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Ireland's much-hated tax that just won't go away: The Universal Social Charge

It’s difficult to remember a time when those three letters weren’t on your payslip.

CAST YOUR MIND back to late 2010. Ireland was floundering in recession and it was about to be handed over to the Troika.

The property market had well and truly crashed to the ground and it had taken all those precious stamp duties with it.

Ireland was facing into one of the toughest Budgets in its history.

Due to a massive hole in the country’s revenues, the government needed a quick fix, fast.

Emergency 

On 7 December 2010, the then Minister for Finance, Fianna Fáil’s Brian Lenihan replaced the well-known income levy and health levy with the Universal Social Charge (USC).

7/12/2010. Budget 2011 Press Conferences The late Minister for Finance Brian Lenihan. Source: Eamonn Farrell/Photocall Ireland

The taxpayer was led to believe it was an emergency, temporary tax, imposed to see us through the dark days.

“The Universal Social Charge requires that everyone makes some contribution, however small, to the provision of services,” said Lenihan.

Lenihan stated the change was a “major step forward in the reform process” and told the public and his party members the USC would not be greater than the previous levies people were paying.

7/12/2010. Budget Day 2011 Fianna Fail Minister for Finance Brian Lenihan. Source: /Photocall Ireland

That day, the charge went under the radar for some.

“It was a mad time. Ireland was in crisis, there was a panicked atmosphere in Dáil Eireann that day, there was just so much being announced – it was hard to keep up,” said one member of the media.

Due to the reassurances given, the USC slipped by a bit, they said.

The USC kicked in 1 January 2011, and it wasn’t until people opened their pay packets that month did they see the reality they were facing. Fianna Fáil were chastised for the low entry point at which the tax kicked in.

Despite assurances the charge was to be short-lived, there was nothing temporary about it.

Irish budget 2016 Source: Niall Carson

In 2013, Fine Gael made some changes, raising the entry point from €4,004 to €10,036 per year.

The year later, another step was taken whereby incomes of €12,012 or less were exempt from USC.

Last year, many were left scratching their heads as to why the USC wasn’t scrapped.

And one year later, here we are, witnessing the current government still etching away, a fraction of a percentage at a time.

Here’s where we stand at the moment.

usc

As next week’s Budget approaches, there has been a lot of kite-flying as to what cut we can expect to see next Tuesday.

The Finance Minister Michael Noonan has confirmed there will be a cut – just not the 1% Fine Gael committed to in their manifesto.

Noonan explained the back-tracking at the recent Fine Gael think-in, where he stated that a Fine Gael majority was not voted into power – therefore, the manifesto promises did not stand.

Rather than an all-out abolition, it’s understood there could be cuts to all three bands of 0.5%.

13/10/2015 Budget Day 2016 Minister for Finance Michael Noonan holds a copy of the Comprehensive Expenditure Report at Government Buildings this year. Source: Sam Boal

So what would the cuts mean to someone’s annual pay packet?

  • For a worker earning €36,699 – they will save €183.50
  • For a worker on €50,000 – they will save €260
  • For a worker on €70,000 – they will save €350

It’s understood the higher band rate of 8% will remain unchanged this year.

No surprises 

However, while Noonan has said there will be no surprises in this Budget – the negotiations appear to be ongoing.

On Friday it was announced there was an extra €200 million to play with, much to the annoyance of Fianna Fáil.

Whether that makes an impact or means at least one surprise announcement, we will have to wait for Budget Day.

What we do know is that this will be a Budget like no other. Maybe not in windfalls for all, but in terms of how many political players have a stake in it.

This year’s Budget and how it is delivered “will be a good reflection of this government,” said a senior government source.

“It has been the most engaged Budget there has ever been.”

“Leo likes to make you think he is all cuddly and caring. That’s not him”>

FactCheck: Does every other country in Europe have water charges?>

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