Written answers

Thursday, 7 May 2015

Department of Finance

Universal Social Charge Application

Photo of Jim DalyJim Daly (Cork South West, Fine Gael)
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19. To ask the Minister for Finance his plans to reduce the emergency tax known as the universal social charge, which was imposed on working people here in a time of financial crisis, noting that the country's financial position has stabilised; and if he will make a statement on the matter. [17379/15]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I would first like to make the point that the Universal Social Charge (USC) was introduced in Budget 2011 to replace two other taxes, namely, the Income Levy and the Health Levy. At the time it was introduced, the expected yield from the USC in its first year, in 2011, was to be equivalent to that raised under the two taxes which it replaced, with an additional estimated yield of €420 million in a full year.

The USC was a necessary measure to widen the tax base, remove poverty traps and maintain revenue to reduce the budget deficit. It is a more sustainable charge than those it replaced and is applied at a low rate on a wide base.  It was designed and incorporated in to the Irish taxation system as part of its permanent structure and the revenues collected play a vital part in meeting the many expenditure demands placed on the Exchequer.  It is also a fair tax in that income cannot, in general, be sheltered from the charge through the use of tax reliefs. I am cognisant of how unpopular the USC is but given that it raises over €4 billion per annum for the Exchequer, it is difficult to see how it could be abolished without the imposition of additional taxation elsewhere or through equivalent cuts in expenditure.

Notwithstanding the above, the Government has sought to ensure that the impact of the charge on those with the lowest incomes is minimised. In Budget 2012, I increased the threshold at which the charge becomes payable from just over €4,000 to just over €10,000, which removed approximately 330,000 individuals from the scope of USC. A further 87,000 individuals were removed from the scope of the charge in Budget 2015 when I further increased the threshold to just over €12,000, as well as reducing the lower rates of USC and increasing the bands. The Government has indicated that it will continue to adjust the USC in a similar manner to the changes introduced in the last Budget. I would hope to be in a position to be able to further increase the threshold for USC to remove a further 90,000 individuals from the scope of the charge. However, changes to the income tax and USC will be considered in the round as part of my deliberations for the Budget. Therefore it is not possible to indicate at this stage the precise adjustments that will be made. As the Deputy will be aware, much will depend on the fiscal space available to the Government and the exact position will become clearer as the year progresses.

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