Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There are a considerable number of issues with the proposal the Deputies have suggested, including Exchequer cost, significant erosion of the tax base and impact on the competitiveness of our tax code.

I note that the Deputies have not specified the level of income tax rates that would apply under this proposal. However, it is estimated that the removal of the application of the universal social charge, USC, on all incomes below €70,000 as suggested would cost in the region of €1.6 billion in a single 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 over €100,000, it would need to be as high as 14.6 % in order to raise the same level of revenue for the Exchequer and ensure that this is a cost-neutral proposal. This estimation does not take account of any behavioural changes that could result from the significant increase in marginal rates of taxation.

To introduce any higher rate of USC would increase the marginal rate of tax. High marginal tax rates have an impact on work and also cause harm to our international competitiveness. The considerable progress that has been made in recent years to restore our economy cannot be taken for granted, particularly given the challenges in the international arena that confront us at present.

Introducing a USC exempting all those earning up to €1,346 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 29% of all income earners will not be liable for USC in 2021. To further increase this entry threshold to €70,000 would exempt almost 88% of income earners from USC. This would greatly narrow our income tax base and expose the economy to significant risk in the event of a future economic downturn.

In summary, the USC and our progressive income tax code have shown their mettle in 2020 in terms of their ability to generate a large amount of income tax at a time when we need it to pay for public services that are particularly essential at the moment. I am not supportive of reducing the number of people who pay the USC, as Deputy Boyd Barrett suggests, while at the same time significantly increasing marginal tax rates in the way the Deputy wants. That would have an effect on kinds of jobs we have in the State. For those reasons, I am not in a position to accept this amendment.