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Universal Social Charge Yield

Dáil Éireann Debate, Wednesday - 13 January 2016

Wednesday, 13 January 2016

Ceisteanna (233, 234)

Pearse Doherty

Ceist:

233. Deputy Pearse Doherty asked the Minister for Finance the effect of abolishing the universal social charge on the fiscal space available over the next five years, including how its abolition will benefit in absolute terms a worker on the minimum wage, the average industrial wage and an income of €100,000. [1352/16]

Amharc ar fhreagra

Pearse Doherty

Ceist:

234. Deputy Pearse Doherty asked the Minister for Finance the projected revenue that will be generated by the universal social charge for each of the next five years on the basis of a no policy change. [1353/16]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

I propose to take Questions Nos. 233 and 234 together.

The table below sets out the broad projected revenues that will be generated by the Universal Social Charge for each of the next five years on a no policy change basis. These approximate figures are on an Exchequer receipts basis. It should be noted for 2017 Exchequer receipts are reduced due to the carryover effect of Budget 2016 changes and SEPA-related timing effects. However, it should be noted, were the USC abolished, the full year impact incorporating recent changes to the USC, would cost approximately €3.7 billion.

Forecast for USC

€ billion

2016

c. €4.0

2017

c. €3.8

2018

c. €4.5

2019

c. €4.4

2020

c. €4.6

The indicative gross fiscal space over the 2017 to 2021 period is some €10.9 billion in cumulative terms (as outlined in Budget Table A.9). A decision not to index the tax system would add a further €2.0 billion to the level of space available over the period, of which some €500 million relates to the USC, bringing the total potential fiscal space to €12.9 billion.

It should be noted that the indicative fiscal space highlighted in these budgetary annexes require a number of assumptions, including in relation to reference rates for potential growth, deflators and certain other variables used in the calculation.  These inputs are based on current projections and are likely to change over time.

The table indicates that in 2016, the Universal Social Charge is projected to raise approximately €4 billion in Exchequer receipt terms, with this level expected to increase as employment and wage growth continue in the years thereafter. Were the USC abolished, the full year impact, incorporating recent changes to the USC, would cost approximately €3.7 billion. It should be noted these USC projections assumed some indexation of the USC, which increase the cost of abolition. In terms of broad order of magnitude, were the USC abolished over the medium term, this would absorb one third of the currently available gross fiscal space.

Since coming into Government, I have already made several significant changes to the Universal Social Charge to increase its fairness.  As a result of a Review of USC by my Department, the Government decided in Budget 2012 to increase the entry point to the Universal Social Charge from €4,004 to €10,036 per annum.  This removed an estimated 330,000 individuals from the charge in that year. Further increases in Budgets 2015 and 2016 brought the exemption threshold to €13,000, resulting in a situation in which an estimated 29 per cent of income earners being outside the scope of USC in 2016.

Furthermore, I also reduced the three lower rates at which USC is charged and increased the thresholds for these rates.  These measures, together with the introduction of a new 8 per cent rate on income over €70,044, further enhanced the existing progressive nature of the USC.

I have committed, if given the opportunity, to continue to progressively abolish the Universal Social Charge as part of a wider reform of the income tax system to reward work and reduce the marginal rate to no more than 50 per cent for all workers to make Ireland more attractive for mobile foreign investment and skills, including for our returning emigrants. As in the previous two budgets, in which the benefits of USC and income tax cuts have been capped at €70,000 in earnings, it is my intention should I be given the opportunity to present further budgets to claw back some of the benefits of USC abolition for the highest earners. I will be setting out the details of my party's position on this issue in due course.

The Deputy requested that I provide details of the gain which would accrue on the abolition of the Universal Social Charge for an employee or self-employed worker at specified income levels. These details are outlined in the table below. For this purpose, the average industrial wage is taken from the Central Statistics Office average weekly earnings statistics for the "Industry" economic sector in Q3, 2015 of €833.  Average weekly earnings across all economic sectors in the same period were €689.

Income

Annual USC payable

(employee)

Annual USC payable

(self-employed)

Minimum wage - €9.15 x 39 hours - €18,556

€316 per annum*

€316 per annum*

Average Industrial Wage - CSO Q3 2015 Industry (Sectors B-E) - €43,307 (€833 per week)

€1,675 per annum*

€1,675 per annum*

€100,000

€5,542 per annum*

€5,542 per annum*

*It is important to highlight that the above figures are based on hypothetical gains from a complete abolition of the Universal Social Charge only as requested by the Deputy. As I have stated already in my reply, as in the previous two budgets, in which the benefits of USC and income tax cuts have been capped at €70,000 in earnings, it is my intention- should I be given the opportunity to present further budgets- to claw back some of the benefits of USC abolition for the highest earners. I will be setting out the details of my party's position on this issue in due course.

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