Dáil Éireann Debate, Tuesday - 26 July 2022
423. Deputy Richard Boyd Barrett asked the Minister for Finance the estimated full-year cost of abolishing the universal social charge, USC, for all earners and replacing it with a higher income social charge of 10% on all earnings over 100,000 per year; the revenue that would be generated by the introduction of this new higher income social charge; and if he will make a statement on the matter. [41573/22]
View answerThe Universal Social Charge (USC) was designed and incorporated into the Irish taxation system in 2011 to replace 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 a person’s own individual income and personal circumstances. It is a more sustainable charge than those it replaced and is applied at a low rate on a wide base.
The USC has played a vital part in meeting the many expenditure demands placed on the Exchequer, and 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.
I am advised by Revenue that based on the 2021 yield, it is estimated that the full-year cost of abolishing the Universal Social Charge (USC) for all earners is €4.4bn. I am further advised that the revenue that would be generated in a full year from introducing a USC rate of 10% on all earnings over €100,000 per year is approximately €1.45bn. Therefore, the estimated annual cost of the combined measures proposed by the Deputy is in the order of €2.95bn.
Further, such a proposal would significantly narrow the income tax base and would expose our economy to significant risks in the event of a future economic downturn. A high income social charge could increase the marginal tax rate, which could create a clear disincentive to work and impact on the competitiveness of our tax code.
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. It is 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 and replace it with a high income social charge.
