NO one should be taxed on the first £10,000 they earn a year, and parents should be given an annual subsidy of £1,200 against childcare, the small and medium business organisation ISME said yesterday.

In its pre-budget submission to the Government, the group also said companies should not have to pay tax on the first £30,000 a year, so long as they re-invest the cash in the business.

"The main message we want to go out from this budget is that work pays," said ISME's chairman, Mr Seamus Butler. "Unemployed people are no longer saying `Where are the jobs?', they are saying `Make it worth my while!' Our proposals would do that."

Leaving the first £10,000 untaxed would remove all low-paid workers from the tax net and make work more attractive than the dole, ISME said.

The childcare subsidy should be for parents who could prove they were paying for minders, and would apply only to children aged four and under.

The cost could be offset against funding from the National Lottery, the reduction in welfare payments from lone parents, and a reduction in black economy childcare facilities, as well as the resulting increase in taxation revenue, the group said.

ISME said the Government should use some of its surplus revenue to set up a contingency fund to deal with any unforeseen downturns in the economy.

"To avoid the contingency fund being frittered away, (ISME) suggests that it should be used in the interim to further reduce the national debt," the document read.