Dáil Éireann Debate, Wednesday - 30 April 2014
82. Deputy Michael McGrath asked the Minister for Finance if the additional 3% universal social charge paid by self-employed persons earning over €100,000 expires at the end of 2014; if the budgetary projection for 2015 published in the stability programme update takes account of this; and if he will make a statement on the matter. [19153/14]
View answerAs the Deputy will be aware, the USC was introduced from 1 January 2011 and replaced the Income and Health Levies. The marginal rate for each of these levies was 6% and 5%, respectively, or 11% in total. The marginal rate for the USC was 7%. Taken in isolation, the introduction of the USC therefore, would have had the effect of reducing by 4 percentage points the top marginal tax rates for both PAYE and self-employed income earners paying at those rates. At the same time, the PRSI ceiling for PAYE taxpayers, which then stood at €75,036, was abolished which had the result of increasing by 4 percentage points the top marginal tax rate for PAYE taxpayers. So the two changes - the introduction of the USC and the abolition of the PRSI ceiling - taken together meant that the marginal tax rate for PAYE taxpayers remained unchanged.
In the case of the self-employed, there was no PRSI ceiling as the PRSI income ceiling for the self-employed had been abolished in Budget 2001. Therefore, without further change, the introduction of the USC would have reduced the top marginal rate for these taxpayers by 4 percentage points and would have had the unintended effect of benefiting high earning self-employed income earners, resulting in some high earning self-employed income earners actually making a gain from Budget 2011 in comparison to all other taxpayers.
To avoid the situation in which the top marginal rate for PAYE taxpayers remained unchanged while self-employed taxpayers benefited from a reduction of that rate by 4 percentage points, two further changes were made. A higher rate of USC of 10% was introduced for the self-employed in respect of income in excess of €100,000 and an additional 1 percentage point was added to the self-employed PRSI rate. This restored the self-employed top marginal tax rate to 55%, (41% income tax, 7% USC, an additional 3% USC on income over €100,000 and 4% PRSI), which is where they were in 2010 and ensured that high earning self-employed income earners did not actually make a gain from Budget 2011 in comparison to all other taxpayers.
I should point out that the 10% rate of USC only applies to income over €100,000. Self-employed individuals with income of less than €100,000 and PAYE employees pay tax, USC and PRSI at the same marginal rate of 52%.
However, the Deputy is undoubtedly aware that the previous Government, when they introduced the Universal Social Charge, legislated for the cessation of the additional 3% self-employed rate as well as the removal of exemption from the 7% rate for those on medical cards who have an aggregate income below €60,000 from 1 January 2015.
As these changes are provided for in the current legislation it follows that my officials would have factored this into the forecasts contained in the recent Stability Programme Update April 2014. However, any decisions regarding the extension of the relevant provisions will be taken in the context of my deliberations for Budget 2015.
