Joan Burton
Question:32. Deputy Joan Burton asked the Minister for Finance if he will report on the study he has ordered to amalgamate PRSI and USC; and if he will make a statement on the matter. [31462/17]
View answerWednesday, 5 July 2017
Questions (32)
Written answers
I have asked my officials to prepare a paper to examine the policy options with regard to the amalgamation of USC and PRSI, as one of a range of potential policy options for the short and medium term.
As we have already discussed here this morning in response to Deputy Doherty’s priority question, our current three-part system of personal taxation is overly complex and can be difficult for taxpayers and employers to understand. A reduction from three charges to two would significantly simplify the personal tax system for all users.
In addition to simplifying the personal tax system, the purpose behind any process of reform would be to reduce the overall burden of taxation on work in a way that is affordable and sustainable. High marginal tax rates discourage work and increase costs to employers and therefore have a negative impact on both productivity and international competitiveness. This is a time when we need to concentrate on improving our competitiveness, to continue the increases in employment and opportunities for our citizens.
I am aware that this would not be a simple process and any merging of them would require a considerable re-working of the underpinning systems. The universal social charge is a tax charge on income, whereas the PRSI charge, both Employee and Employer PRSI, generally confers rights to certain social welfare benefits when the necessary number of contributions have been made. Any potential changes to PRSI would need to respect the social insurance character of the contributions and would recognise the social contract that is formed between those who pay taxes and the services they receive in return.
There are also practical challenges that would need to be addressed in considering a potential amalgamation of USC and PRSI, as the charges have different bases and are also calculated in a different manner, with the USC being a cumulative annual tax whereas PRSI applies on a weekly basis. However there are also similarities between the two charges in that both are individualised taxes, whereas income tax allows for joint assessment.
Any changes to USC and/or PRSI would form part of the ongoing wider medium-term process of income tax reform, which is likely to take a number of years to complete.