Scrapping the Universal Social Charge over the course of five years will be one of the cornerstones of the Fine Gael election campaign, writes RTÉ Political Reporter Brian Dowling.
Politically, the USC is toxic. When it was introduced at the height of the financial crisis in January 2011 it had a devastating impact on people’s incomes. It blew a huge hole in pay packets.
The USC proved one of the best money-harvesting machines developed by any government. Unless you earn below €13,000 the USC hits all your income.
It currently brings in over €4bn a year in revenue for the Exchequer. It is a big source of income for the Exchequer.
So two questions:
If Fine Gael leads the next government and delivers on the scrapping of USC, will that mean employees will get €4bn of effective tax cuts?
Will the government forego €4bn in revenue in the hope that economic growth and additional jobs will help make good the shortfall over the five years?
Right now we are not sure of the answers to those questions.
But it seems highly unlikely that the scrapping of USC will amount to a stand-alone €4bn bumper giveaway.
There is simply too much money involved and in the years ahead the demand on public spending will grow, especially in health and education.
Still, as long as it is there it reminds people of the financial crash. Getting rid of it then is a bit like seeing the Troika pack its bags and leave. It feels good.
Like all political promises – the devil will be in the detail and we won’t know that until we see the manifesto and just how it is proposed to fund this.
There is no doubting the intention to scrap it. As that happens it is also likely there will be other changes to the tax system designed to claw back some of the money. There are no totally free lunches.
The most likely off setting changes may come about from PRSI. Adjusting the PRSI rates for various income thresholds would help pull back some of gains from the scrapping of the USC.
Disposable income after taxes are deducted may still increase. So people should be better off to some extent. But a €4bn big bang is unlikely.
Of course, to implement this strategy Fine Gael will need like-minded coalition partners.
Almost all parties now want either the full or partial abolition of the USC. So there is a political consensus around radical changes to the tax in one form or other.
But it will be interesting to hear each of them explain exactly how the loss of USC revenue will be dealt with – especially those parties who are also pledging significant increases in public spending.
