Government confirms U-turn on USC

The finance minister has confirmed the charge will now be merged with PRSI

Government confirms U-turn on USC

File photo. The Taoiseach Leo Varadkar with Minister for Finance Paschal Donohoe arrive at the National Economic Dialogue in Dublin Castle, 05-07-2017. Image: Leah Farrell/RollingNews

The Finance Minister Paschal Donohoe has effectively confirmed the Government will abandon its plan to scrap the Universal Social Charge.

In the Dáil this afternoon, Mr Donohoe confirmed the charge will now be merged with the PRSI - in line with pledges made by the Taoiseach Leo Varadkar during his bid to become leader of Fine Gael.

The pledge to phase out the USC is included in the Programme for Government, however Minister Donohoe insisted the new plans do not contradict previous promises.

The Fine Gael manifesto also pledges to cut the USC over a five year period.

New leadership

He said the government is entitled to review policies from time to time - especially now that there is a new Taoiseach and Minister for Finance in place.

"I believe [USC] should be at the heart of a new social contract between our citizens through how we integrate it into the PRSI code," he said.

"The views regarding how we make our tax code more competitive, how they reward work, of course will be handled in a way that is consistent with the Programme for Government."

He claimed the Programme for Government pledge to phase out USC was part of a wider income tax reform aimed at "reducing excessive tax rates for middle income earners and limiting the benefits for high earners" and insisted the government had made "steady progress" in that direction over the past three budgets.

He warned that the current system of personal taxation in Ireland is "overly complex" and insisted he remains "very clear on what the long-term endpoint will be for the USC."

"My long-term view of the USC is to see its integration into the existing PRSI code," he said.

"My focus on reducing the income tax burden for those on low and middle incomes should be the guiding principle. This must be achieved in a way that is both affordable and sustainable.  

"In this regard, the end result is more important than the means of achieving this outcome."

Sinn Féin's finance spokesperson Pearse Doherty said "the penny seems to be finally dropping in government buildings" that abolishing the USC would " erode more than €4 billion of our tax base."

Minister Donohoe took issue with the comments and claims from Sinn Féin that their own position on USC has now been vindicated.

"I will not take any lectures from Sinn Féin on economic competence or economic policy-making," he said.  

"At present, we see the State in a position where it is able to invest back in public services - such as the 975 additional special needs assistants Minister Bruton will confirm this afternoon - precisely because of a change in our economic circumstances that Sinn Féin said would never happen."

He admitted the party had the "right" to lecture the government on economic policy but argued, "you certainly do not have the track record to comment on the merits of economic policy options that are being considered by this government."