Unjust taxes such as the USC are contributing to the growing levels of inequality in Ireland. The Irish people have paid enough for the greed and reckless gambles of others and the USC is the worst form of austerity as it effects people on the most modest of incomes. I was disappointed to hear that the Government has no initial plans to scrap the dreaded USC. I have highlighted the problems faced by the ‘working poor’ and there is no doubt that this unjust tax is a contributing factor to workers having no disposable income whatsoever after bills are paid. I will continue to highlight this unfairness at every opportunity..
QUESTION NO: 273
DÁIL QUESTION addressed to the Minister for Finance (Deputy Michael Noonan)
by Deputy Maureen O’Sullivan
To ask the Minister for Finance in view of the growing levels of inequality as highlighted by the Think-tank for Action on Social Change in a recent report, if he will acknowledge that the widening gap between the wealthiest and the poorest is a cause for concern and is increasing; if he will intervene and commit to abolish the temporary Universal Social Charge which is contributing to these levels of inequality, as it currently applies to persons earning modest incomes; and if he will make a statement on the matter.
Recently some commentators have highlighted that market income inequality in Ireland is the highest in the OECD. While this may be the case, the Irish tax and social welfare system is the most effective at reducing income inequality, of the OECD member countries.
The redistributional impact of the Irish tax and social welfare system is the largest in the OECD and leaves Ireland’s level of inequality at around the OECD average. Consequently it is unfair to characterise Ireland as unequal, when compared to its peers. Nor is it true to say that the gap is widening over time. Despite the significant economic decline that has occurred over the past 7 years, the level of disposable income inequality in Ireland has been stable over the period. This has been achieved in part because of the Government’s commitment to making everyone in society pay their fair share. For example, the changes introduced in Budget 2015 will ensure that the top 1% of tax units (by income) will pay 20% of all income tax and USC collected in 2015, up from 19%. In contrast, the bottom 76% of income earners will pay only 21% of all income tax and USC collected.
As I have pointed out many times before, it was never intended that the USC would be a temporary measure. It was designed and incorporated in to the Irish taxation system as part of its permanent structure and the revenues collected play a vital part in meeting the many expenditure demands placed on the Exchequer. In addition, it is difficult for higher earners to shelter income from the charge to USC through the use of various income tax reliefs and incentives.
Notwithstanding the above, since coming into government, I have made several significant changes to the USC which has increased 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. It is estimated that this removed almost 330,000 individuals from the charge. In Budget 2015, I further extended this exemption threshold to €12,012 to apply from 1 January 2015 onwards. This exempted a further 87,000 individuals from the charge. This means that 28% of all income earners are not paying any Universal Social Charge at all. Furthermore, I also reduced the two lower rates at which USC is charged and extended the threshold before the 7% rate becomes chargeable. These measures, together with the introduction of a new 8% rate on income over €70,044, as well as a rate increase from 10% to 11% on self-assessed income over €100,000, has further enhanced the existing progressive nature of the USC.
As a result of the changes to income tax and USC in Budget 2015, all those who currently pay income tax and/or USC have seen a reduction in their tax bill this year compared to 2014, where incomes are equal. The Government has committed to continue to reform the tax system in this manner in the coming years, contingent on having the fiscal space to do so.