Victor Boyhan (Independent)
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I welcome the Minister of State, Deputy Eoghan Murphy, to the House. I am seeking an update on the universal social charge. The Minister of State will be aware of a poster with the slogan: "Abolish the USC. Let's keep the recovery going." That slogan was used by Fine Gael during the 2016 general election campaign. I do not have a particular problem with the slogan. I took the time to look for this election material and found that quite a lot of it had gone. Interestingly, however, The Irish Timeskeeps a picture archive in which I counted at least 25 posters. Eight Government Ministers were pictured at various places, including Heuston Station, holding these posters. This was the main plank of their election campaign last year - "Abolish the USC. Let's keep the recovery going."

I downloaded all these posters from www.irishtimes.comwhich I would be delighted to send around to all my colleagues today. It is interesting that this clearly was the message. There was a quotation in the Minister's election literature, which was also quoted by The Irish Times. I will quote it here for the benefit of our deliberations:

Of all the commitments we are making in this election, this is the central commitment to our tax policy. It is a hated tax. It is a socially divisive tax. It was introduced as an emergency measure. The emergency is now over and now we are going to abolish this tax.

That quotation was attributed to the current Minister for Finance, Deputy Michael Noonan.

I note that the Minister for Social Protection, Deputy Varadkar, has spoken about a bigger package of reform, including the USC being merged with the PRSI. I do not know whether that is being advanced or not, but it is meant to be a possibility. Perhaps the Minister of State can elaborate on that.

I accept that there should be tax cuts for middle-income earners. At the end of the day, there is a section of our society who work hard, pay all their taxes, comply with the law, yet are falling out of the parameters for social insurance and social protection. They need to be addressed and Fine Gael identified that as one of the key issues in its election campaign.

I do not wish to be negative but I think there is a need for a social insurance fund. We need to build that up, realise that people want it, and be cognisant of their needs. More important, can the Minister of State explain where he stands as a member of the Fine Gael Party and Government that have advocated the abolition of the USC? Has there been a change of heart or mind? Is there a view that the USC should be merged into some sort of reformed PRSI package? I simply do not know and that is why I am asking the question. I would appreciate it if the Minister of State could enlighten us.

Eoghan Murphy (Dublin Bay South, Fine Gael)
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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.

Victor Boyhan (Independent)
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I thank the Minister of State for his reply which is helpful. It gives us an indication of the direction he is taking. It is important to state it does not reference the abolition of the universal social charge, USC, in the immediate future, despite the fact that it was the major slogan in his party's campaign. Credibility is very important in politics. When a party sets out to do something and changes course, it is important that it explain the reason. It has been explained somewhat in the reply. I am keen to note the Minister of State's emphasis on income tax reform. That is an important issue that needs to be monitored and discussed. The Minister of State's party sought a mandate from the people to govern on the basis that it would abolish USC. I will take the time to send him the pictures I mentioned because they are extraordinary. They show jubilation among candidates not yet elected to Dáil Éireann and others who had sought re-election, all of whom were elected. They include the Minister for Finance, Deputy Michael Noonan. This was their central message. When a party goes before the people with a central message, it is very important that it deliver on it.

Eoghan Murphy (Dublin Bay South, Fine Gael)
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I participated in that campaign also. We talked about abolishing or phasing out USC as fiscal resources allowed and nothing in the reply I have given to the Senator deviates from that plan.

Victor Boyhan (Independent)
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I appreciate that.

Eoghan Murphy (Dublin Bay South, Fine Gael)
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That is what we will have to do on a year by year basis. We all recognise that the burden of taxation is too high and that the Government is taking too much of people's hard-earned money to fund vital State services. Those services must be funded. That is the reason we have the ratio of 4:1 in the current budget for the changes we have made in the fiscal space. We have an income tax reform strategy paper that was published last year. We need to work together within the Government and the Oireachtas to find the most prudent path towards reducing the burden of taxation, but we cannot tie the Oireachtas to a five-year plan because it might have to be altered as needs change on a year to year basis, depending on happens internationally and domestically. However, it is our continuing commitment to reduce the burden of taxation on income earners.