Dáil Éireann Debate, Tuesday - 10 May 2022
281. Deputy Cathal Crowe asked the Minister for Finance if he will consider abolishing the universal social charge which was introduced as a temporary measure in Budget 2023; and if he will make a statement on the matter. [23395/22]
View answerThe Universal Social Charge (USC) was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely the Health and Income Levies. Its primary purpose was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services.
The USC is an individualised tax, meaning that a person’s liability to the tax is determined on the basis of his/her own individual income and personal circumstances. The USC is applied at a low rate on a wide base, which ensures that it is a stable and sustainable source of revenue for the State. Currently individuals with incomes of less than €13,000 are exempt from USC.
In 2016, joint Department of Finance/Economic and Social Research Institute (ESRI) research found that USC represented a more stable form of revenue than income tax. The findings highlighted that USC revenues would fluctuate by less than income tax revenues whenever income is volatile, for example where the economy moves from a boom into a bust. Given the openness of the Irish economy and consequent susceptibility to economic shocks, the contribution that the USC makes to the stability of the State’s revenue sources is considerable.
The USC has played a vital part in meeting the many expenditure demands placed on the Exchequer. USC receipts have been central to the current stability of the public finances since March 2020, despite the challenges arising from the Covid-19 pandemic.
Receipts from the USC in 2021 amounted to €4.4 billion – 16.5% of total income tax receipts or 6.4% of total Exchequer receipts. The projected USC yield for 2022 is broadly similar. If USC were to be abolished, it would be necessary to raise approximately €4.4 billion from other sources.
Ireland has one of the most progressive personal income tax systems in the world, which plays a crucial role in the process of income redistribution. Our redistributive tax system has been acknowledged by the IMF, the OECD and the ESRI. In my view, a broad-based, progressive income tax system, where the majority of income earners make some contribution but according to their means, is the most fair and sustainable income tax system in the long term. As such, I have no plans to abolish the USC.
