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

I thank Deputy Boyd Barrett. I thank the committee in advance for its work and co-operation in dealing with this important legislation. I recall the similar amendments brought forward during last year's Finance Bill. We discussed many of the issues the Deputy has just touched on and I am pleased to do so again in the context of this Bill because important political matters are at stake here.

Some of the issues I will address in my response to the Deputy refer to the Exchequer costs of the proposal, what it would mean for the maintenance of our tax base and the effects a change like this could have on the competitiveness of our tax code and the competitiveness of our country overall. Regarding the proposal submitted by the People Before Profit Deputies to abolish the USC, it is estimated that this would cost approximately €5 billion in a full year. This suggestion to replace the USC with a high-income social charge of 10% on all earnings over €90,000 would yield approximately €2 billion in a full year. There would, therefore, be a shortfall in the region of €3 billion. In fact, it is estimated that it would be necessary to place an additional charge of around 26% on all earnings over €90,000 to raise an equivalent level of revenue for the proposal to be cost neutral to the Exchequer.

Turning to the Rural Independent Group’s proposal to abolish the USC for those earning less than €70,000 and replace it with a national solidarity tax on the incomes of those earning over €150,000 per year, I note that the Deputies have not specified the rate of the new tax that would apply under this proposal. It is estimated, however, that the removal of the application of the USC on all incomes below €70,000, as suggested, would cost in the region of €1.84 billion in a full year.

Assuming no other policy changes to the structure of the charges, it is likely that if the new tax took the form of a new USC rate for those earning more than €150,000, it would need to be as high as 24% for PAYE workers and 27% for self-employed income earners in order to raise the same level of revenue for the Exchequer and ensure this is a cost-neutral proposal. However, these estimations do not take account of any change that could result from the significant increase in the marginal rates of taxation. By way of example, this proposal would have the effect of increasing the top marginal tax rates from 52% to 68% and 55% to 71% for PAYE and self-employed income earners, respectively. As the Deputies will appreciate, high marginal tax rates could also cause harm to our international competitiveness. The considerable progress that has been made in recent years in attracting foreign direct investment to our country cannot be taken for granted, particularly given the challenges in the international arena that confront us at present.

Furthermore, abolishing the USC in its entirety or exempting those earning up to €70,000 per year would considerably erode the tax base. Ireland has one of the most progressive personal income tax systems, which plays a crucial role in the process of income redistribution. Our redistributive tax system has been acknowledged by the IMF, the OECD and the ESRI. Deputies will recall that during the economic crisis, it reached a point where 45% of all income earners were exempt from income tax. That was unsustainable. It placed an unfair burden on those earners who were contributing to the income tax base and exposed the vulnerability of the income tax system to economic shocks. It is my view that a broad-based, progressive income tax system is appropriate.

I note that Deputies have also suggested raising money from companies whose net profits are in excess of €1.5 million per year. This could have serious consequences for the competitiveness of our corporation tax regime. It is worth acknowledging that a very large number of domestic Irish companies would come into the tax bracket. More broadly, our corporate tax regime has been built on certainty and predictability for multinational companies that have made Ireland their home. It is important to point out that these enterprises support our economy with high-value jobs. Also, as members are aware, these international companies provide substantial tax revenues across all tax heads, including income taxes, which are critical to the provision of public services and our capital investment.

To impose additional levies on corporate profits would involve increased complexity and would change the attractiveness of our corporate tax offering. It is impossible to accurately predict the effect that changes to the rate would have on the behaviour and decisions of large, multinational or domestic companies. This uncertainty prevents a reliable estimate being made of any yield that might accrue to the Exchequer. While it is possible that imposing such a levy could lead to theoretical gains, particularly in the short term, it could also potentially lead to lower levels of economic activity and to companies passing the additional tax burden onto their staff, customers, suppliers and investors.