Lowering the cost of the Universal Social Charge by a percentage point for 1.28m taxpayers earning over €17,575 would cost the exchequer €364m, or over half of all the amount that Finance Minister Michael Noonan has indicated would be available for tax cuts in his pre-election budget next month.
Increasing the €12,012 threshold for paying the USC charge to €14,000 would benefit 80,000 taxpayers and cost the exchequer €22m.
And increasing the same €12,012 entry point for paying the USC by €1,000 and re-aligning the 1.5% band would benefit all 1.74m taxpayers who pay the USC, or 72% of all income earners. That measure alone would cost €49.7m.
The estimates come from the Irish Tax Institute which yesterday published a host of figures on the costs of the fiscal options facing the finance minister in the budget.
Since last April, Minister Noonan has repeatedly said the Coalition plans to unveil an expansionary budget of between €1.2bn and €1.5bn. The measures would be evenly split between tax cuts and spending increases.
But analysts say the Tax Institute figures reveal the dilemma facing the minister.
Alan McQuaid, chief economist at Merrion Capital, said that cutting income tax or announcing other personal tax measures would likely be more beneficial because cutting the USC rates appears very costly.
The 7% Universal Social Charge will be cut in next month's Budget, according to Irish Prime Minister, Enda Kenny http://t.co/ouP1Y94n6x— AIA (@AIA1928) September 22, 2015
“There are no easy options,” Mr McQuaid said. “I think they will focus on low income workers this year ahead of the election” because there are likely to be more votes in cutting income tax rates or thresholds.
“It does underline that €750m [in tax cuts] is not a lot of money, but of course they may raise money on petrol because oil prices are low, to compensate,” Mr McQuaid said.
Philip O’Sullivan, chief economist at Investec Ireland, predicted that the minister’s tax changes would cost about the same as the tax measures he introduced in the 2015 budget.
Mr O’Sullivan said there would be probably tax cuts of over €600m benefiting workers. There would however unlikely be any increase in the Vat rate for the hospitality industry because the election is looming, he said.
On possible income tax measures, the Irish Tax Institute says that increasing the 40% income tax band by €1,000 to €34,800 would benefit all single persons earning more than €33,800. That measure would cost the Exchequer €72.4m.
Increasing both 40% income tax bands for married two income earners by €1,000 would cost €74.3m.
On taxes on capital, lowering the 33% tax on gift and inheritance taxes would cost €12m for each percentage point reduction.
The Institute says its research shows that Irish taxpayers on €75,000 pay more personal tax than in Sweden, Spain, the UK and the US.
It says that it is accepted globally that the best way to boost innovation in the economy is to “keep down tax on internationally mobile activities as to attract the key executives who contribute to the economy.”
The country needs “talent to grow our start-ups, our SMEs and to continue attracting international companies to Ireland.”
The Institute argues that other countries, including Scotland, Australia and Belgium, have been eager to tackle the “key issue” of attracting highly-skilled overseas’ staff through the use of personal tax incentives.
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