Sunday 18 November 2018

Budget clashes over USC and tax changes

The Government faces tough choices in deciding which direction to take on income tax and the USC Stock image
The Government faces tough choices in deciding which direction to take on income tax and the USC Stock image

Cormac McQuinn and Philip Ryan

Fianna Fáil and Fine Gael are to clash over what Universal Social Charge (USC) and income tax changes to make in the Budget.

Micheál Martin has dug in on Fianna Fáil's preference for USC cuts over other income tax measures.

Fine Gael, meanwhile, wants to use the bulk of the resources available for tax measures to change the tax bands to offer relief for middle income workers.

It comes as Finance Minister Paschal Donohoe updated the Cabinet on Budget 2019. When pre-committed expenditure is taken into account, there is an unallocated amount of €800m to be split between tax and expenditure measures.

Finance Minister Paschal Donohoe
Finance Minister Paschal Donohoe

Fine Gael has been clear that raising the point at which workers enter the higher rate of tax is central to its Budget plans, and Taoiseach Leo Varadkar has been vocal on the issue. Last night, one minister said: "Our main focus will be spending the tax budget on increasing the entry point for the top rate of tax."

The source indicated they would like to increase the entry point by at least €1,000 at a cost of around €213m.

That amounts to most of the sum available in the upcoming Budget for tax measures under the 2:1 ratio that was agreed with Fianna Fáil under the confidence and supply deal, unless revenue raising measures are brought in.

Mr Martin, meanwhile, is adamant that his party is prioritising USC cuts over income tax changes. He said that investment in services, housing and health was his party's focus, but his party was seeking "modest reductions" in USC for low and middle- income workers. When asked whether this was his preference over income tax changes, he replied: "Yes, absolutely."

A Government spokesman said whether both USC and income tax cuts can be accommodated was "part of Budget negotiations".

He said Mr Varadkar had "made his views known" on tax band changes and added that the point of Budget talks was to come to an accommodation, as had been done in the past two years.

Mr Martin is also seeking a range of health measures, including a "significant increase" in cash for the National Treatment Purchase Fund to cut waiting lists and €55m for mental health services.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business