working population. I hope it is clear that this bad idea should not manifest itself in the budget. Fianna Fail's view is that instead the 5% rate of the universal social charge, USC, should be lowered. Again, it would be a regressive measure, albeit marginally less so than the Taoiseach's proposal. It would benefit more people but only to the extent of €2 a week. It would be a tragedy if these were to be the only options with which we would be presented which would deliver a paltry dividend as against using the same sum of money, a modest enough €200 million, to make a real difference in the provision of services. Reducing college fees by €1,000 would cost €74 million; cutting class sizes in both primary and secondary schools would cost only €22 million; raising the wages of all those who work in the child care sector to a living wage would cost €63 million; and eliminating waiting lists for home care packages would cost €18 million. These are four substantial changes the Taoiseach could afford to make rather than giving a token amount to people who could really live without it when there are such pressures on services.

My question is straightforward. Will the Taoiseach accept that, having regard to the tight fiscal space available, that this year there is insufficient space to cut taxes? Will he give a commitment that instead, for at least the coming year, he will devote whatever resources are available which will be modest enough in the grand scheme of things to making a meaningful investment in public services that would make a difference to the people?

I should first state clearly that the budget has not yet been written or agreed to. It is still under negotiation, particularly among Ministers. The phoney debate, if there is to be one, is the one the Deputy wants to have, which is that budgetary policy is solely a trade-off between tax reductions and spending increases and, of course, the phoney debate that assumes that spending increases always result in better services which he and I both know is not the case. The truth about the budget is something different. It is that because of the way the Government has handled the economy-----

This Government.

-----and because of the growth in employment and salaries in the past year or so, we can do three things in the budget and we intend to do them. The first is to balance the books. For the first time in ten years, we will produce a budget which will balance the books. That may not be a politically popular thing to do, but it is the most important thing to do because when an economy is growing, we should balance the books and pay down our debt. We will do both because we will not repeat the mistakes of the past made by other parties, although we will learn from them.

The second thing we will do is increase spending on public services and infrastructure. We estimate that when account is taken of the full-year cost of measures previously announced and commitments made, as well as the additional fiscal space, public spending will increase by approximately 4.5% next year. That equates to a spending increase on services and infrastructure of between €1.5 billion and €1.8 billion. We will do that and also find some space for tax relief. We think that is the right thing to do because 2 million people work hard, of whom 1.4 million pay income tax and USC. They produce the wealth that allows us to do all of those other things and I believe they deserve a break in the budget. For that reason, we will find some space to give them an increase in their take home pay and a tax reduction that they deserve which, in turn, will allow them to spend more on their families and more in the economy, thus creating employment for others.

With regard to the statistic the Deputy used for the richest and the poorer halves, he should bear in mind that 30% of people have been taken out of the USC and tax net. We have taken 30% of the 50% to whom he referred out of the tax net altogether. Is it not right to say to people who are in the middle income bracket and still pay USC and income tax and who very often believe they pay for everything and get very little in return that there should be something in the budget for them also?

The Taoiseach might acknowledge that I know something about forming budgets. It is, bluntly, a matter of taxation and expenditure. That is what all budgets come down to. I refer to the notion that the Taoiseach should dismiss the lowest paid in the country. Is it the case that they have got their bit? The line seems to be that the Government has taken them out of the USC net and that is enough for them. The 30% on the lowest incomes who are getting by will get nothing because they are not part of the coping classes on which the Taoiseach's focus groups are focused. He talked about learning from the mistakes of the past. If we have learned anything from them, it is that one cannot be all things to all men and women and that one cannot spread a bob for everybody and make a meaningful difference. If resources are scarce, the only progressive thing to do is to ensure we have quality public services which make a difference to the people who depend on them. I have instanced some examples, but many things could be done on the capital side. I will instance them again for the Taoiseach when we get closer to the budget, but let us have the debate, not a phoney war or kite flying by the Government and Fianna Fáil to test the temperature. Let us have a real debate in this House about what should the priorities be for the next year and the years beyond.

It is always a sign that one is on weak ground when one has to misrepresent somebody's position to make an argument. I merely pointed to the nonsense of the Deputy's point about having tax reductions for people who do not pay tax or who at least do not pay income tax or USC.

I am arguing against tax cuts.

It is not possible to reduce USC or income tax for the 30% of people who pay nothing------

The money should be used instead for investment in services.

Please, Deputy.

We again have this continual pattern. All of us here listen with respect to the questions being asked.

And then the Taoiseach twists the words used.

The Taoiseach is very thin skinned.

The minute Deputies get an answer or have to hear some facts, they get upset.

The Taoiseach will have to get used to this.

I am not sure they are facts.

I did not twist Deputy Brendan Howlin's words; he twisted mine. He has tried to make out that I said there would be nothing in the budget for the 30% of working people who do not pay USC or income tax.

That is what the Taoiseach said.

The Taoiseach has become very sensitive. He had better take a chill pill.

The kinds of things that are included in our budget and economic policy for people who are on such low pay that they do not pay any income tax because we have taken them out of that net are increases in the minimum wage.

This Government and Members on these benches increased the minimum wage twice since the Deputy left office.

No.

It will be twice in two years.

The Government raised it by 10 cent.

Next year it will rise by 30 cent.

We have also agreed wage increases for example, and only last week there was agreement from the Irish Congress of Trade Unions. Bear in mind the Deputy is the man who said Fine Gael could not negotiate a pay deal and that we did not understand the unions. Last week we saw agreement for the negotiated pay deal with ICTU, which will see pay increases in 2018, 2019 and 2020 for all public servants, particularly those on the lowest pay.

What other things can we do? We can expand social insurance benefits. In the next couple of weeks, for example, social insurance benefits will be extended to people who pay pay-related social insurance. There will be a restoration of treatment benefit, for example, which was cut by the then Minister for Social Protection - a member of the Deputy's party - but it was restored by me when I got that job.

The Taoiseach was not there at the time I suppose.

Where was the Taoiseach then?

May we have order please?

The Taoiseach will need a thicker skin for discussing Cabinet responsibility.

In the last couple of weeks we have begun the process of bringing in affordable child care for all families.

When thieves fall out.

The subsidy is worth approximately €1,000 per year for families who pay for child care.

I told Deputy Howlin not to take the job at the time.

The Taoiseach needs to a bit thicker-skinned.

It is very attractive to be a coalition party.

For those who pay tax and the universal social charge, USC, we will reduce their tax and USC so they can have more money in their pockets. For those who do not earn enough to pay USC or income tax, we will improve their lives by improving social insurance benefits and costs such as child care.