Making a start in phasing out the Universal Social Charge — a key commitment in the Programme of Government — would cost the exchequer hundreds of millions of euro in lost revenue next year and cost as much as €1.86bn over four years.
Options for reducing the USC, which currently raises a huge €4bn a year, is one of a number of Government pledges costed for the first time in papers released yesterday by the Department of Finance.
Civil servants say it is the first time that such tax documents have been released to the Oireachtas and the public before budget day.
The documents also cost options for other potential tax changes, including the sugar tax, introducing a reduced Vat rate of 9% for home builders and retaining some sort mortgage interest relief beyond its planned expiry date at the end of 2017.
‘The Tax Strategy Group Papers’ and the ‘Income Tax Reform Plan’ also examine commitments made in the Programme for Government, including pledges to reduce taxes on work and to increase the home-carer credit.
During the election campaign, Fine Gael had proposed abolishing the USC.
The documents show that including income taxes and the USC, personal taxes will raise €19.2bn for the exchequer this year. And at €4bn, the USC accounts for a significant part of all income taxes.
Since the banking crisis “income tax and USC therefore now comprise the single largest source of tax revenue to the exchequer, having surpassed the proportion contributed by Vat in 2009”, according to the documents.
Increasing the USC bands or raising the exemption threshold of €13,000 would cost the exchequer around €296m next year. Over a full four years, the cumulative cost would rise to as much as €1.86bn.
A third option of reducing USC rates would cost the exchequer €331m in 2017, and €1.78bn over four years.
The documents examine the commitment to retain mortgage interest relief — MIR — on a “tapered” basis. The ‘Income Tax Reform’ paper says existing recipients of the relief “face a cliff in 2018 when their monthly mortgage payments may increase”.
The option of extending the expiry date of MIR by reducing the rate of relief may, however, be “unpopular” with home buyers who bought after 2012, says the assesment.
Tapering the expiry of MIR would cost the exchequer €123m in 2018, €72m in 2019, and €32m in 2020.
Raising the Vat tax rate on tourism from 9% back to 13.5% would generate €626m in revenues.
Since its introduction in 2011, the papers say that the reduced rate has cost €2.1bn to the end of 2015.
The tax papers assess constraints in a proposal to reduce to 9% the rate of Vat for builders constructing new homes. The measure is estimated to cost around €190m.
Assessing the amount of revenue that could be raised by levying a sugar tax, the documents say the exchequer would raise over €10m if a 1c tax was imposed on a 330ml can of sugared-sweetened drink. Almost €203m would be raised if the sweet tax rose to 20c a can.
The papers warn that the UK is likely to push ahead to cut its corporate tax levels amid its preparations to leave the EU.
The European Commission will also likely launch its latest proposal to bring in a so-called Common Consolidated Corporate Tax Base — CCCTB — later this year, according to the tax papers.
“Unanimity will be required before any proposal on CCCTB is adopted,” the papers say.
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