Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

As the Minister for Finance said in his budget speech, high marginal tax rates act as a break on employment. They discourage people from taking jobs and emigrants from returning. Resources available to the Minister in this budget were limited. In line with the programme for Government, he has chosen to focus the budget 2017 income tax package on low and middle income earners, building on the steady progress made since budget 2015 in reducing the USC. For the third budget in a row, he is reducing the top marginal rate of tax on income up to €70,044 per year and, subject to the passing of this Finance Bill, this marginal rate will stand at 49% from January 2017. It should be remembered that as recently as December 2014 the marginal rate of tax for a single individual on all income over €33,800 was 52%.

This section amends section 531AN of the Taxes Consolidation Act 1997 to give effect to the USC changes announced on budget day. These changes are a continuation of the process of progressively reducing the marginal tax rate on low and middle income earners in a manner that maintains the highly progressive nature of the Irish tax system. The aim is to make it more attractive to return to work and to stay in work, to ensure that work rewards individuals adequately and to encourage emigrants to return home. Therefore, the 1% rate will go down to 0.5% the 3% rate will go down to 2.5% and the 5.5% rate will go down to 5%. There is also a small but important increase in the ceiling on the band on which the reduced 2.5% rate of USC will be payable from €18,668 to €18,772. This increase will ensure that the salary of a full-time worker on the minimum wage will remain outside the top rates of USC. These changes will cost €355 million in 2017 and €390 million in a full year. In addition, the section also contains a minor technical amendment to the week 53 changes that were introduced last year. This is to make it clear that only one extension of the rate band can be granted in years in which an employee has 53 pay weeks, notwithstanding that an individual may have two separate PAYE employments in that year.

To respond to some of the specific comments raised by Senators, no one ever proposed abolishing USC overnight. The paper the Senator cited was speaking to the effect of what one might have to do if it was abolished overnight, but no one ever proposed it. That was the thought experiment but it has never been part of the Fine Gael Party's thinking or the Government's thinking on how we might reduce the high tax burden on people.

To respond to Senator McDowell, the tax burden is too high. No one should have to give more than half of their income each week to the government. The Government is working to make that a reality for everyone who works and it is particularly important that we do it for the self-employed as well. Several steps have been taken in this and the last budget to make sure that is the case but we recognise there is still a way to go. If the Senator reads the income reform and the tax strategy group papers, published earlier this year, he will see this is an innovation in how both Houses of the Oireachtas can scrutinise and debate budgetary decisions in advance of budget day and do that in line with new resources for parliamentarians. Having a dedicated committee and an office for budget scrutiny, which is only getting off the ground this year, together with these publications and increased transparency in the Department of Finance, means that into next year we can have detailed debates on our overall tax strategy in advance of budget day, such that Government, each Opposition party and individual Members in both Houses can be informed and have the space to debate their ideas and proposals.

In response to Senator O'Donnell’s points about the progressive nature of the changes we are making, we have always sought to reduce the USC and the tax burden in a progressive and fair way. It is equally important that we do so in a sustainable way. The changes in this section do that.