Cuts to USC 'on the table' as budget talks step up a gear
Published 26/08/2014 | 02:30
The Government is considering slashing the deeply unpopular universal social charge (USC) in October's Budget - but reductions in income tax remain the priority.
Junior Finance Minister Simon Harris has claimed many workers who pay the higher rate of income tax, currently set at 41pc, are seeing their salaries being "swallowed up".
Mr Harris said he believed that "all workers" are entitled a reprieve in the upcoming budget and that one option available to the government is lowering the rate of USC.
The Fine Gael TD was responding to a report by the Irish Tax Institute, which says cutting USC will benefit the widest number of people and provide much-needed relief to working families.
But significantly, Mr Harris yesterday singled out middle-income workers who are forced to pay the higher rate of tax. He indicated that he wants to see the threshold at which workers hit the higher rate of tax raised, so people can increase their take-home pay.
The Fine Gael TD claimed that point at which the higher rate is applied - once a salary reaches €32,800 - is proving to be a "disincentive" for hard-pressed workers.
His emphasis on this particular tax band indicates that Fine Gael in particular is determined to reward the so-called 'squeezed middle" in the upcoming budget.
"The very low rate at which people enter the higher rate of tax is becoming a disincentive because when I meet people who are asked to work overtime or asked to work extra hours, they say a lot of that is being swallowed up by tax," Mr Harris told the Irish Independent.
A single worker in Ireland starts paying the higher income tax rate of 41pc, plus 4pc PRSI (Pay Related Social Insurance) and 7pc USC (Universal Social Charge) on any income above €32,800. The lower rate is 20pc.
The combined effect creates a marginal income tax rate of 52pc, meaning a worker only takes home 48c of every €1 that they earn above €32,800.
Meanwhile, a spokesman for Finance Minister Michael Noonan said "a number of avenues" are available in terms of the government's taxation plans, but added that a decision will not be made until the publication of September's exchequer returns.
While the spokesman confirmed that one option on the table is changes to the USC, he said that the "level of flexibility" has not yet been determined.
The renewed focus on USC has been prompted by new analysis carried out by the Irish Tax Institute's Martin Lambe, detailed in yesterday's Irish Independent.
Mr Lambe said that lowering the middle rate of USC from 7pc-6pc - which would cost in the region of €400m - would benefit a larger number of families. The Institute recommended that reducing USC would give a bigger tax break to workers than any move to lower the top income tax rate.