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Andrew Lynch: USC row may send Enda and Joan to the divorce courts


Taoiseach Enda Kenny and Tanaiste Joan Burton

Taoiseach Enda Kenny and Tanaiste Joan Burton

Taoiseach Enda Kenny and Tanaiste Joan Burton

Enda Kenny and Joan Burton have one big shot left in their locker. Next October, assuming that the Coalition survives until then, they hope to unveil a pre-election budget that puts money back in people's pockets and wins back some votes in the process.

Unfortunately, the Taoiseach and Tanaiste already seem dangerously split over who deserves that cash most, which is why this could be the issue that causes their political marriage to end in tears.

Just like Christmas, budget rows seem to start earlier every year. In this case, Enda and Joan are locking horns over a financial package that will not be delivered for another 10 months. The reason is simple - they know it could be their very last chance to defy the opinion polls and snatch victory from the jaws of defeat.

Kenny and Burton's dilemma comes down to one fundamental choice. Should the Government concentrate its resources on cutting the top rate of income tax, as Fine Gael would clearly like? Or is Labour right to argue that those funds would be better spent on reforming the universally hated Universal Social Charge?

For a start, the Taoiseach and Tanaiste need to get their stories straight. Burton claimed yesterday that shortly after becoming Labour leader last July, she drew up an agreement with Kenny to reform USC over the next few budgets.

Enda seems to have had a memory lapse, however, since a couple of weeks ago he assured the US Chamber of Commerce that lowering Ireland's marginal tax rate to 50pc or lower would be his top priority in a second term.

The more that Kenny and Burton's footsoldiers try to clarify the position, the more confusing it gets. Labour senator John Whelan says that the people's message to his party is clear: "Get rid of the USC or we'll get rid of you." Finance Minister Michael Noonan, meanwhile, has bluntly warned us that the USC "is here to stay".

On the face of it, this decision looks like a no-brainer. A top rate tax cut would benefit high earners most and do absolutely nothing for most workers.

Reducing the USC, by contrast, leaves every taxpayer at least a little bit better off.

As usual with budget choices, however, it is not that simple. Even after Noonan's giveaway budget last October, the top tax rate remains cripplingly high at 51pc and kicks in at a scandalously low income level of €33,800.

Above all, it discourages people who want to create jobs - which is why bringing it down could end up paying huge dividends in the long run.

Everybody agrees that the USC is a horrible tax. When the late finance minister Brian Lenihan created it in December 2010, it was sold to us as an emergency measure.

Instead, it has become a permanent blot on our payslips, taking in the huge sum of €4.5bn - and that is why the Government cannot afford to scrap it or even come close.

So the battle lines are clearly drawn. Fine Gael wants a top rate cut to help the "squeezed middle" voters it sees as its base and Labour is demanding USC changes to prove it has not forgotten about the poor.

If they try to do both, the amounts might be so small that nobody would notice any difference - certainly not enough to change how they vote.

Tax cuts versus USC reform looks to be the defining political issue of 2015. Instead of squabbling, Enda and Joan should concentrate on striking a deal before budget day, otherwise this will be the last Christmas that anyone cares about their opinions on anything.