The universal social charge could be sharply reduced over the next three budgets, but only if all the money allocated for tax cuts is used for this purpose, and new cash is raised in other areas, according to an analysis by the Department of Finance.
Pre-budget tax documents drawn up by civil servants also outline ways in which part of the benefit of the USC cut could be clawed back both for higher earners and for the lower paid who might be removed from the USC net completely.
The department’s “tax strategy papers”, examinations by public servants of the budget options, are being published before the budget for the first time. This is to provide the opportunity for a full and informed debate, according to senior civil servants.
Sharp reductions
The income tax plan outlines three options for sharp reductions in the USC burden over the next three years, in line with the Government commitment. It would cost €300 million next year and at least €1.7 billion over the three-year period. The document says this would involve all the money allocated to tax changes going on USC cuts, and would probably require extra money being raised in other areas in later years.
A total of €330 million is estimated to be available for tax cuts in the 2017 budget, to be announced in October, less than half the amount spent in the 2016 budget.
Under one option, the three lower USC rates, including the main 5.5 per cent rate, would be cut by half a point this year, with the main rate falling to 2.25 per cent by 2017. This would deliver limited gains in 2017, but more over the three-year period.
Under this option, a single employee on a €45,000 income would gain €225 next year and €1,016 by 2019. A married couple with one income of €55,000 would gain €475 next year and €1,541 a year over the three budgets.
Other methods of reducing the USC are also examined, which involve the same cost to the exchequer but distribute the gains differently over the three-year period.
PAYE credit
The civil service papers also look at options of clawing back some gains from hither earners, by phasing out the €1,650 PAYE tax credit above a certain income level. A special paper on income tax options takes a level of €100,000 as the starting point for this possible phasing out. A figure of €80,000 is also mentioned as an option in the tax strategy papers, though clearly this will come down to a political decision. Phasing out the PAYE credit could raise a significant sum, the documents point out, ranging from €200 million to more than €300 million a year depending on the income level.
A separate paper on PRSI looks at the option of exempting more lower income earners from the USC, but taking some of this back through extending the income level at which PRSI applies.
This would be most relevant to those earning about €13,000 to €18,000 a year, who – if the proposal was adopted – would see some of the net USC gain offset by a new PRSI charge.
Sugar tax
Other items covered in the papers include:
- A detailed study of the proposed new tax on sugary drinks. If this was set at roughly the same level as the planned UK charge, it could add 10 cent to the price of a regular can. The yield to the exchequer would be €100 million a year, though this could fall if consumption was affected.
- An estimate that meeting the cost of the Programme for Government commitment to raise the Capital Acquisitions Tax threshold for children inheriting from parents to €500,000 would cost about €75 million.
- A comment that the “dwelling house exemption” introduced in 2000 to exempt people already living in a house from paying CAT under certain circumstances is being reviewed, as there is a feeling that it is being abused.
