Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

There are a considerable number of issues with the proposal Deputy Paul Murphy has made, including an Exchequer cost, significant erosion of the tax base, increased complexity of the tax system and an impact on the competitiveness of our tax code. The Deputy has not specified the level of income tax rates that would apply under the proposal. It is estimated, however, that the removal of the application of the USC on all incomes below €90,000, as suggested, would cost approximately €2 billion in a single year. Assuming no other policy changes to the structure of the charges, it is likely the new income tax bands would need to be as high as 70% to raise the same level of revenue for the Exchequer and ensure that it is a cost-neutral proposal. In the event that it was levied as the USC, the rates would be as high as 70%. Neither of the estimations takes account of any behavioural change that could result from the significant increase in marginal rates of taxation.

Introducing any higher rate would increase the marginal rate of tax. High marginal tax rates are a clear disincentive to work and could cause harm to our international competitiveness.

Introducing a USC exempting all those earning up to €1,731 per week would considerably erode the tax base. The current exemption threshold for USC is €13,000 per annum and it is now estimated that 28% of all income earners will not be liable to USC in 2020. To go ahead with the path suggested by Deputy Murphy would mean that 95% of income earners would be exempt from USC.

The redistributive nature of our tax code has been acknowledged by many experts. Deputies will recall that during the economic crisis it reached a point where 45% of all income earners were exempt from income tax and this was, in retrospect, unsustainable.

Deputy Murphy's proposal could also introduce considerable complexity to the tax code by expanding the current two rate income tax system to a five or six rate system, a considerable additional complexity for taxpayers, employers and Revenue. If such a structure were introduced this would lead to an even more complicated system of taxation. Having regard to all of these measures, I do not believe this is a direction in which we should be taking our tax code. As outlined in previous debates on this, I, therefore, cannot accept the amendment.

On the question that Deputy Doherty put to me, I did publish the report on the integration of USC and the income tax code as part of all the papers across the budget day week, as I think I indicated to him I would. I will be keeping that in mind when I take a look, for example, at the future of the relief Deputy Murphy and I discussed a moment ago.