An end is in sight for hated USC

More dodge net and rate cuts lessen its impact

MICHAEL NOONAN put his muscle into reforming USC.

Most of the effort of his tax-cutt i ng Budget, r e presenting €600million of his €750million firepower, was directed at reducing the impact on wages and salaries of the Universal Social Charge, introduced by Brian Lenihan as a temporary emergency measure to meet the financial crisis.

Voter focus groups have repeatedly told the Government that the USC is despised, so taking an axe to it ought to be a vote-winner.

From the beginning of next year, the entry threshold to USC will be raised from €12,012 to €13,000 per annum, which the minister said would lift some 42,500 workers out of the net altogether, making more than 700,000 income earners who will escape USC from January. For other earners, the first three rates of the charge will be lowered.

This means trimming the initial 1.5 per cent rate to 1 per cent, applying to the first €12,012 of income.

Secondly, the 3.5 per cent second layer rate drops by another halfpoint, to 3 per cent.

This rate works within the band from €12,012 up to an increased income ceiling of €18,668.

Thirdly, the minister announced that he was reducing the 7 per cent rate to 5.5 per cent. This swingeing rake- off applies to incomes from €18,668 up to €70,044 a year.

But after that, high earners derive no further benefit. They receive the benefit of the cut on the first €70,000 of their annual income, but there is no cut to the eight per cent rate, which applies to the remainder.

Mr Noonan, despite Sinn Féin claims that he had tailored his Budget to ‘the elite, high-earners and multinationals’, concentrated his selfcongratulation on his efforts to aid the perceived ‘squeezed middle’.

He said his tinkering ‘will reduce the marginal rate of tax to 49.5 per cent for all earners under €70,044.’ For the first time since April 2009, the marginal rate would drop below 50 per cent for middle income earners, Mr Noonan said. In other words, for every €10 an hour in overtime, the Government will now ‘only’ take €4.95, leaving you with a princely €5.05. Better than the other way around, which applied heretofore. ‘People with higher incomes will not receive any benefit on their income above €70,000 but of course will benefit on the portion of their income below this level,’ Mr Noonan said.

Mr Noonan boasted that the changes to USC at almost all levels would equate to ‘an additional week’s wages for all workers’.

The cuts to USC were welcomed by business groups, i ncluding the Chartered Accountants of Ireland.

‘USC was a product of the recession,’ it said in a statement.

‘Reducing the USC burden with a view to ultimately phasing it out is an appropriate response in light of the economic recovery. The manner of the reduction, focusing as it does on the “squeezed middle” income earners, should also have the effect of encouraging our emigrants to consider rejoining the Irish workforce. The Irish tax system takes less from the pockets of low and middle income earners than most other systems across the world.’

Hidden in the detail was a significant measure in parallel with the USC cuts to support couples where one spouse goes out to work and the other works at home without pay.

The Home Carer Tax Credit was brought in to stave off the furious reaction from one-income couples when Charlie McCreevy, without warning, introduced a policy called Individualisation in Budget 2000.

Individualisation means that a home with one adult at work pays more in tax than a home with both adults in employment, the gross income being the same in both cases.

Yesterday the minister announced that the credit would go up by €190, bringing it to a headline €1,000 a year. The move not only assists married single-income couples with children, but those who care for an elderly or incapacitated relative. The increase does not need to be claimed (unless you qualify but do not currently receive it) and will be applied automatically to tax free allowances.

Mr Noonan said: ‘These changes mean that every worker and every pensioner who currently pays income tax or USC, or both, will benefit from the Budget changes.’

Taking axe to USC ought to win votes