Sunday 26 February 2017

'Reduce the USC to get more back to work,' OECD urges

Colm Kelpie

Colm Kelpie

Fianna Fáil leader Micheál Martin. Photo: Arthur Carron
Fianna Fáil leader Micheál Martin. Photo: Arthur Carron

The Universal Social Charge should be reduced to encourage more people into work, a global economic think-tank has said.

It is not clear, however, whether the Paris-based Organisation for Economic Co-operation and Development (OECD) believes the levy introduced at the height of the financial crisis should be scrapped completely, as Fine Gael intends.

"The universal social charge, an income levy introduced after the crisis, should be reduced as planned," the think-tank said in its latest economic assessment.

"We expect this to encourage people to work more, in particular, the low-paid workers as they are usually found to react more to a reduction in tax."

The hated tax has been a major bone of contention between the two major parties, Fine Gael and Fianna Fáil.

Tensions reignited earlier this month when Fianna Fáil leader Micheál Martin told the Irish Independent that abolishing it over the next four budgets is "not in the land of reality".

"It can't happen. In our view, that is something that was said - to use Enda (Kenny)'s phrase - in the heat of an election battle. That was never going to be realised," Mr Martin said.

The Irish Independent yesterday asked the OECD if it agrees with plans to abolish the charge, but did not receive a response.

The OECD pointed out in previous commentary that the USC should be reduced in line with tax increases in other areas, to ensure that the package is "revenue neutral", such as a rise in property tax.

Meanwhile, the OECD has downgraded Ireland's growth forecasts since its previous assessment in June.

It said the economy would grow by 4.3pc this year and 3.2pc next, down from previous projections of 5pc and 3.4pc.

However, on a positive note, the unemployment rate is projected to fall faster than thought last June.

It said the jobless rate at the end of next year should be 7.1pc, not 7.6pc as was projected.

It said economic growth would moderate gradually as a result of the Brexit vote.

The economy, including exports and investment, is already slowing due to the prospect of a UK exit from the European Union.

"Nonetheless, the Irish economy will continue to expand on the back of solid domestic demand and strong employment and wage growth," it said.

The OECD pointed out the Brexit vote is already affecting the economy here, with business confidence declining.

Separately, new figures from Eurostat show Ireland has the lowest measure of tax to GDP across 30 countries in Europe.

In 2015, the share of tax revenues from gross domestic product in Ireland was 24.4pc, followed by Romania with 28pc.

Irish Independent

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