Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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102. To ask the Minister for Finance if he will consider in his pre-budget deliberations with regard to the USC, the correction of the anomaly that sees pre-1995 public sector pensioners pay the universal social charge on all their income while all other recipients of the State pension are exempt from USC on that portion of their income, resulting in the pre-1995 pensioners being worse off than other pensioners who receive the State pension; and if he will make a statement on the matter. [41269/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Universal Social Charge (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. However, the base for USC does not include payments made by the Department of Social Protection, including the State pension.

As the Deputy may be aware, the USC was reviewed by my Department in 2011 and the issue of USC applying to occupational pensions of retired public service 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. In retirement therefore they receive an occupational pension only, and do not receive a separate State Pension unless as a result of PRSI contributions made in another employment during their working life.

It was decided not to exempt the occupational pensions of these individuals from the USC charge as an exemption would be very costly and difficult to achieve, and it could 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, in Budget 2012 the entry threshold to USC was increased from €4,004 to €10,036 per annum, and the threshold was subsequently increased further in Budgets 2015 and 2016, to the current threshold of €13,000. 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. It is estimated, based on the current rates and bands, that almost 770,000 income earners are exempt from the USC.

The Government has committed to continue the process of reducing the personal tax burden in future Budgets, with a particular focus on low and middle-income earners, subject to having the required fiscal space. In this context I have stated on a number of occasions that my long term view of the USC is to see its amalgamation with the existing PRSI system. This is a complex undertaking that will take time to plan and implement, and will require further consideration of all the distinct features of the USC and PRSI systems, including the taxation of pre-95 public servants.