Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputies for their amendments. There are a considerable number of issues with this amendment. These include the cost on the Exchequer, the significant erosion of the tax base, and the impact on the competiveness of our tax code. On Deputy Richard Boyd Barrett’s proposal to abolish the universal social charge, it is estimated that this would cost €4.4 billion in a single year. The Deputy’s suggestion to replace the USC with a high-income social charge of 10% on all earnings €90,000 would yield €1.59 billion in a single year. Therefore, this would give rise to a shortfall of approximately €2.8 billion for the year.

In fact, it is estimated it would be necessary to place an additional charge of 28% on all earnings over €90,000 in order raise an equivalent level of revenue for the Deputy’s proposal to be cost neutral to the Exchequer.

With regard 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 incomes of those earning in excess of €120,000 per year, I note the Deputies have not specified the level of income tax rates that would apply under this proposal. However, it is estimated the removal of the application of the USC on all incomes below €70,000 would cost in the region of €1.7 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 €120,000 it would need to be as high as 14% in order to raise the same level of revenue for the Exchequer and ensure this is a cost neutral proposal.

I note the estimations I provided do not take account of any behavioural change 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 could 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, especially given the challenges in the international arena we confront at present.

Abolishing the USC in its entirety or exempting those earning up to €70,000 per year would considerably erode the tax base. The current exemption threshold for USC is €13,000 per annum and it is estimated 28% of all income earners will not be liable to USC in 2022. To further increase this entry threshold to €70,000 would abolish and exempt about 88% of income earners from USC, or 100% if the USC was abolished in its entirety. This would significantly narrow the income tax base and would expose our economy to significant risk in the event of a future economic downturn. The USC is an important and sustainable source of revenue for the Exchequer.

I note Deputies have also suggested raising money also from companies whose profits are in excess of €1.5 million per year. This could have serious consequences for the competitiveness of our corporation tax regime with potentially significant impacts for our overall economy. Some of the main features of the current corporation tax regime are its simplicity and that it applies to a broad base. Changing this rate or imposing additional levies on corporate profits would involve increased complexity and this could change the attractiveness of Ireland's corporate tax offering. It is impossible to accurately predict the effect changes to the rate would have on the behaviour and decisions of large employers in Ireland. This uncertainty prevents a reliable estimate being made of any yield that might accrue to the Exchequer. While it is possible imposing such a levy could lead to theoretical gains, 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. Therefore, having regard to these issues I do not believe there is a need to carry out any further analysis of the proposal outlined here and for that reason I cannot accept the amendment.