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Noonan advised to cut USC ahead of October's Budget


Minister for Finance Michael Noonan. Photo: Tom Burke

Minister for Finance Michael Noonan. Photo: Tom Burke

Minister for Finance Michael Noonan. Photo: Tom Burke

CUTS to the Universal Social Charge (USC) would benefit under-pressure families best, Finance Minister Michael Noonan has been advised.

An analysis by the Irish Tax Institute (ITS) says cutting the USC would benefit the widest number of people and provide much-needed relief to working families.

The deeply-unpopular charge was effectively an emergency tax that was introduced in the depths of the recession in January 2011 by the Fianna Fail-led Government.

Since then, it has been a massive burden on middle- class families and lower-paid workers as it is paid on top of income tax.

The introduction of the USC means that anyone earning more than €32,800 a year pays a marginal tax of 52pc, with more than half of their income over that level going to the taxman.

The Government has been examining ways of reducing the tax burden on workers in the October Budget in order to boost economic growth and encourage consumer spending.

But it is understood that Mr Noonan currently favours changes to income tax.

However, the ITS has found that reducing the USC would be the more effective way of getting cash back into the pockets of most people.

A paper by the institute's chief executive Martin Lambe says that lowering the middle rate of the USC from 7pc to 6pc would give a bigger tax break to workers than any move to lower the top income tax rate of 41pc.

It comes as the retail industry heaped pressure on the Government to ensure that consumer confidence is given a boost in the Budget in October.

Mr Lambe said in his analysis: "Lowering the 52pc tax rate by cutting the USC rate rather than the income tax rate would benefit a wider number of income earners - everyone earning more than €16,016."

USC is paid at 2pc on the first €10,036 once your earnings are above this amount. It then applies at 7pc on income above €16,016.

Because USC applies to gross income and there are no tax credits allowed for it, more people pay it than pay income tax.

Only 25pc of taxpayers are exempt from USC compared with 36pc of workers who are exempt from paying income tax.

Mr Lambe added: "USC applies to much lower income levels than income tax due to the absence of any credits - many people pay USC who do not have any income tax liability."