Dáil debates

Wednesday, 5 July 2017

Ceisteanna - Questions (Resumed) - Priority Questions

Universal Social Charge

2:00 pm

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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18. To ask the Minister for Finance his plans with regard to the universal social charge in view of the conflicting positions of the programme for Government and the Taoiseach; and if he will make a statement on the matter. [31769/17]

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The manifesto on which the Taoiseach won the internal Fine Gael election included a promise that, "Rather than abolishing the Universal Social Charge (USC) outright, we will merge the USC and PRSI into a new single Social Insurance payment". The programme for Government states something different: "To make Ireland’s personal taxation system more competitive, we will ask the Oireachtas to continue to phase out the USC as part of a wider medium-term income tax reform plan". The Fine Gael manifesto states, "Completing the abolition of the USC over a 5-year period as part of a wider reform of the tax system that keeps the tax base broad and limits the benefits for the highest earners". There are clearly three contradictory positions. Will the Minister outline to the House which of them is his position?

2:10 pm

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am sure the Deputy will agree with me that our current system of personal taxation, including as it does three separate charges on income, through income tax, USC and PRSI, each with different income bases, reliefs and manners of assessment, is overly complex. It can be difficult for individuals to understand the personal tax system has the potential to lead to an increase in employment or, indeed, increases in the level of work undertaken by individuals.

The programme for Government commitment to the phasing out of the USC was specified as part of a wider medium-term process of income tax reform, which would maintain the breadth of the tax base, while reducing excessive tax rates for middle income earners and limiting the benefits for high earners.

We have made steady progress in reducing the personal tax burden in the three most recent budgets, with a particular focus on low to middle income-earners, and these reductions have been achieved primarily through cuts to the lowest three rates of USC. The top marginal rate of tax on income up to €70,044 has been reduced to 49%, and it must be remembered that, as recently as December 2014, the marginal rate of tax for a single individual on all income over €32,800 was 52%.

My long-term view of the USC is to see its integration into the existing PRSI code. My focus on reducing the income tax burden for those on low and middle incomes should be the guiding principle. This must be achieved in a way that is both affordable and sustainable. In this regard, the end result is more important than the means of achieving this outcome. At this point in the process, I have an open mind as to the elements of the income tax system that could be employed as policy levers, to achieve the ultimate aim of the programme for Government with regard to reducing the tax burden faced by low and middle income earners.

Photo of Declan BreathnachDeclan Breathnach (Louth, Fianna Fail)
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I call Deputy Doherty to ask a supplementary question.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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As is the case in advance of all budgets, I have asked my officials to prepare papers examining a range of policy options for the short and medium term, and I will consider these in detail in advance of budget 2018.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I welcome the fact the penny seems to be finally dropping in Government Buildings and the parliamentary party meetings of Fine Gael, and of Fianna Fáil as it made a very similar promise as it wanted to abolish 90% of the USC. Fine Gael wanted to go the full hog and abolish 100%, which would erode more than €4 billion of our tax base. By 2021, with no policy changes, this tax would bring in €5.2 billion per year. At least now we seem to be hearing that a substantial portion of it, if not all of it, will be retained but will be renamed or remodelled into the PRSI. Something that is not very clear is the Minister said the Department will carry out another assessment. An assessment was done last year on how the Government could abolish the USC over a period of time. Will the Minister state categorically the USC tax base, on which the State depended on until now, will not be eroded in the way presented by the Government and by Fine Gael, which showed abolishing the USC would cost the State up to €4 billion?

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I will not take any lectures from Sinn Féin on economic competence or economic policy-making. At present, we see the State in a position where it is able to invest back in public services, such as the 975 additional special needs assistants the Minister, Deputy Bruton, will confirm this afternoon, precisely because of a change in our economic circumstances that Sinn Féin said would never happen. Deputy Doherty has no right to lecture. Well, he has the right actually. Of course he has the right.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Of course I do, and I appreciate the Minister pointing it out.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I recognise he has the right, but he certainly does not have the track record to comment on the merits of economic policy options being considered by the Government. As I outlined already, I am very clear on what the long-term endpoint will be for the USC. We have a new Minister for Finance and a new Taoiseach. We are entitled to make our assessments of the landing points for important policy areas such as this. We believe the landing point is where we integrate the PRSI code into the USC code-----

Photo of Declan BreathnachDeclan Breathnach (Louth, Fianna Fail)
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A final supplementary question.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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-----and in the meantime we will look to reduce the cumulative tax burden for employees and citizens in a way consistent with the programme for Government.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The Minister stands there and says I have no track record or the right because of my track record to make these points. Let me be clear, there was a discussion earlier on the help-to-buy scheme. It needs to be abolished, and in my view it will be abolished, because it is a reckless policy which the Government introduced.

Photo of Declan BreathnachDeclan Breathnach (Louth, Fianna Fail)
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A question please.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Fianna Fáil and Deputy Michael McGrath sat on their hands and allowed it to be introduced at a time when we knew what would happen. I said at a meeting of the finance committee it would partly result in double-digit increases in house prices. All the people out there worth their salt are pointing out it was a reckless decision.

Photo of Declan BreathnachDeclan Breathnach (Louth, Fianna Fail)
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A final question, please.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Excuse me, Chair, this is a follow-up question and I have my time.

Photo of Declan BreathnachDeclan Breathnach (Louth, Fianna Fail)
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I am telling you to put a question.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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With regard to this policy, the Minister entered into a populist position in the general election arguing a €4 billion tax base could be eroded. Fianna Fáil had a similar position. It has now been pointed out to the Minister, not only by Sinn Féin but by the European Commission, the IMF, the ESRI and many other external bodies, that it is reckless. What is the current position of the Minister for Finance? Is it the position in the Government manifesto? Is it the position of the Taoiseach? Will the Government continue to use the reduced fiscal space available to erode the tax base? It did this last year, taking almost €400 million out of the tax net.

Photo of Declan BreathnachDeclan Breathnach (Louth, Fianna Fail)
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The Minister to respond.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Now the Commission is telling us the Government may have underestimated the amount last year's cut could have cost.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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I remind Deputy Doherty he asked a question when his time was up, one minute after he began to speak. The Minister has one minute to respond.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Deputy is just disappointed I actually answered his question. To find Sinn Féin coming in here and accusing any other party of taking populist positions on their policy choices is beyond the pot calling the kettle black.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Abolishing the USC.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Deputy's party has consistently stood up here and said all could be achieved without the need to make changes in economic policy.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Wrong. We said not to abolish the USC.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Deputy's party has consistently stood up here over many years, as has Deputy Doherty, and said that the change in circumstances in our country would not happen, that the changes made in economic policy to get our country to this point would not be successful, and that we would not see a return to employment. This has happened. I have outlined to the Deputy my view and the Taoiseach's view on the long-term role of the universal social charge. It should be at the heart of a new social contract between our citizens, through how we integrate it into the PRSI code. The views regarding how we make our tax code more competitive and how work is rewarded of course will be handled in a way consistent with the programme for Government and consistent with the supply and confidence agreement we have with Fianna Fáil.