Simon Harris (Wicklow, Fine Gael) | Oireachtas source

The Senator highlights a real difficulty with the USC. It is a very crude instrument of taxation which is why we are committed to removing the burden of USC from hundreds of thousands of people and reducing all the rates of USC in this Finance Bill. Ultimately, we are also committed to the abolition of the USC. The priority of the Government and Minister for Finance, Deputy Noonan is to abolish the USC over time. His preference at the moment with the limited fiscal space available to him is to reduce the various rates. The Bill provides for an increase in the entry point to USC from €12,012 to €13,000 from 1 January 2016. It is estimated that over 700,000 income earners will not be liable for any USC at all in 2016. The entry point to the USC was €4,004 when we came to Government and this will be the third occasion on which Deputy Noonan will have increased the entry point.

The number of income earners exempt from the USC is affected by the condition of the economy because as the economy continues to improve, more people will be earning more than the entry point to the USC. The increase in the minimum wage from €8.65 to €9.15 per hour will increase the hourly income of minimum wage workers by over 5.7%. It is preferable for an individual to pay some USC and have a higher net income than to be exempt from the USC and have a lower net income. The changes announced in the budget will mean that all income earners who pay the USC will see a significant reduction in their USC bill from 2016 for the same level of income.

I take the broader point that Senator Barrett is making but it is the policy preference of the Minister, Deputy Noonan, to work towards the abolition of the USC. He is targeting the fiscal space available to him with that very aim of taking more people out of USC and reducing the three rates so we can have a tax system post-USC within a matter of years.