Peadar Tóibín (Meath West, Sinn Fein)
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2. To ask the Minister for Finance in absolute terms, and as a percentage of the predicted available fiscal space, the cost of abolishing the universal social charge within the next five years; the gain for a person earning €185,000 of such an abolition; and if he will make a statement on the matter. [1515/16]

Peadar Tóibín (Meath West, Sinn Fein)
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Guím gach rath ar an Aire tar éis a chóir leighis. Is maith an rud é go bhfuil cuma breá folláin air arís.

There is great pressure on the infrastructure of this State and on our public services. There is also great pressure on low and middle income earners. However, there is a dangerous habit in this State of governments shifting the tax base from stable personal taxation to more volatile tax bases. What would be the cost to the people of Ireland of the tax break proposed by Fine Gael which will mostly benefit the wealthy in the future?

Michael Noonan (Limerick City, Fine Gael)
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Gabhaim buíochas leis an Teachta as an dea ghuí maidir le mo shláinte.

This is a very interesting question because, one way or another, all parties are either maintaining the status quoin respect of USC or advocating change. In that context, it is important to put the debate on a firm statistical footing at least, whatever the opinions might be subsequently. In reply to Deputy Tóibín's specific question, the indicative gross fiscal space over the 2017 to 2021 period is some €10.9 billion in cumulative terms, as outlined in budget table A.9. A decision not to index the tax system would add a further €2 billion to the level of space available over the period, of which some €500 million relates to the USC, bringing the total potential fiscal space to €12.9 billion. It should be noted that the indicative fiscal space highlighted in these budgetary annexes require a number of assumptions, including in relation to reference rates for potential growth, deflators and certain other variables used in the calculation. These inputs are based on current projections and are likely to change over time.

In 2016, the universal social charge is projected to raise approximately €4 billion in Exchequer receipt terms, with this level expected to increase as employment and wage growth continue in the years thereafter. Were the USC abolished, the full year impact, incorporating recent changes to the USC, would cost approximately €3.7 billion. It should be noted these USC projections assumed some indexation of the USC, which increases the cost of abolition. In terms of broad order of magnitude, were the USC abolished over the medium term, this would absorb one third of the currently available gross fiscal space.

Since coming into Government, I have already made several significant changes to the USC to increase its fairness. As a result of a review of USC by my Department, the Government decided in budget 2012 to increase the entry point to the USC from €4,004 to €10,036 per annum. This removed an estimated 330,000 individuals from the charge in that year. Further increases in budgets 2015 and 2016 brought the exemption threshold to €13,000, resulting in a situation in which an estimated 29% of income earners will be outside the scope of USC in 2016. Furthermore, I also reduced the three lower rates at which USC is charged and increased the thresholds for these rates. These measures, together with the introduction of a new 8% rate on income over €70,044, further enhanced the existing progressive nature of the USC. I have committed, if given the opportunity, to continue to progressively abolish the USC as part of a wider reform of the income tax system to reward work and reduce the marginal rate to no more than 50% for all workers to make Ireland more attractive for mobile foreign investment and skills, including for our returning emigrants.

The Deputy requested that I provide details of the gain which would accrue on the abolition of the USC to an individual earning €185,000 per annum. An employee with that income level has an annual USC liability of approximately €12,342 but I do not propose to provide a benefit of this scale to such a high earner. As in the previous two budgets in which the benefits of USC and income tax cuts have been capped at €70,000 in earnings it is my intention, should I be given the opportunity, to present further budgets to claw back some of the benefits of USC abolition for the highest earners. I will be setting out the details of my party's position on this issue in due course.

Peadar Tóibín (Meath West, Sinn Fein)
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The Minister said there was a fiscal space of roughly €12 billion. Is that over five years?

Michael Noonan (Limerick City, Fine Gael)
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Yes.

Peadar Tóibín (Meath West, Sinn Fein)
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Okay. That is obviously a higher estimate than would have been in discourse previously, which was €8 billion over the next five years. However, the key issue is the effect that cutting USC will have. There is no doubt that workers need a break. They have suffered massively over the last number of years and we need to ensure that they have money restored to their pockets. The problem I have with the debate on the USC and its abolition is that without the detail of any clawback sought on upper earners, the Taoiseach would for example have a tax cut of €12,340 on his wage. Someone on €100,000 would have a tax cut of €5,500 on their wage.

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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A question, please.

Peadar Tóibín (Meath West, Sinn Fein)
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Someone on the median wage - and we must remember that half the population earn €28,000 or less - would receive €860 back. Given those major disparities in the amounts that would be returned, is it not the case that the abolition of the USC is an unfair way to redistribute some of the benefits in the State?

Michael Noonan (Limerick City, Fine Gael)
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Yes, but the Deputy's arguments are based on the assumption that it is the Government's intention, if re-elected, to abolish USC completely for all levels of income. That is not the position. As I have done previously, and particularly in the last two budgets, we capped the benefits at €70,000. We will have a clawback so that these very high benefits will not accrue to high earners. I am not introducing a budget this morning. I am simply signalling that there will be a significant clawback, so the figures the Deputy has quoted are effectively redundant and will not apply. The details of the clawback will be provided in the course of the early days of, or before, the election campaign. Effectively, we are talking about an election commitment with regard to how, if we are re-elected, we will handle the USC over the next five years.

The Deputy questioned the period involved. Last October we put the 2016 budget in place, and that is fully funded. Therefore, what we are looking at for the future concerns 2017, 2018, 2019, 2020 and, indeed, 2021. In the same way as the 2016 budget was introduced in October 2015, there is an opportunity for the incoming government to introduce the 2021 budget in the autumn of 2020 if they go the full term. There is therefore a five-budget spread right out to 2021.

Peadar Tóibín (Meath West, Sinn Fein)
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I sense that there may be a row-back in terms of Government policy, because the Taoiseach was advocating a €4 billion USC return to the State over the next five years. Whether it is 50% of the fiscal space returned in USC or one third, as the Minister says today, that has to be contrasted with the level of investment in the State. In the spring statement, the Minister said that Government investment would decrease from 1.8%, which is the figure today, to 1.5% in 2020. That would mean that Irish Government investment was the lowest in the European Union. In real terms, that means that projects such as flood defences will not get the necessary investment to which they are entitled.

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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A question, please, Deputy.

Peadar Tóibín (Meath West, Sinn Fein)
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It also means that other issues, such as the creaking M50 that becomes chock-a-block after one accident, will not be resolved. It means that infrastructural projects like the Navan to Dublin rail line will not be built. How is it that we will try to achieve European levels of investment in public services and infrastructure on what is an American tax base?

Michael Noonan (Limerick City, Fine Gael)
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First of all, there is no row-back. What I have said this morning in reply to the Deputy's question is absolutely consistent with what I have done in the past in terms of USC - capping it at €70,000 and ensuring that high earners do not have extravagant benefits. They are proportionate benefits to people with an income of €70,000, and something similar will be proposed when we abolish USC completely. It will be replaced by some form of clawback for high earners.

Second, the Deputy switched to the issue of investment. A lot of what was in the spring statement has changed because circumstances have improved. Even though it is not 12 months ago, the fundamental statistics are now much better than they were at the time of the spring statement. Looking forward, it now looks as though we are going to balance the budget in 2017. That, in effect, means that we will not be assigning funds to reduce a deficit because we will not have a deficit.

Peadar Tóibín (Meath West, Sinn Fein)
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So investment will increase for the time being.

Michael Noonan (Limerick City, Fine Gael)
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Yes. As the Deputy will recall, we have built into the capital programme a review after two years. There will be resources if we balance the budget because, rather than a three-way split of tax reductions, expenditure increases and deficit reduction, the latter goes off the table. I will be strongly advocating that at least a large proportion of that money be used for both social and economic infrastructural investment, so there is space there. If one looks at the spring statement, however, things change rapidly and it is hard to give a precise figure. In primary colours, however, I am indicating the direction in which I intend to go.

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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I do not like to interrupt Members, but I ask you to stick to the time limits. Otherwise, we will not get to the ordinary questions that backbench Deputies are entitled to ask.