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Minister for Public Expenditure and Reform Paschal Donohoe and Minister for Finance Michael Noonan.
Universal Social Charge
Think tank warns Government against prioritising higher earners in the Budget
Single earners above €70,044 would gain €3,145 per annum, more than 4.5 times the gains for a worker on €25,000.
THE FORTHCOMING BUDGET could disproportionately benefit the rich, according to a new study.
When Michael Noonan and Paschal Donohoe announce the 2017 budget on 11 October, the total available fiscal space will be just over €1 billion, split two-one in favour of spending over tax cuts.
Fine Gael has placed much emphasis on phasing out the Universal Social Charge, and pledged to abolish it before the last election.
Documents drawn up by the Department of Finance earlier this year advised the Government that it might have to raise property tax by 600% if it scrapped the charge, which was introduced after the onset of the recession.
Fine Gael has since said that the Department’s advice predated the programme for Government agreed with Independent TDs last May.
The European Commission has warned the Government over the phasing out of the USC, although Fine Gael are reportedly ready to water the plan to cut the top rate, under pressure from Fianna Fáil.
Potential tax cuts
Social Justice Ireland, a left-leaning think tank, has examined potential changes to the Universal Social Charge. The measures examined include:
- The elimination of the current 1% USC rate which applies to income below €12,012 (full year cost €247m);
- The elimination of the current 3% USC rate which applies to income between €12,012 and €18,668 (full year cost €471m).
- The elimination of the current 5.5% USC rate, which applies to income between €18,668 and €70,044 (full year cost €2,024m).
SJI said the total cost of these changes would be €2.74 billion in a full tax year; equivalent to 13.7% of the expected income taxation yield in 2016.
It said that the changes would have a “dramatically unfair impact”, with the gains “heavily skewed” towards those on the highest incomes.
Results
The SJI study showed, under these proposals, that single earners above €70,044 would gain €3,145 per annum, more than 4.5 times the gains for a worker on €25,000.
Couples with two incomes totalling €125,000 gain over €4,000 per annum, almost three times the amount that goes to a similar middle-income couple on €50,000, they added.
SJI also said that the “regressive nature” of the tax change is shown by the fact that the gains from USC cuts would increase as a person’s income increases - peaking at a value of 4.2% of gross income for single earners at €75,000 and peaking for couples with two incomes at an annual income of €100,000.
“Some tax proposals currently being considered by Government should be rejected because they would give far greater benefit to people earning higher incomes than to lower income employees,” said SJI director Dr Seán Healy.
“While there should be no net reduction in tax in Budget 2017, [our] study shows that the impact of some proposals currently being considered would be profoundly unfair because they would favour only those with higher incomes.
The perspective of fairness, the question arises as to whether such a large amount of annual taxation revenue could be used in a much fairer and better way?
“Social Justice Ireland is not in favour of any net tax reductions in Budget 2017, or in reductions to the USC,” added SJI research and policy analyst Michelle Murphy.
“Any available money should be used to improve Ireland’s social services and infrastructure, reduce poverty and social exclusion and increase the number of jobs.”
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