Paschal Donohoe sets €13,000 as entry level for USC payment

Minister focusing on cutting USC rates, not taking low-paid workers out of tax net

Minister for Finance Paschal Donohoe: establishing a working group to examine how to amalgamate USC with pay-related social insurance. Photograph: Cyril Byrne

Minister for Finance Paschal Donohoe: establishing a working group to examine how to amalgamate USC with pay-related social insurance. Photograph: Cyril Byrne

 

The Minister for Finance Paschal Donohoe appears to have closed the door on any chance of more low-paid workers being taken out of the tax net in coming years.

In a Dáil speech on Tuesday for the Finance Bill, the Minister committed to maintaining the entry level for the payment of the universal social charge (USC) at €13,000 “over the medium term”.

Mr Donohoe announced he is establishing a working group to examine how to amalgamate USC with pay-related social insurance over the medium term, a move that was previously flagged in his budget speech earlier this month.

“It is my intention that, throughout this process, the income threshold of €13,000 will be maintained as the general point of entry to the new amalgamated charge,” he said.

As previously announced in his Budget 2018 speech, Mr Donohoe confirmed he will focus instead on cutting USC rates, rather than adjusting the entry level, so as to avoid narrowing the tax base further.

His speech on Tuesday was the first time, however, that he committed the Government specifically to maintaining it at €13,000.

Competitive and resilient

“A key objective of [the working group], and of mine as Minister for Finance, is that this process does not narrow the tax base but ensures that our personal taxation system is both competitive and resilient in the future,” he said.

The Minister’s predecessor, Michael Noonan, had focused on taking low-paid workers out of the tax net by raising the USC entry threshold.

In his speech, Mr Donohoe reiterated his intention cut the 2.5 per cent USC rate to 2 per cent. He also reduced the 5 per cent rate to 4.75 per cent, which will reduce the marginal tax rate paid by workers on sums up to €70,044.

In addition, he increased the ceiling of the second USC rate band from €18,772 to €19,372, which he said was a “small but important” measure.

“This will ensure that the salary of a full-time worker on the increased minimum wage of €9.55 per hour will remain outside the higher rates of USC,” he said.

In other measures in the Finance Bill, the Minister said he would encourage the use of electric cars by exempting the workplace recharging of such vehicles from benefit-in-kind tax.

He also intends to expand the type of Irish property profits that are restricted from claiming tax reliefs under so-called section 110 vehicles. Section 110s were used by many so-called vulture funds to reduce tax on their Irish property portfolios, until Mr Noonan restricted the practice a year ago.