Fine Gael is to promise voters it will further reduce the main rate of the universal social charge in its first budget if returned to office after the general election.
The promise is expected to be a key element of the party’s general election manifesto and will be outlined by Taoiseach Enda Kenny in a pre-election message to Fine Gael members this week.
The move follows Mr Kenny’s commitment to abolish the USC in its entirety during the lifetime of the next government, and shows that Fine Gael will immediately position itself in favour of tax cuts over increases in public spending.
Minister for Finance Michael Noonan has estimated that the so-called fiscal space, the amount of money available for tax cuts and spending increases, available for the 2017 budget will be significantly less than the €1.5 billion package for next year announced in October.
Initial estimates are that as little as €500 million could be available for 2017, although Ministers and Coalition sources have said this is a conservative figure.
Rate of USC
The main rate of USC drops from 7 per cent to 5.5 per cent from January, following changes announced in Budget 2016, and Fine Gael’s commitment will be to reduce it further in the next budget, although the exact level of reduction has not been finalised.
The rate applies on earnings between €18,600 and €70,000.
The Revenue Commissioners estimate a 1 per cent decrease in the 5.5 per cent USC rate will cost the State €253 million in the first year and €348 million in a full year.
Fine Gael sources have indicated its manifesto will also contain measures to broaden the tax base, raising the prospect of increasing other taxes to pay for the USC reductions.
Echoing the Conservative Party campaign in this year’s British general election, Fine Gael will emphasise its “long- term economic plan”, with a cut to the main rate of USC as an immediate offering to voters.
The recovery
While the USC cut in next year’s budget is being cast by one source as a “short-term step to keep the recovery going”, there will also be “longer-term plans to rebuild services and end the boom-and-bust cycles that wrecked the Irish economy twice in the last generation”.
The manifesto will outline steps to be taken over the next decade to sustain “steady growth and sensible management of the public finances on jobs, public services and incomes, not just over the life of the next government”.
Mr Kenny will also this week announce the establishment of a team to finalise the plan, as Fine Gael sets out a distinct election position.
Mr Noonan will lead these efforts, along with Minister for Jobs, Enterprise and Innovation, Richard Bruton, and Simon Harris, Minister of State at the Department of Finance, who will focus on issues affecting younger people, such as housing, personal tax and emigration.
Initial Department of Finance estimates outlined by Mr Noonan to the Dáil had suggested that as little as €500 million will be available for tax cuts and spending increases in the next budget.
The figures show how pressures on spending from an ageing population and pay rises agreed under the Lansdowne Road deal will reduce the room for manoeuvre of the next government.
