Families to pay €700 more after sneaky USC hike
360,000 medical card holders and OAPs hit as high earners pay less
Hundreds of thousands of pensioners and families with medical cards are facing a sneaky tax hike – while high-earning self-employed people will enjoy a tax cut.
The increase of as much as €700 a year for a single-income family on €40,000 a year will come as a result of a huge jump in the amount of universal social charge (USC) paid by up to 360,000 people.
The hike arises from the ending of a special 4pc USC rate which was applied to certain categories of taxpayer when the hugely controversial tax was introduced in 2011. The people affected will be charged 7pc from next January.
At the same time high-earning self-employed people such as barristers, consultants, solicitors and business owners who earn more than €100,000 will benefit from a cut in their USC rate from 10pc to 7pc.
Speaking on RTE’s News At One today, Finance Minister Michael Noonan pointed the finger of blame at Fianna Fail.
The minister said that Fianna Fail, when last in government, made a deal with the Independent TDs who supported them in government to delay this increase until January 2015.
Mr Noonan said the this hike is “part of financial law”.
But he stressed a budget would take place in October, and everything would be considered.
“These things are manageable,” he said.
The hike emerged as Taoiseach Enda Kenny admitted that the vast majority of Irish people "do not feel the joy" of the economic recovery.
In an interview with CNBC he accepted that families paid the price for the collapse of the banks and said the fruits of recovery have not been experienced by most.
But he reiterated the Government's stance that workers will be rewarded in terms of taxation measures in the upcoming Budget.
The changes to the USC were confirmed by Finance Minister Michael Noonan.
The 4pc rate currently applies to people with medical cards, as long as their income does not exceed €60,000.
The change will mean a family that has a medical card and a single income of €40,000 will face an extra €700 a year from the higher rate of USC.
The temporary lower USC rate for medical card holders expires on January 1, 2015.
The so-called "sunset clause" in the USC legislation emerged just as thousands of families and pensioners are having their medical cards withdrawn.
And it comes as a new academic study concluded that middle Ireland has borne the brunt of the six-year downturn.
The so-called 'squeezed middle' does exist and this group has been hit hardest, the study commissioned by the Department of Social Protection found.
Tax hikes, job losses, pay cuts, levies like the USC, property tax, third-level fee rises and the slashing of child benefit have pummelled middle-income earners.
Now it has emerged that changes to the USC, mandated under law to take place from the start of January, will hit around one in five of those with a medical card, according to Mr Noonan.
This means a widowed OAP with a pension income of €25,000 will end up paying an extra €270 a year.
The way the USC works, any income over €16,000 is levied at 7pc, except for those who have a medical card. Those people who have a medical card currently pay 4pc if their income is less than €60,000.
Pensioners will feel particularly hard done-by as thousands of them who have medical cards face paying higher USC. Although the state pension has not been cut during the downturn, they have suffered a string of other cuts.
Fianna Fail's finance spokesman Michael McGrath, who questioned Mr Noonan about the time limit on the special USC rate for card holders, said bringing in a higher rate of USC is a step too far.
"Medical card holders, particularly older people, have been hit hard by various taxes and charges in recent years, including massive increases in prescription charges, the property tax, carbon tax on solid fuel and the impending water charges and have no capacity to take another very significant tax hike," he said.
Mr Noonan confirmed in the Dail that pushing medical card holders, whose income is less than €60,000, to pay higher USC will generate over €100m for the State.
He confirmed that Fianna Fail, when it introduced the USC, had legislated for the "removal of the exemption from the 7pc rate for those on medical cards who have an aggregate income below €60,000 from January 1, 2015".
He told Mr McGrath 20pc of those who have a medical card will be affected, as they earn between €16,000 and €60,000. Under the USC legislation, there is also a time limit on the higher 10pc rate that applies to self-employed people on earnings above €100,000. Under law, the higher USC rate for the self-employed is due to fall to 7pc.
The planned removal of the higher USC for high-earning self-employed people would see someone on €120,000 gaining €600 in a year. However, lowering the levy for the self-employed will cost the Exchequer €123m a year.
A spokesman for the minister said he will give the matter "full consideration" to assess the impact on the most vulnerable in society.