Saturday 22 September 2018

Revealed: Both income tax and USC to be cut in boost for workers

Finance Minister Paschal Donohoe. Photo: Tom Burke
Finance Minister Paschal Donohoe. Photo: Tom Burke

Niall O'Connor, Kevin Doyle and Philip Ryan

A cut to the much-hated USC and a tweaking of income tax bands will be included in next week's Budget, the Irish Independent can reveal.

As part of a compromise deal being hammered out between Finance Minister Paschal Donohoe and Fianna Fáil, it has been agreed that a double-edge approach to personal taxation will be taken.

The USC cut will help the 'squeezed middle' earning up to €70,000 a year, while the tax band changes will benefit people on salaries over €33,800.

However, the net increase in workers' pay packets is likely to be less than €20 a month.

It had been expected that taxation would prove problematic after Taoiseach Leo Varadkar signalled a move away from Fine Gael's policy of annual cuts to the USC.

However, this has been a sticking point for Fianna Fáil. During face-to-face negotiations with Mr Donohoe, Fianna Fáil's Michael McGrath argued that the 'confidence and supply' agreement commits the Government to reducing the USC.

Minister of Finance Paschal Donohoe Photo: Tony Gavin
Minister of Finance Paschal Donohoe Photo: Tony Gavin

The Opposition party must facilitate the passage of the Budget through the Dáil - and wants the 5pc rate of USC on income between €18,722 and €70,044 reduced to 4.5pc.

In contrast, the minister and Taoiseach favour changing tax bands - increasing the point where workers begin paying the higher 40pc tax rate - by €1,000, up to €34,800.

A compromise on the issue is understood to be agreed in principle, although the final figures have yet to be tied down.

Senior Fianna Fáil figures say it is agreeable to the option of widening the tax bands as long as the USC burden is eased.

Similarly, Fine Gael accepts it must stick to the deal made with Fianna Fáil when the minority government was formed in May 2016.

Mr Donohoe and Mr McGrath met to discuss the tax issue on Tuesday evening and further talks are expected today.

Read More: Fine Gael faithful nominates housing as party's top priority

It can also be revealed today that Fianna Fáil wants to increase taxes for employers to fund investment in third-level education.

Micheál Martin's party has proposed increasing the National Training Funding levy on employers via PRSI by 0.1pc, which would raise an additional €66m.

In a Budget document seen by the Irish Independent, Fianna Fáil suggests increasing the employer tax from 0.7pc to 0.8pc.

This would be on top of another €44m the party believes should be taken from Exchequer funding to increase grants to third-level institutions.

In the Dáil yesterday, Mr Varadkar indicated the budget for health will be increased next week, but he criticised the HSE for its use of public funds.

"The word around the campfire in the HSE is always that the cupboard is bare yet the facts say otherwise. We have the biggest health budget in the history of the State," he said.

"We have the biggest health budget in the history of the State and it will rise again next year. It will not be long before we are in the top two or three in the world in terms of spending per capita.

"We need to move the debate on from how much we spend to how it is being spent and what difference it is making."

Meanwhile, the Labour Party has launched its alternative budget, which includes more than €1bn in revenue raising measures.

Brendan Howlin's party wants to double the bank levy, abolish the Help-To-Buy scheme, increase carbon tax and add 20c to a packet of cigarettes. It proposes reducing student registration fees by €1,000, increasing parental leave by two weeks and expanding free GP care.

Irish Independent

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