The Universal Social Charge (USC) is an “important source of revenue” for the State and will not be scrapped at the next Budget, according to newly-appointed Finance Minister Jack Chambers.
Asked in the Dáil this week if he would be open to scrapping this charge for the upcoming Budget, Chamber said that the tax “is a stable and sustainable source of the revenue for the State,” bringing in €5.4 billion in 2023, with a similar yield expected in 2024.
“The USC is an important source of revenue to the Exchequer to fund public services,” he said.
The USC is a tax payable on one’s total income – though it does not apply to the income of those earning less than €13,000. While some have suggested increasing this exemption to those earning under €100,000, the Minister shot this idea down.
“I am advised by Revenue that the cost of increasing the USC exemption limit to €100,000 in 2024 is estimated at €2.2 billion and €2.5 billion on a first and full-year basis, respectively,” he said.
“As such, this proposal would give rise to a shortfall of more than €2 billion that would have to be generated from alternative sources. It would furthermore significantly narrow the tax base and place an increasing reliance on a smaller number of taxpayers. This, in turn, would expose our economy to significant risks in the event of a future economic downturn.”
He added: “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 fairest and most sustainable income tax system in the long term. As such, I have no plans to abolish the USC for individuals earning below €100,000 per annum.”
Regarding to abolition of the tax altogether, Chambers said: “The USC plays a vital part in meeting many of the expenditure demands placed on the Exchequer. At over €5 billion, its yield is an important source of revenue for funding all of our public services and, as such, I have no plans to abolish it.”
He said that in order to make the idea “cost neutral”, it would require “significant changes” to taxation policy.
“For example, the proposal would have the effect of increasing the top marginal rates of tax for PAYE and self-employed income earners from 52% and 55% to 60.5% and 63.5%, respectively,” he said.
“A significant increase in high marginal tax rates is a disincentive to work and would cause harm to our international competitiveness.”
Notably, the Universal Social Charge was introduced by the late Finance Minister Brian Lenihan in 2011 in what was supposed to be a temporary measure at the peak of the economic crisis.
By the time of the 2016 election, Fine Gael Finance Minister Michael Noonan had pledged to abolish the USC entirely, saying that this was the number one commitment that his party were making to voters during the election campaign.
He described the USC as “easily the most hated tax in the country”.
“Of all the commitments we are making in this election, this is the central commitment on our tax policies,” he said.
“It’s a hated tax. It’s a socially divisive tax. It was introduced as an emergency measure. The emergency is over.”
The news comes as Ireland has experienced a significant exchequer surplus multiple years in a row, with outgoing Finance Minister Michael McGrath boasting that the government’s overall tax receipts had surged to a record €88 billion in 2023.
Government tax receipts surge to record €88bn in 2023 despite economic slowdown https://t.co/mAlzNFoMuy
— Michael McGrath (@mmcgrathtd) January 4, 2024