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IMF Warns Ireland To Be Cautious On USC Reform

by Jason Gorringe,, London

10 February 2017

The International Monetary Fund (IMF) has said Ireland must ensure that it does not shrink its tax base when reining in the Universal Social Charge (USC), which is levied in addition to individual income tax.

The USC was introduced following the financial crisis as a progressive surcharge on top of income taxes. The IMF recommended that the USC should be merged "into a broader income tax with lower rates for below median-wage earners." This "would help reduce the tax burden on middle-income households." It said the costs of this reform could be offset by reducing the number of products with reduced or zero value-added tax rates, and by "scaling up" the property tax.

The IMF observed that most of the overperformance in tax revenues in 2016 was absorbed by spending increases voted over the course of the year. It said that any government spending above that already earmarked for 2017 would need to be offset by tax hikes or other spending if the Government is to meet its deficit target.

The IMF also noted that international tax developments could affect Ireland's economy. However, it stressed that the ultimate impact on foreign direct investment, revenue, and employment of issues such as the European Commission's decision in the Apple state aid case, the renewed discussion of an EU-wide common consolidated corporate tax base, and potential reductions to US corporate tax rates, is at this stage uncertain.

TAGS: tax | investment | European Commission | Ireland | property tax | International Monetary Fund (IMF) | corporation tax | tax rates | social security | United States | tax reform | individual income tax | European Union (EU) | Europe

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