The Government has been advised it may have to increase property tax by 600 per cent or raise the price of petrol, diesel and alcohol if it scraps the Universal Social Charge.
The documents drawn up by the Department of Finance and released under the Freedom of Information Act 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 first 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.
If the Government decides to phase out the Universal Social Charge (USC), which is the option Fine Gael is in favour of, can be done within the fiscal space available to them.
However, it adds there would be “little scope for other tax-relieving measures or targeted tax incentives”.
It adds: “Furthermore, as the USC is a highly progressive tax, this would provide the greatest benefits to those on highest incomes, with little or no benefit to those on very low incomes.
“The regressive nature of a total phasing-put of USC could be counterbalanced by the introduction of a new high-earners levy, or a third income tax rate, in order to limit the benefit at a chosen income level.
“However, the introduction of a new levy would result in the complexity of three separate charges being maintained, and transition from USC to income tax on high earners would require consideration of the different bases of assessment which can apply – individualised and joint assessment respectively.”
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.
However, the briefing note released to Sinn Féin's finance spokesman Pearse Doherty warns of a number of consequences of abolishing the charge.
The papers say USC is a “progressive tax” and its abolition or substantial reduction would be regressive.
The note also says its removal would narrow the tax base and the benefits to those on low or middle incomes would be “limited”.
Mr Doherty said the documents released show it is not realistic to phase out or scrap USC without major tax increases or a neglect of investment.