Minister for Finance Michael Noonan has reduced three rates of the Universal Social Charge in a move that will cost the exchequer €335 million in a full year.
Each of the three rates has been reduced by half a percentage point. So the 1 per cent rate falls to 0.5 per cent on the first €12,012 of eligible income.
The next band has come down to 2.5 per cent from 3 per cent for income between €12,013 and €18,772, with the threshold on this band lifted by €104 to ensure that people on the minimum wage do not pay USC at anything more than 2.5 per cent.
The next band of USC will be reduced to 5 per cent from 5.5 per cent for income between €18,773 and €70,044. The top rate remains unchanged at 8 per cent for income between €70,045 and €100,000. Income of €13,000 or less will continue to be exempt from the tax.
Medical card holders and people aged 70 and over whose aggregate income does not exceed €60,000 will now pay a maximum USC rate of 2.5 per cent.
In his budget speech, Mr Noonan said high marginal tax rates act as a "brake on employment" and discourage people from taking jobs, and emigrants from returning home.
“Though relatively small, these changes will have a material impact on the disposable income of lower and middle income earners – more importantly it signals this Government’s intent to phase out the USC over time as resources permit,” the Minister said.
Benefit all taxpayers
Irish Tax Institute
welcomed the USC reductions and said the changes would benefit all taxpayers.
“The greatest percentage tax saving was for those on lower incomes, with a person on €18,000 receiving a 15 per cent reduction in their tax bill,” he said. “The average worker will see a 2.7 per cent reduction in their tax bill, while those on €75,000 will see a 1.3 per cent reduction in their tax bill [on the lower part of their income].”
Fianna Fáil’s finance spokesman Michael McGrath supported the “modest reductions” in the tax, adding that people would “take some comfort from seeing the USC going in the right direction”.
“The maximum gain for a worker is €350 per annum,” he said. “The burden of the USC is being reduced for all workers, but the gain is greatest in relative terms for those on low and middle incomes.
"Equally, it is important to be straight with people. Fianna Fáil does not believe it is either possible or desirable to abolish the USC during this Dáil term. It will not happen. To do so would be to put vital public services at risk. However, should the economy continue to recover, there will be scope to continue to ease the burden imposed by the USC."
Other income tax measures included an increase in the home carer tax credit from €1,000 to €1,100 and a rise in the earned income credit from €550 to €950. These will cost €40 million between them.