Richard Curran: Death of the USC has been greatly exaggerated
Published 28/08/2016 | 02:30
There is just no getting away from the hated Universal Social Charge (USC). Brought in by the Fianna Fail government in the crisis of 2011, it delivers around €4bn per year to the exchequer.
The options for getting rid of it were outlined by Department of Finance officials in a briefing note obtained by Sinn Fein's Pearse Doherty under the Freedom of Information Act.
The document contains no surprises really and just provides the basic maths of where else can you put your hands on €4bn per year if you abolish the charge.
None of the options outlined by the officials would be remotely politically palatable, especially given that Fine Gael has dropped its commitment to abolish the charge completely.
Nevertheless, the document suggested Michael Noonan could increase the Local Property Tax by 500pc, along with a raft of other property taxes, like stamp duty and Capital Gains Tax.
Option B involved an 18c per litre hike in petrol excise, along with increasing excise on beer by €1.50 and reversing the special 9pc tourism rate of Vat.
Adding 5pc to both the top rate of and standard rate of tax would do it. So too would hiking up our beloved 12.5pc Corporation Tax rate to 19.75pc.
These weren't so much policy options as perhaps a means to deliver a blunt message to the minister before the general election that we simply can't afford to get rid of the USC - at least not right now anyway.
Pearse Doherty was delighted with the shock tactics of the options as he could then point out how abolishing the tax would penalise poorer people through higher Vat etc.
Sinn Fein's position is to retain the Universal Social Charge but to eliminate it for workers who are earning up to €19,000 per year. Currently, the threshold is at €13,000.
Doherty's view is that a middle-income earner is someone who earns €28,500, which is actually a lot less than the average industrial wage. By taking account of total earnings of part-time workers etc, the definition of a middle-income earner can come in at a relatively low level.
But here are some salient facts that paint a slightly different picture. Of the 2.4 million income earners in the State, around 30pc of them are out of the tax net, in that they don't pay income tax or USC. The Fine Gael-led governments have taken around 500,000 taxpayers out of the tax base since 2012.
The top 9pc of income earners pay 54pc of all income tax and USC and those two taxes accounted for 41pc of all the tax income collected by the state.
Put another way, more than one in five of every euro collected by the Revenue in all taxes came from the income tax and USC paid by the top 9pc.
As of last December, somebody in Ireland earning €75,000 per year paid more in personal taxes that their counterparts in Sweden or the Netherlands. And the entry point at which people start paying the highest marginal rate of tax is the lowest in the OECD.
The IMF has warned about the tax burden placed on middle-income households. It has criticised the government policy of taking so many out of the income tax net entirely, by saying that it leaves too great a burden on those left.
The problem here is that Michael Noonan could not do a loaves and fishes exercise when it comes to replacing the USC.
The Programme for Government commits to reducing the USC burden for low and middle-income earners over several years. But Noonan's definition of a middle-income earner might be quite different to Pearse Doherty's definition.
Fianna Fail, the party which will ultimately decide what happens in the October Budget on this issue, said before the election that it favoured eliminating USC for workers on the first €80,000 of earnings, but over a five-year period.
Expect some USC tweaks in this October's Budget, but nothing radical. By October 2017, we may well be in the throes of another election or dealing with a whole new government anyway.
No dog days for Paddy Power Down Under
Breon Corcoran delivered a very promising set of half-year results for the newly merged Paddy Power Betfair business during the week. Its £47.5m (€55.6m) loss was expected and was largely due to one-off merger costs, including letting go 600 staff. Almost all the other metrics were ahead of target, including the integration of the two businesses and the cost savings likely to arise from the merger.
Operating profit grew by 39pc and full-year expected earnings of £365m to £385m should be 22pc to 25pc higher than the two businesses generated separately in 2015.
One little fly in the ointment was the group's performance in Australia. This has been an important growth market for Paddy Power, where it has the Sportsbet brand.
Underlying operating profit was down 12pc, despite a 17pc growth in net revenue of £129m.
And there could be further disruptions with the decision of the regional government in New South Wales to ban greyhound racing. The contentious move followed a detailed report by a state commission into "overwhelming evidence of systemic animal cruelty, including mass greyhound killings and live baitings".
New South Wales (NSW) became the first state to ban the sport. It is a A$1bn (€680,000) wagering business. It was followed by the Australian Capital Territory, which prompted fears in the industry that other bans would follow. They haven't, so far.
The NSW ban might not dent betting figures on greyhound racing that much. According to Paddy Power, it accounted for just 4pc of total revenues and, of course, punters in New South Wales can still bet on greyhound races elsewhere.
But if other states were to follow, it could take a large segment of gambling out of the equation.
The regulatory climate in Australia may be tightening up somewhat. Aside from the New South Wales greyhound racing ban, which was passed in parliament this week, the South Australia Government said it would introduce a 15pc place of consumption betting tax in the state from next July.
The company said during the week: "Whilst the industry is clearly facing increased regulatory headwinds impacting growth and profitability, we believe that over the longer term our brand strength and scale enable us to better withstand these regulatory pressures."
Not quite dog days down under for Paddy Power Betfair just yet.
Blackrock to bag €90m on the Burlo - pass the basin
The imminent sale of the old Burlington Hotel in Dublin 4 highlights just how lucrative the Irish market has been for some private equity houses.
Blackrock bought the hotel for €67m in 2012, spent less than €20m doing it up and is about to flip it for around €180m.
It should make a profit of around €90m on an equity investment of about €30m - assuming that it put in one-third and borrowed two-thirds of what it invested. This is a 200pc return on equity in just four years.
Yet at the time Blackrock bought the business, it was described merely as reflecting a "hint of confidence in the hotel market", as opposed to being the bargain of the century.
Bank of Scotland and developer Bernard McNamara bought the 'site' for €288m, closed the hotel, only to re-open it again when the crash came. They had to write down its value by €274m in 2009. Ouch!
I remember attending a black-tie function at the hotel in the depths of the crash. Bank of Scotland executives were in attendance that night and as we chatted I wondered just how much the bank stood to lose on its boomtime hubris and whether privately the bankers felt a little odd about being there.
Then the ceiling above us started to leak water and one of the previously sacked but then re-hired staff members had to get a basin to catch it all.
As the somewhat embarrassed bank executives stood around the basin having a glass of wine, trying to ignore it, I thought that when it rains it really does pour.
Sunday Indo Business