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Ireland To Review USC Phase Out On Year-By-Year Basis

by Jason Gorringe,, London

05 April 2017

The Irish Government will make decisions on the phasing out of the Universal Social Charge (USC) on a year-by-year basis, according to the Minister of State for Financial Services, Eoghan Murphy.

In a speech to the Senate, Murphy said that Finance Minister Michael Noonan intends to "continue the process of reducing the USC in future Budgets … as part of a wider medium-term income tax reform plan." He added that the reductions will focus on low- and middle-income earners, as government resources allow.

The USC is levied in addition to personal income tax and was introduced in response to the fiscal challenges Ireland faced after the financial crisis.

Fine Gael's February 2016 manifesto pledged a one percent cut to the main USC rate in Budget 2017 and the complete abolition of the USC by 2021. When the party formed a minority government, the Programme for a Partnership Government drawn up with the opposition parties committed the Government to phasing out the USC over the life of the parliament, "on a fair basis with an emphasis on low- and middle-income earners."

The 2017 Budget reduced the each of the three lower USC rates by just 0.5 percent, and increased the ceiling of the band on which the reduced 2.5 percent is payable. Noonan admitted at the time that he had "limited resources to change the situation."

According to Murphy, these changes "resulted in a reduction in the marginal rate of tax on income up to EUR70,044 (USD74,786) to 49 percent." He pointed out that, "as recently as December 2014, the marginal rate of tax for a single individual on all income over EUR32,800 was 52 percent."

Murphy said that Noonan believes it would be "prudent to pursue the phasing out of the USC by taking the relevant decisions on a year-by-year basis, having due regard to the prevailing fiscal resources that are available to the Government."

Murphy argued that setting out a schedule at this stage "would not allow for flexibility to the Government and [parliament] to adapt income tax reform as necessary to address the challenges and opportunities that might arise domestically, as well as in the global economy."

TAGS: Finance | Budgets | tax | Ireland | tax thresholds | ministry of finance | tax rates | social security | tax reform | individual income tax

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