Written answers

Tuesday, 21 September 2021

Department of Finance

Universal Social Charge

Photo of Carol NolanCarol Nolan (Laois-Offaly, Independent)
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199. To ask the Minister for Finance if he will consider introducing an amendment to allow the deduction of pension contributions before the universal social charge is calculated; and if he will make a statement on the matter. [45009/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The Universal Social Charge (USC) came into effect on the 1st January 2011 to replace the Income Levy and Health Levy, neither of which gave relief for pension contributions. Its primary purpose was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services. It is a more sustainable charge than those it replaced and is applied at a low rate on a wide base.

The USC is an annual tax payable on an individual’s total income in a year, subject to a number of exemptions and reliefs. In particular, an individual is not liable to pay USC where his or her total income in the tax year does not exceed €13,000 and individuals aged 70 and over benefit from a lower rate of USC (provided their total income does not exceed €60,000).

Pensions, other than pensions paid by the Department of Social Protection, form part of an individual’s income for USC purposes in years in which they are paid and are charged to USC.

In computing the USC payable in a year, contributions to a pension fund are not taken into account to reduce the amount of USC payable as would be the case with income tax. As such, the USC payable by an employee is charged on the person’s gross income. The proposal to apply the USC charge after deducting pension contributions would run counter to the principle of keeping USC as broadly based a charge as possible. Its broad base helps ensure that the USC is a stable source of revenue for the State.

Finally, I might take this opportunity to note that Ireland has one of the most progressive personal income tax systems in the world, which plays a crucial role in the process of income redistribution. Our redistributive tax system has been acknowledged by the IMF, the OECD and the ESRI. It is my view that a broad-based, progressive income tax system, where the majority of income earners make some contribution but according to their means, is the most fair and sustainable income tax system in the long term.

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