Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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76. To ask the Minister for Finance whether in the forthcoming budget he will give a break to ordinary workers by abolishing the USC for those earning less than €100,000 per year, given that it was originally proposed as a temporary emergency tax in the austerity period; and if he will make a statement on the matter. [28565/24]

Paul Murphy (Dublin South West, RISE)
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This is the Minister's first set of questions as Minister for Finance. He could make himself popular if he were to announce that the Government is going to scrap what is probably the most hated tax in history, the universal social charge that was introduced as a temporary charge. Will he announce its scrapping for all income under €100,000?

Jack Chambers (Dublin West, Fianna Fail)
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I thank the Deputy for raising this issue. The universal social charge was designed and incorporated into the Irish taxation system in 2011 to replace two other charges - the health and income levies. The primary purpose of the USC was to widen the tax base and provide 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 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 that it is a stable and sustainable source of revenue for the State. The USC yield was €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. There is currently an exemption from USC for any individual who earns less than €13,000 per annum. It is estimated that in 2024, 37% of all taxpayer units will be exempt from USC.

With regard to the Deputy’s proposal, 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. 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. 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 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.

Paul Murphy (Dublin South West, RISE)
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Does the Minister accept that the universal social charge was introduced effectively as a bank bailout tax? Always in answer to this question, it is stated that the USC combined two taxes, but in reality it was a massive increase in those taxes, generating a lot more revenue for the State. It was intended to be a temporary measure. It was an emergency measure in response to the crisis, to effectively give money to enable the bailout of the banks. It was intended to be done away with but we are stuck with it. Before the last general election the then Fine Gael leader, Deputy Leo Varadkar, made an election promise to scrap the USC. The Government was formed and it did not scrap the USC. It betrayed that promise. However, at a time when we have a projected surplus of €65 billion in coming years, is it not time to give ordinary workers a break and lift this burden from them?

Jack Chambers (Dublin West, Fianna Fail)
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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.

It is important to point out that, in 2016, joint research by the Department of Finance and the 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, when the economy moved from a point of significant growth to contraction. Given the openness of the economy and its susceptibility to economic shocks, the USC’s contribution is important in the context of stability in the State’s revenue resources, which the Deputy has to recognise as being important. He spoke about the Exchequer making a greater contribution in order to abolish the television licence fee and fund other expenditure demands, but here he is asking us to abolish the USC. That would narrow our tax base and significantly increase expenditure. That is not a sustainable fiscal position.

Paul Murphy (Dublin South West, RISE)
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Every year, we outline in our budget submission how this can be done. We increase the revenue the State raises and broaden our tax base by going after the major corporations that pay very little tax. We take the burden off ordinary workers – those who are earning less than €100,000 – and introduce a millionaire’s tax. We have a high-income social charge and increased rates of income tax. We ensure that corporations actually pay their taxes and increase the rate of corporation tax. It can be done. It is just a political choice.

Deputy Chambers has only just become the Minister for Finance, so this is not on him, but does he accept that it is fundamentally dishonest to use a crisis to introduce a new tax while letting everyone believe it is to be a temporary emergency measure only to then say it will be kept because it is a very good measure for raising revenue? I warn him that this will be an issue in the coming general election. It arose time and again during the local and European elections. People still hate this tax and they know it was meant to be temporary. They want to see it gone and the Government will pay a political price if it does not accede to that.

Jack Chambers (Dublin West, Fianna Fail)
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I have set out the position. USC is an important revenue source for funding many of our public services. To make this proposal cost neutral would require significant changes. 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. A significant increase in high marginal tax rates is a disincentive to work and would cause harm to our international competitiveness.

The Deputy is assuming that the corporations his group references in its pre-budget submission every year would stay in Ireland under a Government led by the group. Many of them and their workers would fear the group leading a Government. The corporations would abandon our country out of fear that such a Government would abandon our enterprise and industrial policy, which has brought 2.7 million people into full employment and led to us running a significant surplus of €3.1 billion so far this year, which is money that we can put aside for the future so that, if our economy ever slows, we will have the ability to intervene. All of that economic planning would implode under the Deputy’s fiscal and economic policies.

Paul Murphy (Dublin South West, RISE)
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Hopefully, we will see.

Jack Chambers (Dublin West, Fianna Fail)
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Assuming he can tax everyone and every corporation on the basis that they will stay is farcical.