Michael Fitzmaurice (Roscommon-Galway, Independent)
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107. To ask the Minister for Finance the plans, if any, in place to abolish the universal social charge, which was brought in as a temporary measure; and if he will make a statement on the matter. [20396/23]

Michael Fitzmaurice (Roscommon-Galway, Independent)
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108. To ask the Minister for Finance if his Department has considered abolishing the universal social charge for occupational pensions; and if he will make a statement on the matter. [20397/23]

Michael McGrath (Cork South Central, Fianna Fail)
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I propose to take Questions Nos. 107 and 108 together.

The Universal Social Charge (USC) was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely the Health and Income Levies. The primary purpose of the USC was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services.

The USC is an individualised tax, meaning that a person’s liability to the tax is determined on the basis of his/her own individual income and personal circumstances. The USC is applied at a low rate on a wide base, which ensures that it is a stable and sustainable source of revenue for the State.

It is important to point out that in 2016, joint Department of Finance/Economic and Social Research Institute (ESRI) research found that USC represented a more stable form of revenue than income tax. The findings highlighted that USC revenues would fluctuate by less than income tax revenues whenever income is volatile, for example where the economy moves from a boom into a bust. Given the openness of the Irish economy and consequent susceptibility to economic shocks, the contribution that the USC makes to the stability of the State’s revenue sources is considerable.

The USC yield is c. €5 billion and if the USC were to be abolished it would be necessary to generate this yield from alternative sources.

USC does not apply to social welfare payments, such as the contributory and non-contributory State Pensions. In addition, currently individuals with incomes of less than €13,000 are exempt from USC, which can include modest occupational pensions. Therefore, an individual in receipt of a State Pension and an occupational pension of €13,000 can have a total income of almost €27,000 in 2023 and incur no USC liability.

For 2023, it is estimated that 1,138,500 tax payer units (35 per cent of total) will be exempt from USC.

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. In my view, 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.

As such, for the reasons outlined, I have no plans to abolish the USC, either in general or for income from occupational pensions.