Róisín Shortall (Dublin North West, Social Democrats)
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101. To ask the Minister for Finance the cost in 2017 and in a full year of addressing the step effect for persons whose income rises from just below the universal social charge entry level threshold to just above it; the number so affected; and if he will make a statement on the matter. [28825/16]

Michael Noonan (Limerick City, Fine Gael)
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I am informed by the Revenue Commissioners that the first and full year cost to the Exchequer of making the first €13,000 of income exempt from the charge to Universal Social Charge (USC) for all income earners is €265 million and €309 million respectively. These figures are estimates from the Revenue tax forecasting model using latest actual data for the year 2014, adjusted as necessary for income, self-employment and employment trends in the interim. They are estimated by reference to projected 2017 incomes. They are provisional and may be revised.

In the event that I make no change to the entry threshold for USC in the Budget, it is estimated that 748,000 individuals would be exempt from USC in 2017 on the basis that their USC-liable income would be below €13,000.

While step effects are never ideal, they are often a feature of tax systems with exemption thresholds, as the application of a tax on this basis allows those with incomes below the threshold to be supported by means of the exemption, while also achieving the required yield from the tax. The Deputy may be aware that both the Income Levy and the Health Levy, which were replaced by the USC, also had step effects. The Health Levy in particular had a significant step effect of €1,040 per annum, or €20 per week, when weekly earnings exceeded €500.

PRSI also had a step effect for employees which existed for many years, and which was a significant issue for workers earning just over the PRSI entry threshold of €352 per week. The Deputy will be aware that I addressed this issue in Budget 2016 through the introduction of a new tapered PRSI Credit, which took effect from 1 January this year. This credit smoothes entry into the PRSI system for employees on lower incomes, without providing an additional benefit to higher income-earners.

As the USC step occurs at a lower income threshold and a low tax rate, its effect is much less significant than the steps of the two levies it replaced. In 2015, the USC step was just over €180 annually, or €3.46 per week. The Deputy will be aware that in Budget 2016 I reduced the two lower rates of USC by a half of one percent each with effect from 1 January this year. Therefore, notwithstanding the increase in the USC exemption threshold to €13,000, Budget 2016 actually reduced the USC step to under €150, or €2.88 per week.

As regards future measures, in the Programme for Partnership Government there is a commitment to ask the Oireachtas to continue to phase out the Universal Social Charge (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. Reductions will be introduced on a fair basis with an emphasis on low and middle income earners.