Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank Deputy Moynihan for his contribution. In amendment No. 2, he is seeking a report on the current position regarding USC, the number of taxpayers paying USC at each band and options to reduce the USC burden for middle-income earners in the years ahead. By way of background, as the House will be aware, the USC was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely, the health levy and the income levy. The primary purpose of the USC was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services.

In relation to Deputy Moynihan’s proposals, my Department recently carried out a review of the personal tax system, which was published on budget day. The report examined Ireland’s personal tax system, including USC, and set out a detailed overview of the evolution of USC since its introduction, as well as recent trends in income tax and USC receipts. As part of Revenue’s regular statistical publications, data on income earners by USC rate is published. The latest available information is for 2021 and shows that approximately 1.05 million taxpayer units, that is, 36%, were exempt from USC; 483,000 taxpayer units, that is,16%, paid a top rate of USC of 2%; 1.08 million taxpayer units, that is, 37%, paid a top USC rate of 4.5%; 320,000 taxpayer units, that is, 11%, paid a top rate of USC of 8% and 15,000 taxpayer units, that is, 0.5%, paid the 3% USC surcharge on non-PAYE income in excess of €100,000 per annum. Further details for previous years are available on the Revenue’s website.

With regard to the options to reduce the USC burden on middle-income earners in the years ahead, the Deputy will appreciate that it is premature to make any commitments at this stage as such decisions will depend on the prevailing circumstances and fiscal resources available for future budgets. However, I am pleased to note the significant progress made to date in delivering on the programme for Government commitment to index tax credits and bands, specifically the substantial income tax package that I announced as part of budget 2024.

The budget tax package is built around three key pillars; changes to tax credits, the standard rate band and USC. I sought to use each of these levers to spread the benefit of the available package as effectively as possible. I am aware that the USC is a particular point of concern for many people, which is why I introduced the largest USC package since 2016 and why I made two significant changes to the USC in this budget. These are a reduction in the 4.5% rate of USC to 4% - the first reduction in USC rates in five years - and an increase of €2,840 to the entry threshold to the 4% rate to ensure that full-time workers on the national minimum wage remain outside the higher rates of USC.

In relation to the minimum wage change and the interaction with the USC, currently a single individual employed on the current minimum wage of €22,916 per annum who works 39 hours per week pays income tax of €19.87 per week, USC of €5.35 per week and PRSI of €17.63 per week. Their effective tax rate is therefore 9.7%. As a result of the increase of the national minimum wage to €12.70 per hour from 1 January 2024, a minimum wage worker will see an increase in their gross income of €2,839 to €25,750.

This increase will see commensurate increases in income tax, USC and PRSI. However, a full-time minimum wage worker will see their weekly net income rise from €397.85 to €442.10, which equates to a €44.25 or 11.1% increase in their weekly net income from 1 January 2024. This amounts to an annual increase in their net income of approximately €2,300. In addition, it does not take account of cost-of-living one-off measures introduced as part of budget 2024. It is estimated that 14,100 individuals will benefit from the increase in the national minimum wage.

In regard to the impact on individual income earners arising from the changes in the budget, I draw the Deputy's attention to the publication on the tax policy changes as part of budget 2024, where we set out in tabular form information on people in different circumstances and different household types, for example, one-income and two-income, PAYE and otherwise, and what the impact on net income was arising from the changes to the tax credits, the standard rate cut-off point and the USC. All of that information is there in the tables published on budget day.

All in all, I do not believe the report being sought by the Deputy is necessary and we have already published a lot of material. However, I welcome the opportunity to set out the impact of some of the changes that we announced in the recent budget.

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