The Government should increase borrowing in the Budget to £1.22 billion (€1.55 billion) from a projected £515 million, Labour said yesterday.

Such borrowings were required to fund taxation and social welfare proposals published yesterday by the party's finance spokesman, Mr Derek McDowell.

Stating that the downturn meant the Minister for Finance, Mr McCreevy, was no longer projecting lower spending, debt and taxation, Mr McDowell said: "I think last year's was an election budget but I think he blew it."

In the Budget on Wednesday, Mr McDowell wants the Government to take employees on the national minimum wage of £4.70 per hour out of the tax net altogether, and increase basic social welfare payments such as unemployment assistance and benefit by at least £11.81 per week.

Mr McDowell said he expected the economy to grow by 4-5 per cent next year and accepted that economic "fundamentals" were still strong. "I wouldn't want to talk down the economy," he said.

The Government should not cut capital spending because of the downturn in the economy, Mr McDowell continued.

He warned against setting aside 1 per cent of gross national product to meet future pension requirements and using the money to pay for infrastructure projects in the National Development Plan. Inflation in the construction industry meant an additional £790 million in capital spending was required in the Budget, and additional investment was needed to continue housing and school-building projects.

Mr McDowell said: "It makes no sense to borrow money to save it. Our capacity to pay pensions in the future will be as much dependent on the success of our economy as money in the Minister's pension fund."

Accusing Mr McCreevy of squandering opportunities to take the lower paid out of the tax net in previous budgets, he said the Minister was obsessed with reducing taxation for the wealthy, while starving social services.

On the proposal not to tax minimum wage earners, Mr McDowell said: "It's probably the first time that I find myself looking for more in the way of tax cuts than the Minister."

The measure would cost £573 million, he said.

To do this, Mr McDowell proposed a new introductory rate of 10 per cent on the first £4,056 earned. Alternatively, he said, the personal tax credit could be increased by £405.60 at the same cost.

The Labour leader, Mr Ruair∅ Quinn, had committed the party to benchmark social welfare payments at 30 per cent of gross average industrial earnings.

But Mr McDowell said Mr McCreevy should go only "half way" to achieving that in the Budget.

This implied an increase in the contributory old age pension by £20.60 to £126 per week.

Commitments which were made by the Minister for Finance suggested that child benefit should be increased by £25.50, Mr McDowell said.

The means test for the carers' allowance should be abolished in a measure which would increase the number of recipients by 29,000 to 49,000.

Where carers were already receiving social welfare, Mr McDowell said they should be paid half their allowance.