Ibec: Abolishing USC ‘step in wrong direction’

Business group Ibec has weighed into the hot election debate on the universal social charge — saying that “moves to abolish the USC are a step in the wrong direction.”

Its intervention comes at an interesting early stage of the election campaign, as all four main parties have pledged to either reduce the burden of the tax — worth €4bn a year — or scrap it altogether.

Fine Gael yesterday pledged if it were re-elected to bring an end to the tax over a number of years, with Finance Minister Michael Noonan calling the tax a failed final act of the last Fianna Fáil government.

Fianna Fáil last month detailed its promise to cut the USC for all but the highest earners if it returns to power.

Labour last week said it would abolish the USC for low and middle-income earners, while Sinn Féin has pledged to remove income earners on the minimum wage from paying the USC.

However, in a major policy document outlining the tax policies it believes politicians should be focusing on during the campaign, Ibec said the USC was a valuable tax that could fund desperately-needed pension provision in the future.

The State’s pension system and social security systems will increasingly come under strain as the country’s relatively youthful population ages and faces the demands already posing challenges to other north European states.

“It makes little sense to abolish the USC or remove further workers from it only to attempt to reintroduce a similar tax in the form of a universal pension scheme in the future”, said the Ibec tax brief, called ‘Rethinking the tax debate — the key issues for the election’.

“With this in mind, moves to abolish the USC are a step in the wrong direction to a more efficient tax system,” the business group said.

“The USC is an efficient tax, captures a broader base of income, and is the only tax on income a large proportion of workers’ pay,” it said.

The €4bn the USC alone raises for the exchequer’s coffers compares with the almost €5.3bn raised from excise duties last year.

It is almost four times more valuable than all the monies raised from capital gains and capital acquisitions taxes combined.

It is more than eight times more valuable than the €469m raised by the local property tax, and is a third of the value of the €12bn raised by Vat — one of the big four tax heads.

The Ibec policy brief, written by Ibec senior economist Gerard Brady, also argues that what it calls core Irish income tax is, at ninth highest of the EU 28 countries, slightly above the European average.

It said other analyses “need to take into account the stark difference in social insurance models” available across Europe.

Meanwhile, Ibec said that government spending is above the European average, when the current low and unsustainable level of state pension provision is taken into account.

Taxes on work are too high and workers hit the top marginal rate of tax at too low a level.

These act to “disincentivise workers from taking on additional hours, training or duties, and make it difficult to attract skilled workers in a highly competitive global labour market,” the employers’ group said.

Overall, Ibec said that there are too few people paying income tax because the tax credits make the tax base too narrow.

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