The 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 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 it is determined on the basis of his or her 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, which ensures it is a stable and sustainable source of revenue for the State.
It is important to point out that in 2016, joint research by the Department of Finance and Economic and Social Research Institute, ESRI, found that the 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 was volatile, for example, where the economy moved from a boom to 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. It is also important to note that the USC's yield is approximately €5 billion. In fact, it is projected to be €5.2 billion this year. If the USC were to be abolished, it would be necessary to generate this yield from alternative sources.
Currently, individuals with incomes of less than €13,000 per annum are exempt. In addition, the USC does not apply to social welfare payments, for example, the contributory and non-contributory State pensions. In the current year, it is estimated that more than 1.1 million taxpayer units - 35% of all taxpayer units - will be exempt from the USC.
We have 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 International Monetary Fund, IMF, the OECD and the ESRI. It is my view that a broad-based, progressive income tax system, where the majority of income earners make some contribution according to their means, is the most fair and sustainable income tax system in the long term.