Friday 28 October 2016

Ministers water down USC plans as FF muscles in on Budget

Niall O'Connor and Cormac McQuinn

Published 08/09/2016 | 02:30

Finance minister Michael Noonan. Pic Tom Burke
Finance minister Michael Noonan. Pic Tom Burke

The Government is set to water down its proposals for reducing the Universal Social Charge (USC) in next month's Budget as it faces intense pressure from Fianna Fáil to introduce other tax breaks.

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Senior Government figures say a previous proposal to slash the top rate of the USC by at least 1pc next year is now "unrealistic" in light of Brexit.

Fianna Fáil Finance spokesman Michael McGrath
Fianna Fáil Finance spokesman Michael McGrath

Ministers are now leaning towards a smaller reduction, likely to be in the region of 0.5pc, which would still leave workers up to €250 better off next year.

Taoiseach Enda Kenny has told Finance Minister Michael Noonan and Public Minister Paschal Donohoe that the Budget must be 'Brexit-proof'.

In a speech due to be delivered to the British Irish Chamber of Commerce this evening, Mr Kenny will say that "not all good suggestions" ahead of the Budget will be affordable.

But Fianna Fáil last night ramped up the pressure on Fine Gael, insisting the Budget must not prioritise the USC.

The party's finance spokesperson Michael McGrath said he expects movement on other taxes like income tax credit for the self-employed and inheritance tax thresholds.

Read more: Proposed USC cut would see workers take home just €3 extra a week in pay

Read more: Tax credit system must be re-examined to help the 'squeezed middle'

However, he said "our overall priority for this Budget is to improve public services."

Mr McGrath said the agreement with Fine Gael that USC cuts would be targeted at low and middle-income workers "stands" and that any cuts to the tax will take into account "the most up-to-date economic data prior to the Budget".

He said scrapping the USC for workers earning less than €80,000 - as promised by Fianna Fáil ahead of the election - can only be achieved over a number of years and is predicated on economic growth.

The Fine Gael manifesto made a clear pledge to slash the top rate of USC by at least 1pc in October's Budget.

The major pre-election promise was seen as a clear bid to win the support of low and middle-income earners.

But a senior Government source warned last night that the €1bn available for tax cuts and spending measures "won't change".

With the Government committed to a 2:1 approach in favour of spending, approximately €340m will be available for the tax side.

"With Fianna Fáil making their own demands, we will have to revise the 1pc figure," the source said.

A decision to introduce a 0.5pc cut in USC would cost in the region of €125m in 2017.

Sources have stressed that there will increased scope in further years to continue USC reductions.

The Department of Finance and a spokesperson for the Taoiseach last night said it is too early to say what tax measures will be agreed.

In his speech, Mr Kenny will say that the gains made by the country have been "hard won and fragile".

"If the stronger economy and public finances now allow us to make some choices as a people, the rising international risks remind us that our choices must be good ones, capable of delivering both a just and fair society and a secure and stable economy," he will say.

Irish Independent

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