Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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37. To ask the Minister for Finance if he will now consider abolishing the universal social charge and replacing it with a high-income social charge given the very severe impact of inflation and the rising cost of living, which is disproportionately impacting on low- and middle-income workers; and if he will make a statement on the matter. [9672/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Universal Social Charge (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 to 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 the tax is determined on the basis of a persons 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.

The USC has played a vital part in meeting the many expenditure demands placed on the Exchequer, and USC receipts have been central to the current stability of the public finances since March 2020, despite the challenges arising from the Covid-19 pandemic.

Receipts from the USC in 2021 amounted to €4.4 billion – 16.5% of total income tax receipts or 6.4% of total Exchequer receipts. The projected USC yield for 2022 is broadly similar.

If USC were to be abolished, it would be necessary to raise approximately €4.4 billion from other sources. The Deputy suggests replacing the USC with a high income social charge but the Deputy has not specified an appropriate level/rate for this charge or what income level would be considered a high income.

In any event, such a proposal would significantly narrow the income tax base and would expose our economy to significant risks in the event of a future economic downturn. Currently, it is estimated that 29.5% of taxpayer units have incomes greater than €50,000 and will pay 86.4% of the total income tax and USC for 2022. Furthermore, 8.3% of taxpayer units have incomes greater than €100,000 and will pay 55.5% of the total income tax and USC in 2022. A high income social charge could increase the marginal tax rate, which could create a clear disincentive to work and impact on the competitiveness of our tax code.

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 a broad-based, progressive income tax system, where the majority of income earners make some contribution but according to their means, is the most fair and sustainable income tax system in the long term.

As such, I have no plans to abolish the USC and replace it with a high income social charge.