A lower income-tax rate of 15 per cent and a PAYE allowance rise would be the most effective means of benefiting people earing low to average incomes in the upcoming budget, the Civil and Public Service Union (CPSU) said yesterday.

Mr Paul Tansey, an economic consultant, who prepared a prebudget submission for the union, said £400 million in tax cuts could be aimed at the lower paid - using three tax band rates of 15 per cent, 24 per cent and 46 per cent - without introducing inflationary pressure on the economy. Strict adherence to phase three of Partnership 2000 would involve material losses for workers in a climate where inflation for the current year was expected to be at 2.75 per cent.

He also backed a call by the CPSU president, Ms Teresa Dwyer, who said the provision of childcare had to be radically improved.

The general secretary of the CPSU, Mr Blair Horan, said the labour market was tightening and the case for support for childcare was "unanswerable". He said that four years ago, 27,000 people had been applying for clerical officer positions. That number was now down to 9,000, with only 6,000 attending the examination. Mr Tansey added that although £906 million in personal tax cuts had been achieved in the past two years, the concept was a notional one. Personal income tax receipts were up this year by £1 billion on 1996.

Tax reductions could play a key role in maintaining cost competitiveness as the Republic enters the euro-zone, despite Central Bank warnings that the economy was in danger of overheating.

"Economic growth is likely to be slower because of international conditions than in 1997 or 1998, so the same capacity for overheating will not be as evident," he said.

A real increase on returns for labour was more likely to encourage people to return to the labour market while the absence of significant tax cuts would encourage calls for wage increases.

The report, Helping the Lower Paid in the 1999 Budget, which has been submitted to the Department of Finance, states that the PAYE allowance should be increased by 50 per cent to £1,200, and a new 15 per cent tax band should apply for the first £1,000 of a single person's taxable income, and the first £2,000 of a married couple's.

This would reduce average tax rates by between 1.6 and 2.4 percentage points for single people earning between £9,107, a clerical officer's starting salary, and £17,175, the top-of-scale salary.

"The introduction of a new, initial tax rate of 15 per cent would assist in minimising the disincentives currently caused by high initial tax rates on entering the labour market," the report states.

Mr Tansey further argues that a tax credit system, which is being mooted in the December Budget, as a means of replacing existing income tax allowances, "are no more inherently equitable than the existing system of exemption limits, tax allowances and tax bands". "The Government needs to evaluate carefully how it would address the impact of such a system on groups like employees claiming the PAYE allowance, widowed people and lone parents," he says.