The Government has announced a series of changes to the Universal Social Charge (USC) from January 1st that will return €772 million to taxpayers in a full year.
In his budget speech yesterday, the Minister for Finance Michael Noonan also signalled that the USC could be abolished in the years ahead.
“As resources become available, we will progressively abolish the USC to reward work and reduce the marginal rate to no more than 50 per cent for all workers,” he said.
Changes to the USC, which came into effect in 2011 and is payable on gross income, were the centre piece of the personal taxation package announced by Mr Noonan.
The entry threshold for USC will rise to €13,000 from its current €12,012. This will remove about 42,500 workers from the scope of the charge.
Mr Noonan has also reduced the 1.5 per cent rate to 1 per cent to apply on the first €12,012 of income, and the 3.5 per cent rate to 3 per cent to apply on income in excess of €12,012, up to an increased threshold of €18,668.
In addition, he has cut the 7 per cent rate to 5.5 per cent to apply on income in excess of €18,668 up to €70,044.
Mr Noonan said this would reduce the marginal rate of tax to 49.5 per cent for all earners under €70,044 for the first time since 2009.
“I am retaining the exemption from the top rate of USC for all medical card holders and those over 70 earning less than €60,000,” he added.
The minister noted that people with higher incomes will not receive any benefit on earnings above €70,000, but would benefit on the portion of their income below this level.
There was disappointment for the self-employed, with the 11 per cent rate applying to the amount they earn over €100,000 left unchanged.
Mr Noonan said the changes would result in more than 700,000 people being exempt from paying USC.
Cora O'Brien, policy director at the Irish Tax Institute, welcomed the changes. "This is both a big cash boost for people and a psychological boost for people to go below the 50 per cent marginal rate," she said.
Brian Keegan, director of taxation at Chartered Accountants Ireland, said reducing the USC burden with a view to phasing it out was an "appropriate response" in light of the economic recovery and could encourage emigrants to return home.
Sarah Connellan, tax partner with EY, said it was "disappointing" that there was no mention of the additional USC charge on the self employed being scrapped. "This would have resulted in equal treatment between all classes of taxpayers, regardless of how they earn their living," she said.
Siptu researcher Ger Gibbons expressed regret that the Government did not replace the USC with a “progressive Social Solidarity Contribution” and an accompanying tax credit of €775.
“The fact remains that the more you earn, up to a limit of €70,000, the more you will gain from these changes,” he said.
