The Universal Social Charge (USC) was introduced in Budget 2011 to replace the Income Levy and Health Levy. It was a necessary measure to widen the tax base, remove poverty traps and maintain revenue to reduce the budget deficit. It is a more sustainable charge than those it replaced and is applied at a low rate on a wide base. However, the base for USC does not include payments made by the Department of Employment Affairs & Social Protection, including the State pension.
As the Deputy may be aware, the USC was reviewed by my Department in 2011 and the issue of USC applying to occupational pensions of retired public service individuals who entered the public service before April 1995 was examined as part of that review. Such individuals are (or were) liable to modified rate PRSI, which does not generate an entitlement to the State Pension. In retirement therefore they receive an occupational pension only, and do not receive a separate State Pension unless as a result of PRSI contributions made in another employment during their working life.
It was decided not to exempt the occupational pensions of these individuals from the USC charge as an exemption would be very costly and difficult to achieve, and it could involve all income earners with the equivalent income benefitting from the exemption. In addition, it would also undermine the principle of the USC being applied to income with few exceptions.
However, as a result of the review of the USC, in Budget 2012 the entry threshold to USC was increased from €4,004 to €10,036 per annum, and the threshold was subsequently increased further in Budgets 2015 and 2016, to the current threshold of €13,000. This exemption threshold equalises the position for single individuals whose sole source of income is the State Contributory Pension with public service pensioners whose pension is at an equivalent level. It is estimated that over 750,000 income earners will not be liable to USC in 2019.
In the last number of Budgets, the Government has been introducing targeted changes to the income tax system within available resources to make steady and sustainable progress in reducing the income tax burden, focusing on low and middle income earners. This has been done by making targeted changes to the USC and also by increasing the entry point to the higher rate of income tax.
It is the Government’s position that earners start to pay the marginal rate of income tax at too low a level and we are committed to reducing excessive tax rates for low and middle income earners while also keeping the tax base broad. It is expected that continued progress in this area will also be made in the context of limited resources available in Budget 2020, balanced against all of the competing demands.
