Plan to merge USC and PRSI will take up to five budgets, Donohoe says

Minister for Finance Paschal Donohoe said his plan to merge the universal social charge and PRSI into a single social insurance payment would take between three and five budgets.

Appearing before a select committee on finance to consider the Government's Finance Bill, Mr Donohoe said a working group to consider how best to manage the amalgamation would be established within weeks and would brief Government on its findings ahead of next October's budget.

“The objective of the approach will be to strengthen the contributory principle [of social insurance] and not, in any way, to dilute it,” he said, noting the change to the tax code would be complicated and take between three and five budgets to carry out.

Asked by Fianna Fáil’s Michael McGrath if the new combined charge or contribution would define the benefits received, Minister Donohoe said it was too early to definitively answer this question.

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“One of the matters I’d want to be careful with is that if we do move to a purely contributory system that we would not in any way undermine the ability of taxpayers, as citizens, to be able to access a certain number of core benefits,” he said, noting that the current social insurance system often had deficits that had to be topped up via general taxation.

The plan to merge USC and PRSI is a move away from the Government’s previous commitment to gradually abolish the charge.

“I don’t want to put in place a system that deepens some of the problems we have at the moment where people are aware of benefits - benefits that they feel they’re entitled to - and then they find out that their contributions are nowhere near enough,” he said.]

Earlier Minister Donohoe had a long wrangle with Sinn Fein’s Pearse Doherty o ver what wage profile best reflected middle-income earners.

Mr Doherty also disputed the Minister’s assertion that the high marginal tax rate in Ireland acted as a “drag on employment”.

He said there was no evidence to suggest that Ireland’s marginal tax rate negatively impacted on employment that Fine Gael’s tax cutting agenda was misplaced and occurring while people were dying on the streets because of homelessness.

Mr Doherty also argued that investing in childcare instead of cutting tax would have a greater impact on employment.

Minister Donohoe rejected Mr Doherty’s description of the budget as a tax cutting budget, noting it raised taxes in other areas

He also said Ireland was a statistical outlier in the OECD by having average income earners start paying the higher rate of tax at income levels of just €33,800.

The Finance Bill, which was published last month, has now moved on to the Committee Stage of the legislatory process, with over 100 amendments set to be considered, ahead of being signed into law.