Michael Noonan (Limerick City, Fine Gael)
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This is the only increase - the universal social charge. There seems to be general agreement, for the reasons I described already, that people do not oppose this particular increase in the universal social charge for people who had an unjustified exemption previously.

I agree with Deputies who have said that we need to take all parts of the story together, because the different decisions taken collectively have an impact. Let us consider, for example, people who are currently on a salary of €100,000. If we look at their net pay after all the deductions, they are not extraordinarily wealthy people. They are people who are coping and some of them are finding it hard to cope. A view seems to have emerged in Opposition that the threshold between poverty and wealth is €100,000 and that someone earning above €100,000 can withstand any kind of charge. It seems to be open season on anyone earning above €100,000.

With regard to taking all the parts of Government policy together, according to the latest Croke Park agreement, public servants earning in excess of €100,000 will suffer a pay cut of 8%. We decided at budget time that we would seek a new Croke Park agreement and we knew, generally, the direction the policy should take. If we had increased the universal social charge by 3%, it would have applied to all those people as well. Therefore, as well as an 8% cut, they would suffer a double hit from the budget. As Deputy McGrath says, we must watch all the moving parts together so that we do not have too onerous an effect on any one set of people or have an unforeseen impact on the economy, costing economic growth and jobs. That is our position. My only criticism of Deputy Boyd Barrett's approach is that it is not reasonable in a debate such as this, in which we are teasing out a Finance Bill section by section, to propose measures which have a massive effect on revenue, in this case to the tune of €2.3 billion, and at the same time not to indicate specifically where that yield is to be recovered across the income levels or what impact that would have.

I will try to address other specific questions now. With regard to why the self-employed pay a higher rate of USC, when the USC was first introduced it had the effect of reducing the top marginal tax rates for both PAYE and self-employed income earners by 4%. This would have meant that the high income earners would have gained from the measures introduced in budget 2011. In the case of PAYE income earners, this potential gain was offset by the abolition of the PRSI ceiling and the restoration of a PAYE marginal tax of 52%. However, in the case of the self-employed, for whom there was no PRSI ceiling, the marginal tax rate remained reduced. To avoid a situation whereby a self-employed income earner earning in excess of €200,000 would make a gain from income tax measures introduced in budget 2011, a higher rate of USC of 10% for income in excess of €100,000 for the self-employed was introduced in the Finance Act 2011. They are the historic reasons and the justification for that.

Deputy Doherty asked whether I have considered dealing with the anomaly caused by the €60,000 threshold, whereby a person who is over 70 years and has an income of €60,001 is subject to the standard rate of USC, while an individual earning €1 less pays a reduced rate. In order to ensure equity between all citizens, based on their level of income, the reduced rate of universal social charge will be discontinued from 1 January 2013 and the standard rate of USC will apply to the following two groups: those aged 70 years and over with incomes of €60,000 and above; and medical card holders with incomes of €60,000 and above. Although the introduction of a step effect is never ideal, it is necessary to achieve the desired yield. Similar step effects can also be seen for the threshold at which the 2% rate of USC applies and in the calculation of PRSI liabilities. I have no plans to review this decision. I would also point out that the additional liability for USC in 2013 for an individual aged 70 years or more or a medical card holder with an income of €60,001 or over will be approximately €1,320 per annum, which equates to approximately €25 per week. In addition, it is important to point out that payments from the Department of Social Protection, such as the State pension, are exempt from USC. Furthermore, such payments will not be taken into account in determining whether an individual has exceeded the €60,000 threshold. Social welfare payments are exempt. Therefore, what we are looking at are people whose pensions are entirely private or people with a combined social welfare and private pension in which the private part exceeds €60,000. That is fair in the circumstances. The relief was not based on strong policy grounds historically, so this is a reasonable approach to take.