Business Irish

Wednesday 28 September 2016

IMF says no to USC cuts as barrage of election promises continue

Published 20/01/2016 | 02:30

In its latest quarterly review since the bailout, the IMF praised Ireland for its strong economic growth. AP
In its latest quarterly review since the bailout, the IMF praised Ireland for its strong economic growth. AP

THE International Monetary Fund has warned against cuts to the Universal Social Charge just weeks ahead of the General Election.

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The move comes as Fine Gael pledges to abolish the unpopular tax which was introduced at the height of the recession.

Government partner Labour want to scrap it for the first €72,000 earned with opposition parties also planning changes to it.

While acknowledging budget moves to cut 42,500 from the USC as well as changes to the rates, the IMF report says that the moves are reggressive.

"These changes aim to lessen the tax burden and encourage labour market participation for low wage earners and women.

"While supporting in principle the reduction in distortionary taxes, staff noted that the impact of the USC changes appears to be regressive, with half of the benefit accruing to households above €70,000.

"Staff also emphasised the risks associated with tax base erosion and and argued against further reduction of the USC, which has played an essential role in restoring a sustainable revenue base.

"The authorities indicated that the very progressive nature of Ireland’s tax system made virtually any change regressive. However, post Budget 2016 it is estimated that the top 1pc of income earners will pay 22pc  of the total income tax and USC collected, up from 21pc in 2015.

" In addition, the benefits from the tax measures in the budget were capped at an income level of €70,000 such that those with incomes above this level only benefit to the same extent as those with incomes at or below that level."

With growing employment levels and stronger consumer spending, the Irish economy is expected to grow by over 5pc this year.

However, other bodies including the Fiscal Advisory Council and the European Commission have also warned against over-spending.

The IMF said the economy is as strong as it has been at any point since the crash, but problems in the banking system and high government spending could derail the recovery.

In its latest quarterly review since the bailout, the fund praised Ireland for its strong economic growth and added that the country's bond yields remained exceptionally low.

However, it warned that the Government needs to retain control over its spending and it remains concerned about public and private debt, both of which remain high.

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