Department says USC advice predates Programme for Government

The Department of Finance said the paper advising that the Government may have to increase property tax by 600 per cent if it scraps the Universal Social Charge (USC), predated the Programme for Partnership Government.

The programme was agreed in May by Fine Gael and Independent TDs.

A Department of Finance said there were no plans to abolish the USC overnight.

“The Government never intended abolishing in USC in one go. The plan is to phase out the USC,” he said.

“This policy has been ongoing now for the last two budgets where we began this phasing out process.”

“While scope is limited in this year’s Budget there will be a further move to curb USC especially for mid to low income earners.”

The Department spokesman said the Government had agreed to reduce taxes but no decisions would be taken without a discussion at the Oireachtas budgetary committee.

The documents drawn up by the Department of Finance advised the Government that it may have to increase property tax by 600 per cent or raise the price of petrol, diesel and alcohol if it scraps the USC.

The documents warn against the removal of the levy, claiming it will narrow the tax base and would be a regressive move.

A briefing note prepared in February for an incoming government outlines four different options to replace the revenue lost by the immediate abolition of the charge.

The note was released to Sinn Féin's finance spokesman Pearse Doherty and released under the Freedom of Information Act.

The Department of Finance is “clearly saying” that abolition of the USC is regressive, said Mr Doherty.

It is very clear from the documents released that abolishing the USC would provide the greatest benefit to those on highest incomes with little or no benefit to those in very low incomes, he told RTE’s Morning Ireland.

“Clearly the Department of Finance is saying, this is not Sinn Féin saying, if you get rid of the USC or as the Programme for Government states, gradually erode the USC, what that will do is provide a benefit to the highest income earners.

“What it is clearly saying to the Minister is that abolition of the USC is regressive, it narrows the tax base, in their own words, provide the greatest benefit to those on highest incomes with little or no benefit to those on very low incomes.

“It is clear here that the Dept of Finance is doing their job and warning the Government against abolishing or phasing out completely the USC because it will leave this country at risk in terms of its tax strategy.

The first opion outlined by the note is to increase the local property tax sixfold, increase commercial property stamp duty by 1.75 per cent, increase stamp duty to 3 per cent, raise capital gains tax to 38 per cent and increase capital acquisitions tax from 33 per cent to 43 per cent.

The second option is to increase the price of petrol and diesel by 18 cent per litre, increase excise duty on a pint of beer by €1.50, increase excise duty on spirits by €1 per half-glass, reintroduce the 13.5 per cent VAT rate for the tourism sector, and increase all other forms of VAT including raising the 23 per cent rate to 25 per cent and increasing the VAT rate on children’s shoes to 5 per cent.

The third option is to increase the 20 per cent income tax rate to 25 per cent and the 40 per cent income tax rate to 45 per cent.

The last option is to change Ireland’s lucrative 12.5 per cent corporation tax rate to 19.75 per cent.

Mr Doherty said the four options are “shocking” and would all place additional tax burden on the lower and middle income earners in the form of indirect taxes,.

“There’s no doubt about it, this document vindicates our position ,” he said.

The programme for partnership commits the Government to the “continued phasing out of the USC”.

The agreement between Fianna Fáil and Fine Gael also commits to a reduction in the USC for lower and middle-income earners, keeping a clawback for higher earners.