Finian McGrath (Dublin North Central, Independent)
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201. To ask the Minister for Finance if he will amend the Finance Bill 2015 to bring tax justice to public servants, especially those who have an occupational pension (details supplied); and if he will make a statement on the matter. [42760/15]

Michael Noonan (Limerick City, Fine Gael)
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The USC was introduced in Budget 2011 to replace the Income Levy and Health Levy. It 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. 

The USC, like the Income Levy before it, does not apply to social welfare payments, such as the contributory and non-contributory State pensions, or payments of a similar nature.  However occupational pensions, including occupational pensions of retired civil servants, are liable to the USC if the payment is greater than the exemption threshold, which for 2015 is €12,012. 

As the Deputy is aware, delivering on a commitment in the Programme for Government, the USC was reviewed by my Department in the lead up to Budget 2012. The report is available on my Department's website at www.finance.gov.ie.The issue of USC applying to occupational pensions of retired public servants who entered the public service before April 1995 was examined as part of that review.  Such individuals are (or were) liable to modified rate PRSI, which does not generate an entitlement to the State Pension.

The Government decided not to exempt the occupational pensions of these individuals from the USC charge as it would be very costly and difficult to achieve, and it would involve all income earners with the equivalent income benefiting from the exemption.  In addition, it would also undermine the principle of the USC being applied to income with few exceptions.

However, as a result of the review of the USC, the Government decided in Budget 2012 to increase the entry point to the Universal Social Charge from €4,004 to €10,036 per annum. Budget 2015 provided for a further increase in the exemption threshold to €12,012 and I announced in my recent Budget speech that this threshold will increase to €13,000 per annum from 1 January 2016. It is estimated that over 700,000 income earners will not be liable to USC at all from next year. 

This exemption threshold equalises the position for single individuals whose sole source of income is the State Contributory Pension with Public Service pensioners whose pension is at an equivalent level. Furthermore, I intend to continue to reform the tax system in future budgets should we be returned to Government and subject to having the required fiscal space.  

For the reasons outlined, I have no plans to amend Finance Bill 2015 to change the application of the USC on Public Service pensions. I would point out that the changes to the income tax system included in Budget 2015 mean that individuals who paid Income Tax and /or USC in 2014, including pensioners, are seeing a reduction in their tax bill this year where incomes are equal. Budget 2016 is now continuing this process of reducing the tax burden on low and middle income earners including, among other changes, a decrease in the three lowest rates of USC announced to take effect from January 2016.