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

I thank Senator Boyhan for raising this matter. As he will be aware, the Programme for a Partnership Government contains a commitment to ask the Oireachtas to continue to phase out the USC as part of a wider medium-term income tax reform plan that keeps the tax base broad, reduces excessive tax rates for middle income earners, and limits the benefit for high earners.

High marginal tax rates affect labour force participation and productivity by increasing the cost of labour for employers and reducing the incentive to work for employees. The unemployment rate in Ireland has now fallen to 6.6%, down from a high of over 15% just five years ago.

This is not the time to become complacent, however, and we must still be conscious of the need to support employment creation and retention. Britain has now formally begun the process of leaving the European Union and this process is expected to bring both opportunities and challenges for Irish businesses.

The top marginal income tax rate, and how it compares with the rates in other jurisdictions offering similar employment opportunities, can be a significant factor in attracting mobile, high-skilled workers to Ireland.An uncompetitive income tax regime or burden could lead to skill shortages in some sectors.

The continued phasing-out of USC will improve lreland's international competitiveness and the incentive to work, supporting economic activity and continued job creation in the economy. The USC reduction measures in budget 2017 were the third step in a gradual process of unwinding USC and resulted in a reduction in the marginal rate of tax on income up to €70,044 to 49%. It should 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%. It is the intention of the Minister for Finance, Deputy Michael Noonan, to continue the process of reducing USC in future budgets.

Senators will be aware that this is not a measure that has been considered in isolation but as part of a wider medium-term income tax reform plan. In July last year the Department of Finance published the income tax reform plan to set out the policy considerations relevant to this reform, including the necessity to maintain the breadth of the income tax base and retain appropriate levels of taxation for high earners. The purpose of the income tax reform plan was to inform all Members of the Oireachtas of the issues and options which would underpin future income tax reform. It is my hope all Oireachtas Members will engage constructively in debating options for future reform in this area.

It is the Minister’s intention to continue the process of reducing the income tax burden, with an emphasis on low and middle income earners, in future budgets as fiscal resources allow. It is expected that the resulting reductions in marginal tax rates will support job creation and economic growth. It is the Minister’s view, however, that it would be prudent to pursue the phasing out of USC by taking the relevant decisions on a year by year basis, having due regard to the prevailing fiscal resources available to the Government. The setting out of a schedule for the phasing out of the charge as suggested would not allow for flexibility for the Government and the Oireachtas to adapt income tax reform as necessary to address the challenges and opportunities that might arise domestically, as well as in the global economy. Notwithstanding this, the Minister affirm the Government’s commitment to reducing the income tax burden as and when fiscal resources allow. In this regard, I draw Senators' attention to a further commitment in the programme for Government that sets out a minimum ratio for the use of fiscal resources such that two thirds of such resources will be used to increase expenditure on public services, with the remainder being available for tax reductions. In fact, the ratio in the last budget was in the region of 4:1 in favour of expenditure measures.