Catherine Connolly (Galway West, Independent)
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17. To ask the Minister for Finance the reason for the under-performance of USC in the January to February period of 2017; the difference in the projected and actual intake; and if he will make a statement on the matter. [23363/17]

Michael Noonan (Limerick City, Fine Gael)
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At the outset it is important to point out that income tax encompasses a broad range of elements, some of which are not directly impacted by employment or wage developments. These include Deposit Interest Retention Tax, Life Assurance Exit Tax, Dividend Withholding Tax, Professional Services Withholding Tax and Back Duty.  These payments can be non-linear in nature and the timing of payments can vary from year to year.

Overall income tax receipts to the end of February were €123 million below profile. The Revenue Commissioners have indicated that lower than expected receipts from Life Assurance Exit Tax and Universal Social Charge (USC) account for over half of this shortfall and that PAYE, the main component of income tax, was broadly in-line with profile and up 7% year-on year, which is consistent with the improving labour market.

Notwithstanding this, the performance of USC was lower-than-expected by just over €50 million according to the Revenue Commissioners. My Department is currently reviewing its performance, in conjunction with the Revenue Commissioners and the initial indications are that the Revenue Commissioners are satisfied that the overall estimate of the Budget 2017 USC changes of €335 million in 2017 was costed accurately.  

However, at the time of Budget 2017, the apportionment of the total USC package between PAYE and Schedule D was expected to be €263 million and €72 million respectively, in line with previous norms.  However, subsequent analysis by Revenue, indicates that the allocation of the USC package between PAYE and Schedule D should have been €311 million and €24 million respectively, due to the dynamics of the USC package.  While, this helps to explain some of the current under-performance of USC against profile, it is important to point out that this reapportionment should have no adverse impact on the overall collection of USC receipts as this should equalize later in the year when self-employed returns are made.   

In addition, as part of the continuous efforts to improve the Department’s tax forecasting performance, joint research conducted by the ESRI and Department examined the sensitivity of income tax and USC revenues to changes in income. As a result of this work published in March, my Department has revised the elasticities used in the forecasting of USC, which will affect these forecasts from 2018 onwards.

However, my Department along with the Revenue Commissioners will continue to examine this issue and consider all relevant developments.  In this regard, the Deputy should note the USC from PAYE taxpayers came in much closer to profile in March and April, albeit still a little below expectations.    

Since its introduction in 2011, USC has undergone many alterations including rate and threshold changes.  As the public finances have improved in recent years, progress has been made in reducing the USC charge, particularly for low to middle income earners. Budget 2017 has, for the third year in succession, introduced reductions in the income tax burden for all those within the scope of USC. The three lowest rates of USC were reduced from 2%, 4% and 7% to 0.5%, 2.5% and 5% respectively. This is important progress in making work pay and supporting individuals returning to and remaining in employment. As the Deputy will appreciate, considering the magnitude of these recent changes, it has made the USC more difficult to forecast.  

Finally, it should be noted that we were in a similar position at the end of the first quarter in 2016 when income tax was down 3.4% against profile.  However, due to a pick-up in receipts throughout the remainder of last year, income tax finished 2016 ahead of target.