Saturday 25 October 2014

If there is to be a recovery dividend, then the vicious USC is a good place to start

Published 12/08/2014 | 02:30

Finance Minister Michael Noonan says cutting the USC rates by 0.5pc and 1pc is estimated to cost €378m and €756m respectively. Photo: Tom Burke
Finance Minister Michael Noonan says cutting the USC rates by 0.5pc and 1pc is estimated to cost €378m and €756m respectively. Photo: Tom Burke

A reversal of some of the public sector pay and pension cuts is in the offing.

The reductions to almost 300,000 public sector workers and pensioners were made under emergency legislation, and the thinking in government is that now we are emerging from the financial crisis some restoration of pay should be on the cards.

But why should public servants be the only ones to benefit?

They, after all, have secure jobs and some of the very best pensions in the developed world.

The private sector has borne a much greater burden of the six years of austerity, with job losses, pay cuts and a private sector pension levy for those responsible enough to try and provide for their own retirement.

Yes, the public sector has taken a battering, but so too - and to a greater extent - has the private sector.

Lest there are any accusations of setting up a hierarchy of suffering, it would make far more sense to give everyone a break if there is to be what we might call a recovery dividend.

A good place to start would be with the vicious and crude universal social charge (USC). It is just one of a string of levies introduced and increased since the economy crashed in 2008.

These include the levy on home and motor insurance, the private and public sector pension levies, the public service obligation levy on electricity bills, and the private health insurance levy.

And this is to say nothing of the property tax, cuts to child benefit, reductions in household benefits packages, higher savings taxes, as well as VAT at 23pc on a large proportion of a typical family's shopping trolley.

We have water tax to look forward to also.

But the USC is the biggest and most expensive of all - and it affects both public and private sector workers equally.

It even hits non-social welfare pensions at the highest rate for those up to the age of 70, falling back to a maximum of 4pc over that age.

All you have to earn is a euro over €10,036 to get hit with the pernicious USC.

It was supposed to be a solidarity tax when it was introduced in Budget 2011.

It is nothing of the sort.

In reality, it is just income tax under a different heading.

Rates of USC range from 4pc on incomes from €10,036 to €16,016; income above €16,016 has USC levied at a rate of 7pc.

The self-employed have been singled out for special treatment. They get levied at 10pc for income above €100,000.

But the key thing about the USC is that it is charged on gross incomes.

This is unlike the old health levy and the income levy that it replaced.

With the health levy, you got to deduct pension contributions before the levy hit.

Answers given in the Dail by Finance Minister Michael Noonan reveal that the USC is estimated to be imposed on 1.66 million taxpayers this year.

The numbers impacted are actually much higher. This is because the Revenue Commissioners count married couples who are jointly assessed as one tax unit.

It will raise just over €4bn - a considerable chunk of the income of the State.

Including the USC, the State is expected to extract €17bn from pay packets this year.

Even more sinister is the fact that more than a million of the workers paying the USC earn less than €40,000, according to the information released to the Dail last October.

The scatter-gun and crude nature of the USC means it hits household budgets hard.

The Coalition did remove some lower-paid people from its grasp soon after it came to power - the level at which you do not have to pay the USC has been increased from €4,004 to €10,036 per annum.

But the unfair essence of the tax is still there.

No wonder it is deeply resented by those in work struggling with heavy debts and depleted incomes.

However, it is a difficult tax to grasp because of the many different USC rates that apply and the different income thresholds where they apply. If there is to be some budgetary relief for workers, it should not be confined to the public sector alone. All employees would benefit if the USC was lowered.

However, reducing the USC rates of 2pc, 4pc and 7pc will not be cheap.

Mr Noonan told the Dail that cutting these rates by 0.5pc and 1pc is estimated to cost €378m and €756m respectively.

Lately, there has been some long-overdue recognition of the disproportionate burden borne by Middle Ireland by the likes of the Economic and Social Research Institute.

Public Expenditure Minister Brendan Howlin often says the Government is aware of the pressures on low and middle-income workers.

One way of giving a break to this group would be to raise the income threshold where the USC applies. This would mean thousands would pay less USC.

Delivering a cut in the USC would be the fairest and most effective way to reward hard-hit taxpayers for putting up with the austerity years and it would give something back.

Public sector workers are not the only ones that need a break.

Irish Independent

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