Stepping back from abolition of USC

Minister for Finance looking now at merging social charge with PRSI

Minister for Finance  Paschal Donohoe: firm statement  that the Government is to consider merging USC with PRSI. Photograph: Gareth Chaney/Collins

Minister for Finance Paschal Donohoe: firm statement that the Government is to consider merging USC with PRSI. Photograph: Gareth Chaney/Collins

 

The firm statement on Wednesday by Minister for Finance and Public Spending Paschal Donohoe that the Government is going to push ahead with considering a merger of the universal social charge (USC) and pay-related social insurance (PRSI) suggests the goal of abandoning USC is finally being buried.

And no harm. It was not realistic to expect that we could do without the €4 billion-plus in annual revenue which the USC pulls in. Government officials will examine the feasibility of this, though it is not something which would be achieved in one year.

What might we see in Budget 2018, to be announced in October? Well, senior officials in the Tax Strategy Group, which examined the options ahead of last October’s budget, did outline one proposal. It was set in the context of reform and of the long-term future of the social insurance fund, into which PRSI is paid and entitlements are disbursed. While the fund is in better shape than it has been, it still faces significant long-term challenges.

The officials, looking at the options, said that one way forward was to remove people earning under about €18,300 – roughly the income limit for PRSI payment – from the USC net.

Currently anyone earning a bit over €13,000 a year is liable to USC. The proposal was to remove the USC burden from these people, but replace it with a lower PRSI charge. In other words, lower earners would still get a boost to their take-home pay, but they would be expected to contribute via PRSI. This would, as the strategy paper pointed out, be a move towards “strengthening the PRSI contributory principle with a view to ensuring the medium- to longer-term sustainability of the social insurance fund”.

Significant issues would need to be addressed ahead of any consideration of a full merger of the two, but it would be something which could probably be achieved over a few years.

One issue is that USC catches income which is exempt from PRSI – and is thus particularly useful in terms of getting tax from some higher earners, a point also made by the Tax Strategy Group.

There will be some whinges about the Government backing away from its USC abolition promise. But surely better to be realistic and to tie the charge to entitlements under the social insurance system.

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