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

With the permission of the Ceann Comhairle, I will speak to the amendments as a group and respond to all of them. A number of amendments have been grouped together, covering a report on the abolition or replacement of USC, as submitted by Deputies from People Before Profit and the Rural Independent Group, and a report from the introduction of a 43% income tax rate on individuals earning over €100,000 as put forward by the Social Democrats. A number of significant issues arise from the proposals. For example, they include significant Exchequer costs, the erosion of our tax base and adverse impacts on the competitiveness of our tax code.

Regarding the proposal submitted by People For Profit to abolish USC, it is estimated this would cost approximately €5 billion in a full year. The suggestion to replace USC with a high income social charge of 10% on all earnings over €90,000 would yield approximately €2 billion in a full year. This would give rise to a shortfall of €3 billion in the same year. It is estimated that it would be necessary to place an additional charge of around 26% on all earnings over €90,000 in order to raise an equivalent level of revenue for the proposal to be cost neutral to the Exchequer.

Turning to the Rural Independent Group's proposals to abolish the USC for those earning less than €70,000 and replace it with a national solidarity tax on those earning in excess of €150,000 for that year, I note the Deputies have not specified the rate of the new tax that would apply under the proposal. It is estimated by my Department that the removal of the application of USC on all incomes below €70,000, as suggested, would cost in the region of €1.84 billion in a full 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 more than €150,000 it would need to be as high as 24% for PAYE workers and 27% for self-employed income earners in order to raise the same level of revenue for the Exchequer and ensure this is cost-neutral. These revenues do not take account of any behavioural changes. For example, the proposal would have the effect of increasing the top marginal tax rates from 52% and 55% to 68% and 71% for PAYE and self-employed income earners, respectively. The Social Democrats Deputies are seeking a report on the potential for the introduction of a 43% income tax rate on all individuals with incomes in excess of €100,000. I am advised by the Revenue Commissioners that this proposal would yield approximately €365 million in the first year of its introduction and €460 million in successive years. Approximately 132,500 taxpayer units would be impacted. The introduction of a 43% income tax rate on income above €100,000 would increase the top income tax rate by three percentage points and would have the effect of increasing the top marginal rates of tax to 55% for all employees and 58% for the self-employed.

I hope Deputies recognise that high marginal tax rates are a clear disincentive to work and could also affect our international competitiveness. The considerable progress that has been made in recent years to restore our competitiveness, particularly at a time of high inflation, cannot be taken for granted. As Deputies are aware, we have a highly progressive tax code with 10% of income earners contributing approximately 60% of the total income tax and USC collected each year. To put that in context, the bottom 80% of income earners will pay 20% of income tax and USC in 2023. As I have said on many occasions, this indicates how progressive our personal income tax structure is. This has been acknowledged by the International Monetary Fund, IMF, the OECD and the Economic and Social Research Institute, ESRI.

I note that the Rural Independent Group has also suggested raising money from companies with net profits in excess of €1.5 million per year. This could have serious consequences for the competitiveness of our corporation tax regime, with additional significant impacts for employment within our economy. To impose additional levies on corporate profits would involve increased complexity and would change the attractiveness of our corporate tax offering. I accept it is not possible to predict the effect the changes to the rate could have on the behaviour and decisions of large or multinational or domestic companies. This uncertainty makes it difficult to bring a reliable estimate of any additional yield that might accrue to the Exchequer. As the House is aware, we are part of and signed up to the OECD international tax process at the moment. I hope that the second pillar, on minimum effective tax rates, will yield an outcome soon.

I appreciate that the Social Democrats Deputies are seeking a report on the potential for the introduction of a 43% rate of income tax on all individuals' incomes above a certain level. However, to commission these reports could indicate an element of uncertainty in regard to the future direction of Government income tax policy. For all of those reasons, I am not in a position to accept these amendments.

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