The Universal Social Charge (USC) will not be abolished in the next five years, Fianna Fáil leader Micheál Martin has said.
Mr Martin has made clear the charge will continue for the full duration of the next Government’s term.
Introduced a decade ago by the late Brian Lenihan as “an emergency measure”, the USC takes in up to €4bn a year.
Given its scope and reach, even among lower-paid workers, the charge is a very effective revenue raiser.
Responding to questions from the Irish Examiner, Mr Martin accused Fine Gael of making “false promises” ahead of the 2016 general election that the USC would be scrapped.
He said he looked “aghast” when the promise was made by Enda Kenny and Michael Noonan because he knew it would be broken.
“I think there were very false promises made in the last election by Leo Varadkar and by Fine Gael that they would abolish USC,” he said. “That was never going to happen... because the money was never there to do that.
“When they came into office, they knew that was a false promise, sure they abandoned it straight away. So I’m not going to make promises that we’d have to abandon, you know, after the election. But there has to be a credible basis, what we say and what we commit to in the election.”
Mr Martin said he has made it clear to people that, given the amount of money the USC generates, it is not possible to abolish it.
“And I said to people on the doorsteps, it will not be abolished in the next five years either,” he said. “Because if you want to do more housing and if you want to deal with health and climate change, [these are the] big three areas we take expenditure. We have to be honest with people. And we can’t.”
Mr Martin said that “thankfully those sort of promises are not as prevalent in Irish politics as they were in the recent election in Britain”.
“What stunned me with the British election was both parties promising billions and billions and billions — £50bn a month. I mean, I think we’re hopefully going away from that in Ireland. But like, last year, the last time when we looked aghast when they said they would abolish USC.”
Last year, just over €20bn was raised in personal income taxes, representing about 40% of the total tax take. Of this, income tax comprises about €16.3bn and USC comprises about €3.7bn.
Despite the criticism, it is clear that Mr Varadkar and Fine Gael are set to continue with promises to reduce the impact of the USC should they be re-elected.
Mr Varadkar pledged to cut income taxes and increase the old-age pension, including further reducing the impact of the USC.
Mr Varadkar said the Fine Gael election manifesto would have provisions that “involve making sure that fewer people pay the highest rate of tax and a number of other measures as well”.
He said: “Part of the reason why we’ll seek a mandate for the next term is so that we can do a lot more for all those people that get up early in the morning, all those people that work really hard and pay a lot of tax. And that involves, yes, reducing income tax and USC.”
However, with increased concern about the future sustainability of corporate tax receipts and the Government’s ability to control costs of major infrastructural projects, the ability of future governments to reduce said taxes is questionable.
Indeed, a recent internal government report found that Mr Varadkar’s stated plan to merge the USC and PRSI could result in a loss of over €1bn in tax revenue to the exchequer.
Such a move is also likely to prove extremely complex to implement, according to the Department of Finance-led report.