Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I thank Senator O'Reilly for her recommendation. It would appear from the wording of the proposed recommendation that it is the Senator's intention that all those earning up to €376 per week, just over the earnings of a full-time worker on the new minimum wage of approximately €357 per week, should be exempted from the charge to USC entirely. It is unclear whether the Senator also intends that this recommendation would consider all income earners with income of less than €19,572, rather than just workers. I do not think that is what the Senator is trying to do but it is a little vague in that regard. Such a group would also include pensioners and people with income from their investments.

The Senator will be aware that the budget contained a number of measures specifically targeted at supporting those on lower incomes. With regard to USC, the changes proposed to the Finance Bill include the extension of an exemption threshold to €13,000 per annum. This measure alone removes an estimated 40,000 low-income earners from liability to the charge entirely. It is now estimated that over 700,000 individuals - 29% of all income earners - will not be liable to USC from 2016. In addition to this, as a result of a reduction of the two lower rates of USC and the extension of the ceiling for the second rate of USC from €17,576 to €18,668, all those earning the increased minimum wage with an average working week of 39 hours will remain liable to the two lower rates of USC, notwithstanding the increase in their gross income. Senators may also be aware of the new PRSI credit which was introduced in the budget in order to address the PRSI step effect, which otherwise would have negatively impacted on workers on the increased minimum wage. This is a further measure aimed at supporting those on lower incomes, by smoothing entry into the PRSI system.

With regard to the proposal from the Sinn Féin Senators who would like a report prepared on options to increase the USC exemption threshold to €19,572, it should be noted that this would increase the entry point above the current entry point to income tax, which stands at €16,500 per annum for a single employee. As a result, such an individual would pay no tax, no USC, and would have a minimal liability to PRSI. To do this would seriously undermine the original rationale for the introduction of the USC, so we need to look at it in the context of how one phases out the USC in a fair manner. In addition, the USC was intended to ensure that for as long as it lasts most individuals would make some contribution towards the provision of services and towards assisting in restoring the public finances. The removal of individuals earning up to €19,572 would obviously not achieve this.

When the Government considers options for a budgetary tax package, it must take account of all the parts of the package and therefore single measures could not be contemplated in isolation. Taking these factors into account, the Minister is not minded to expend resources of the Department on the production of the report requested by the Senator, and therefore cannot accept the recommendation. On the issue of a living wage and how we ensure people earn a decent wage, there will obviously be different policy proposals from all parties on that. I fear that increasing the minimum wage by the rate that Sinn Féin proposes would have the unintended consequence of stalling job creation. We can debate that issue at another time.