Cantillon: USC is fundamental to revenue base

It would be easy, but wrong, to dismiss the IMF’s call for a halt to universal social charge cuts as the musings of staff with no imprimatur from its executive board. Given the proximity of the election and the deluge of promises to obliterate or drastically curtail the USC, this is significant.

The executive board did not mention USC in its call for continued fiscal discipline and for “any” future fiscal space to be used to accelerate debt reduction. But it didn’t need to. The IMF’s mission to Ireland – comprising six officials, led by Zuzana Murgasova – had already expressed concern about the matter during an inspection in mid-November. These are the people who specialise in Irish affairs.

More to the point, their views on the USC are unambiguous: “Staff . . . emphasised the risks associated with tax base erosion and argued against further reduction of the USC, which has played an essential role in restoring a sustainable revenue base.”

The Irish response was not disclosed. Recall, however, that the total USC yield in 2015 was €4.18 billion, more than 9 per cent of the total €45.6 billion tax take. Even after budget cuts, the 2016 projection is still €3.99 billion.

Some people would have you believe nothing more than a hop, skip and jump is required to banish the charge forever. The truth, however, is that the USC remains fundamental to the revenue base. Proceeds in 2015 were €1 billion greater than combined receipts from customs charges, capital gains tax, capital acquisitions tax, stamp duty and the local property tax, which brought in a grand total of €3.13 billion.

Proposals to unwind the USC must be seen through this prism. There isn’t a tax system in the world that doesn’t need reform. But there is an onus on politicians of all stripes to explain where money to replace the charge would come from. Increased employment would provide some extra revenue if growth proceeds, but the bulk would come from the same taxpayers via other means.