Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The universal social charge, USC, was introduced in the 2011 budget to replace the income levy and the health levy. It was a necessary measure to widen the tax base, remove poverty traps and maintain revenue to reduce the budget deficit. It was a more sustainable charge than those it replaced. It is applied at low rates on a wide base. The USC, like the income levy before it, does not apply to social welfare payments such as contributory and non-contributory State pensions and similar payments. However, occupational pensions, including those of retired civil servants, are liable to the USC if the payment is greater than the exemption threshold, which for 2015 is €12,012. Public servants who enter the public service before April 1995 are, or were, in the case of retired individuals, liable to a reduced, modified PRSI rate which does not generate an entitlement to the State pension. Such individuals receive a proportionately higher occupational pensions than post-1995 entrants who pay class A PRSI and therefore such individuals do not generate an entitlement to the State pension.

As Deputies may be aware, delivering on a commitment in the programme for Government, my Department reviewed USC during the lead-up to the 2012 budget. The report is available on www.finance.gov.ie. The issue of USC applying to occupational pensions of retired public servants who entered the public service before April 1995 was examined as part of the review and the Government decided not to exempt the occupational pensions of these people from USC given that it would be very costly and difficult to achieve. It is unlikely that such an exemption could be achieved without providing a similar exemption to other income earners and occupational pension recipients, particularly those in receipt of occupational pensions who do not have an entitlement to an Irish contributory State pension. Technical difficulties would arise with the design and administration of such a relief in view of the fact that a contributory social welfare pension entitlement may vary significantly between individuals, depending on factors such as number of contributions, dependants and the age of the pensioner and any dependant.

Finally, such an exemption would also undermine the principle of the USC being applied to income on a broad basis with few exceptions.

In view of these issues, and as a result of the review of the USC, the Government decided in budget 2012 to increase the entry point to the universal social charge from €4,004 to €10,036 per annum, in order to take very low-income earners out of the charge to USC.

Budget 2015 provided for an increase in the exemption threshold to €12,012, equalising the position for single individuals whose sole source of income is the State contributory pension with public service pensioners whose pension is at an equivalent level. Budget 2016 has further increased this threshold to €13,000 per annum from 1 January 2016. It is estimated that over 700,000 income earners will not be liable to USC at all from next year.

Budget 2016 is continuing the process, commenced in budget 2015, of reducing the tax burden on low and middle-income earners including, among other changes, a decrease in the three lowest rates of universal social charge with effect from January 2016. For the reasons outlined, I do not propose to accept the amendment.