Paschal Donohoe (Dublin Central, Fine Gael)

I thank the Deputy for bringing this forward. Before I deal with the amendment itself, I want to put on the record of the committee the changes that have been made with regard to personal taxation over recent years. Looking at where we were in budget 2021, the entry point to the higher rate of income tax was €35,300. In budget 2025, it now stands at €44,000 for a single person, so the entry point into the higher rate of income tax has increased by €8,700. It has gone up by a quarter during that period. The entry point for a married couple with two earners has gone up from €70,600 in 2021 to €88,000 in budget 2025, an increase of 24.6%. During that period, the 4.5% rate of USC, which is the main rate of USC that most people in our economy pay most of their USC on, has gone from 4.5% to 3%. In the debate on what we could do in the future, I just wanted to refer to what we have done in the recent past and the changes that have happened.

In relation to the amendment Deputies Doherty and Farrell have brought forward, they are seeking a report on removing the USC from the first €40,000 a person earns. The USC was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely, the health and income levies. The primary purpose of the USC was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services. The USC is a more sustainable charge than those it replaced and is applied at a low rate on a wide base. It is important to acknowledge the significant contribution the USC has made in meeting the many spending demands placed on the Exchequer. The yield of the USC was €5.7 billion in 2024, with a yield of €5.6 billion forecast for 2025. If it were to be significantly altered, it would be necessary to consider how this yield could be generated from alternative sources.

With regard to the Deputies' proposal, I am advised that the estimated cost would be €1.44 billion in the first year and €1.65 billion in a full year. Not only would this measure be very costly, it would have the effect of hollowing out the USC base by removing approximately 1.17 million taxpayer units from this charge. As it stands, it is estimated that 29% of all taxpayer units will not be liable for the USC in 2026. This proposal would significantly narrow our tax base as it would mean that 63% of taxpayer units would not be liable to pay the USC. In my opinion, this would be a policy choice that could create a real vulnerability for funding our public services and weaken the original policy intention of the USC to widen our tax base and provide a stable and sustainable source of revenue for the State.

We have a very progressive income tax code in Ireland, 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 be aware that during the economic crisis, it reached a point that 45% of all income earners were exempt from income tax, which was unsustainable and placed an unfair burden on those earners who were contributing to the income tax base, and only created the vulnerability that was ultimately exposed by shock. It is my view that a broad-based, progressive income tax system, where the majority of income earners make some contribution according to their means, is the fairest and most sustainable income tax system in the long run. Having regard to all this, as well as the very large erosion of the tax base which this measure would cause, I believe there is no need to carry out a further analysis of the proposals outlined by the Deputies given the debate we have had up to this point and for that reason I cannot accept this amendment.