The future of the USC will now be decided on by a cross-party group
The future of the Universal Social Charge (USC) will be decided by a cross-party group after Fine Gael performed the most significant policy climbdown since the General Election.
The party has caved on its pledge to abolish the tax for all workers - and instead says the issue will now be kicked to an Oireachtas committee to consider ahead of the Budget.
During a briefing with Independent deputies yesterday, Finance Minister Michael Noonan said Fine Gael still favours abolishing the USC by 2021, which was a key component of Fine Gael's election manifesto.
But he said the party will instead "seek Oireachtas support to continue to phase out the USC as part of a wider, medium-term income tax reform plan".
Last night, a senior Fine Gael source said the party's willingness to move on USC is reflective of the "new political environment" facing all parties.
The tax will be examined by a committee involving all parties, who will be asked to bring a report to the Dáil for October. But the move will heap pressure on Fianna Fáil to budge on its own 'red line' issues - such as Irish Water and the future of water charges.
Meanwhile, Mr Noonan also issued a stark warning in relation to health spending, saying that bailouts in the region of €200m provided in the past are no longer sustainable.
And he told Independents that there will only be €500m to play with in this year's budget, insisting that the country's ability to spend is becoming more limited.
The presentation by Mr Noonan and Department of Finance officials brought the week's government formation talks to a close.
Both Fine Gael and Fianna Fáil will now meet Independents again on Monday and Tuesday ahead of the vote for Taoiseach on Wednesday. Various presentations will be given by civil servants and officials, including those from NAMA.
Last night, Mr Kenny called a press conference during which he said there would be no weekend talks with Fianna Fáil leader Micheál Martin, despite calls by Independents to do so.
Mr Kenny had offered to meet Mr Martin yesterday, following a bizarre sequence of events which resulted in a row over who made the first contact.
But, speaking to reporters, Mr Kenny said talks with Mr Martin will begin after Wednesday's vote.
He also ruled out the prospect of Fine Gael supporting a Fianna Fáil-led minority government.
"I don't want to raise expectations here, to be quite honest with you. The formation of government is a really serious business - we have been really serious about business with Independents and smaller parties over the past five days," Mr Kenny said when asked when talks with Fianna Fáil would conclude.
Sources in both parties, however, admitted the process could last up to three weeks, meaning a new government may not be in place until May.
It is also anticipated that Mr Kenny and Mr Martin may not pick up any additional votes from Independents.
But, as Fine Gael is the larger party, Mr Kenny is likely to win more votes than his rival.
The Fine Gael parliamentary party will, on Tuesday, be presented with a document combining up to 15 major policy areas discussed with Independents.
Meanwhile, Fianna Fáil sources last night said they will attempt to convince Independents that Mr Kenny is a significant "liability" when they hold their own round table talks on Monday.
The party hopes that if it can convince a number of Independents to support Mr Martin, then it will weaken Mr Kenny.
Fine Gael’s plans on the economy
- To seek support from the Oireachtas to continue phasing out the Universal Social Charge (USC).
- It still estimates there could be more than €12bn in ‘fiscal space’.
- The retention of Ireland’s 12.5pc corporate tax rate.
- Increasing the Earned Income Tax credit for the self-employed to match the PAYE credit by 2018.
- To create 200,000 jobs by 2020 and bring back 70,000 emigrants.
- Capping annual government spending growth to “avoid the mistakes of the past”.
- Recruitment of more doctors, nurses, gardaí, teachers and social workers.
- To seek support to increase the minimum wage to €10.50 per hour.
- To raise the Band A Capital Acquisitions Tax threshold to €500,000