Finance Minister Michael Noonan announced the tax cuts and pledged the coalition would abolish the USC over the lifetime of the next government if returned to power.
With a general election looming though, the measures were deemed as an attempt to buy votes.
The changes mean those earning less than €70,000 will see the marginal rate of tax reduced to less than 50% for the first time since 2009.
Mr Noonan said the top priority was to keep the recovery going.
Under the USC changes:
- The entry level will be increased by €1,000 to €13,000, removing 42,500 workers from the charge entirely.
- The 7% USC rate will be reduced down to 5.5% while the 3.5% rate and 1.5% rates will also be reduced by 0.5% each.
- The reduction of the 7% rate will apply to people on incomes between €18,668 and €70,044.
Mr Noonan also announced that the exemption for the top rate of USC for all medical card holders and those over 70 earning less than €60,000 would be retained.
Overall, the USC reductions will benefit workers differently depending on their incomes. The new levies on incomes are 5.5% for wages from €18,668 to €70,000; 3% for the next bracket from €12,012 to €18,668; and 1% on the first €12,012 for anyone earning more than that.
A single person on the minimum wage of €17,542 will see savings of €708, while someone on €25,000 will only see a saving of €227. Elsewhere, a worker on €70,000 (and anyone above that level) will see savings of a maximum €902.
A worker on €35,000 will see USC savings of €377 while someone on €45,000 will take home an extra €527.
The USC changes also mean that a worker earning €55,000 will take home an extra €677 a year.
However, a high-income earning couple on up to €70,000 each will take home over €1,800 altogether from the USC changes alone.
During the budget speech in the Dáil, Mr Noonan committed to abolishing the USC during the lifetime of the next government.
Tánaiste and Labour leader Joan Burton stressed the importance of having the cap on benefits for the USC reductions and the fact that the USC entry level was being lifted for low paid workers.
Trade union Siptu said the budget contained positive measures that will see workers make the first real financial gains from a budget in almost eight years. But it also claimed that higher earners would benefit the most from the changes.
“The fact remains that the more you earn, the more you will gain,” the union’s researcher Ger Gibbons said.
Jimmy Kelly, Ireland secretary of the trade union Unite, launched a scathing attack on the revised USC levy, which he said disproportionately benefits the top 20% of earners.
“Half of all workers earn less than €29,000 ,” he said.
“They will see few benefits from the USC cuts, and the few euro extra they do get will be swallowed up by inflation and by increased charges for services which, in other European countries, form part of the social wage.”
However, the Small Firms Association, chambers groups and Isme, the small businesses group, said the extra money in people’s pockets will encourage spending and also help to ease wage demands from staff.
Fianna Fáil finance spokesman Michael McGrath said the 2016 budget changes would see high income couples get “10 times the gain” as their low-paid counterparts and that if the Coalition “really wants to make work pay” it should focus improvements where they are needed, people on €20,000, €30,000 and €40,000 who “need your help”.