Seanad Commencement Matter – 4th April, 2017
Senator Victor Boyhan
“The need for the Minister of Finance to set out a schedule for the phasing out of the Universal Social Charge (USC) as part of the Governments overall taxation reform promise.”
Speech: Minister of State Eoghan Murphy TD
The Senator may be aware that the Programme for a Partnership Government contains a commitment to ask the Oireachtas to continue to phase out the USC as part of a wider medium-term income tax reform plan that keeps the tax base broad, reduces excessive tax rates for middle income earners, and limits the benefit for high earners.
High marginal tax rates affect labour force participation and productivity by increasing the cost of labour for employers and reducing the incentive to work for employees. The unemployment rate in Ireland has now fallen to 6.6%, down from a high of over 15% just five years ago. This is not the time to become complacent however, and we must still be conscious of the need to support employment creation and retention.
Britain has now formally begun the process of leaving the European Union and this process is expected to bring both opportunities and challenges for Irish businesses. The top marginal income tax rate, and how it compares to the rates in other jurisdictions offering similar employment opportunities, can be a significant factor in attracting mobile, high-skilled workers to Ireland. An uncompetitive income tax regime or burden could lead to skills shortages in some sectors. The continued phasing-out of the USC will improve Ireland’s international competitiveness and improve the incentive to work, supporting economic activity and continued job creation in the economy.
The USC reduction measures in Budget 2017 were the third step in a gradual process of unwinding the USC, and resulted in a reduction in the marginal rate of tax on income up to €70,044 to 49%. It should be remembered that, as recently as December 2014, the marginal rate of tax for a single individual on all income over €32,800 was 52%. It is Minister Noonan’s intention to continue the process of reducing the USC in future Budgets, and Senators will be aware that this is not a measure that has been considered in isolation, but as part of a wider medium-term income tax reform plan.
In July last year the Department of Finance published the Income Tax Reform Plan to set out the policy considerations relevant to this reform, including the necessity to maintain the breadth of our income tax base and retain appropriate levels of taxation for high earners. The purpose of the Income Tax Reform Plan was to inform all members of the Oireachtas of the issues and options which will underpin future income tax reform, and it is my hope that all Oireachtas members will engage constructively in debating options for future reform in this area.
It is the Minister’s intention to continue the process of reducing the income tax burden with an emphasis on low and middle income earners, in future Budgets as fiscal resources allow and it is expected that the resulting reductions in marginal tax rates will support job creation and economic growth. It is the Minister’s view however that 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. The setting out of a schedule for the phasing out of the charge as suggested by the Deputy would not allow for flexibility to the Government and the Oireachtas to adapt income tax reform as necessary to address the challenges and opportunities that might arise domestically, as well as in the global economy.
Notwithstanding the above, the Minister would like to affirm the Government’s commitment to reducing the income tax burden as and when fiscal resources allow. In this regard I would draw the Senator’s attention to a further commitment in the programme for Government that sets out a minimum ratio for the use of fiscal resources such that two thirds of any such resources will be used to increase expenditure on public services with the remainder being available for tax reductions. In fact, the ratio for the last Budget was in the region of 4 to 1 in favour of expenditure measures.