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

I will open with a few facts and figures to show the way the tax code is structured and then talk about the effective tax rate citizens on differing levels of income face. I will use the hypothetical example of a married couple on one income with no children, although this point will stand for all citizens in different circumstances.

A married couple with a single income of €20,000 pay tax at an effective rate of 3.4%, including USC. A married couple earning €25,000 pay tax at an effective rate of 6.0%. A married couple earning €175,000 pay tax at an effective rate of 42.3%.

I offer these figures to the House for two reasons, the first of which is to emphasise how progressive the tax code is. Owing to the existence of the universal social charge and the fact that it is paid earlier in one's income and that one pays at a higher rate as one earns more, when combined with the income tax code, we have an exceptionally progressive income tax system overall. Making the point that people on high incomes are in some way not paying their share of income tax, in comparison to those on low incomes, does not take account of those very figures which show that the more income a person earns, the more he or she pays in tax.

The other consequence of this structure is those effective tax rates for people on low levels of income increasingly show the challenge any political party in this House will have in making a change to the tax code for somebody on a low income that will not cost the Exchequer a very large amount. Such a tax change would flow all the way up income levels and deliver a very marginal benefit to somebody on a low income because the effective rate at which he or she pays tax is already at a low level. As I said, a person earning €25,000 pays tax at an effective rate of 6%.

The point I make to Deputy Boyd Barrett is that the figures demonstrate how progressive the tax code is. He made reference to the information on the work of the Revenue Commissioner on the allowance for certain workers. Today the Taoiseach confirmed that this work would be deferred until 1 January 2020. The principle is not changing. The Revenue Commissioners were looking at another way to ensure an expense would be taxed in the right way. That is what the Revenue Commissioners are looking to do. The principle underpinning the tax code is that, if one has an expense, it will be treated in a different way for tax purposes than if one has an income. That principle will not change. Revenue was looking at how this could be administered and, as I reconfirmed, this work will be deferred until early 2020.

The key point I make to Deputy Boyd Barrett about his amendment is that it has been estimated that the removal of the application of USC to all income below €90,000 would cost in the region of €2 billion per year. In fairness to him, the Deputy offers other ways by which that income would be raised through the introduction of four new income tax bands. If we were to look to find all of the lost revenue in taxing incomes below €90,000 in an additional tax yield from incomes above €90,000, it would mean that the new income tax bands would need to be as high as 71.25% to raise all of the revenue that would be lost as a result of the change proposed by the Deputy. A tax rate of that level would have very serious and damaging consequences across the economy. There are many citizens on that high level of income who are important in the operation of hospitals and the running of companies, all of whom either provide really important employment within the country or enable the provision of really specialised public services. Such a tax rate would damage our ability to ensure that work took place here. The Deputy referenced the tax base and acknowledged its importance. The effect of such a change would be that anybody earning up to €1,700 per week would not pay the universal social charge. If one shares my principle that anybody earning above a certain level of income should be making a contribution to the provision of public services on which he or she depends, that is an income level that would be too high.

7 o’clock

For those reasons I am not accepting the amendment the Deputy has put forward.

I note with interest what Deputy Burton said about the formation of the universal social charge and its history. Deputy Michael McGrath made the point that it arose from the integration of the old health and income levies, albeit at a far lower level of income. My concern, which I know the Deputy will understand although he will disagree with it, is that if I begin to segment particular forms of tax revenue and say that they have to go into the provision of a particular service, I will be faced with many demands to do so for other services, which in turn would reduce the flexibility needed in respect of the allocation of resources.

See this speech in context