It is imperative that the "pay/tax formula", which has meant increased take-home pay for employees by reducing tax on their income, should continue, according to IBEC's director general, Mr John Dunne

Mr Dunne said the aim should be to have about 80 per cent of all tax payers on a standard tax rate of 20 per cent and to have a top rate of 40 per cent.

In a statement, he argued that the trade-off between tax and pay had been "a key ingredient of Ireland's success over the last 10 years".

This trade-off had made it possible to raise personal incomes without damaging the State's ability to compete, he contended.

His statement comes as the social partners begin to consider what happens when Programme 2000 runs out at the end of this year and what shape negotiations on any new agreement might take.

Describing the tax/pay trade-off as "a winning formula", he said "at one and the same time it significantly improves living standards, maintains competitiveness and underpins employment growth".

Between 1987 and 1998 average manufacturing earnings had increased by more than 50 per cent he said in a period when the increases were not significantly reduced by inflation and taxation.

Over these 11 years of national agreements, real net take-home pay - pay-in-the-pocket after taking inflation into account and deducting tax - had increased by more than 33 per cent for a single person and 26 per cent for a married person, according to Mr Dunne.

He pointed out that "huge" nominal pay increases in earlier years had been "simply wiped out by a combination of rising prices and higher taxation needed to pay for more expensive public services".