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Explained: The changes to Universal Social Charge coming next year

This morning's Irish Independent leads with the dramatic headline of families being hit for €700 in...
TodayFM
TodayFM

10:56 AM - 16 May 2014



Explained: The changes to Univ...

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Explained: The changes to Universal Social Charge coming next year

TodayFM
TodayFM

10:56 AM - 16 May 2014



This morning's Irish Independent leads with the dramatic headline of families being hit for €700 in a "sneaky" increase to the Universal Social Charge.

Many people might have been taken by surprise - and rightly so. With all the government talk of tax cuts in the last months - and Michael Noonan hoping to raise the income tax bands in the next Budget, talk of a tax hike will certainly come as a shock.

So - where has it all come from?

The changes flagged this morning are actually the result of some hasty actions by the last government in the run-up to the 2011 General Election.

The finance minister at the time, Brian Lenihan, had announced the new Universal Social Charge in the Budget in December 2010 - but the Greens then announced they were pulling out of government before all of the announcements could be translated into law.

As you might remember, the Greens decided that they would still support the Finance Bill while in opposition - just to make sure that the Budget was put in place before the country went to the polls.

The Finance Bill therefore had to be rushed through the Dáil - with a few hasty amendments tacked on to try and ease the public anxiety about the brand new charge Fianna Fáil had announced, weeks before their electoral meltdown.

One of those amendments was the tweak which is back in the news today. Under the original plans for USC, someone earning €40,000 a year would have been hit with €2,118.80 in Universal Social Charge.

Fianna Fáil bowed to pressure from those who said this was simply too much new tax for a struggling household to face - and so Brian Lenihan decided that a slightly lower rate of USC would apply to people on a medical card.

Their higher rate of 7% was cut to 4% - saving them €719.52 a year.

This cost the government around €80 million - which they made up by increasing the USC charged to high-earning self-employed people. Those people would then face another rate of USC - paying 10% on any income over €100,000. 

The thing that most people missed at the time was the fact that this tweak only applied for four years. Written into the law was a simple disclaimer: the changes "shall cease to have effect for the tax year 2015 and subsequent tax years.

That means that the slightly lower USC burden on medical card holders was only a temporary measure - and from New Year's Day, it'll be gone again, and a medical card holder earning €40,000 will see the €719.52 put back onto their annual tax bill.

Likewise, the USC burden on high-earning self-employed people will be eased - with someone earning €100,000 benefiting to the tune of €2,700.

This has come to light in the last couple of days through written Dáil questions from Brian Lenihan's successor as FF finance spokesman, Michael McGrath.

Michael Noonan - who, at the time, criticised the plan to raise the USC on the self-employed - confirmed to him that the State would lose €102 million if it maintained the low rate for medical card holders.

Likewise, he said, cutting the higher rate of USC for the high-earning self-employed would cost €123 million.

The question now is whether the government can plan to do anything about this, amid the talk of easing the tax burden - which Minister Noonan says is a key part of encouraging more foreign companies to set up in Ireland.

It may well be the case - depending on how much wriggle room he has - that keeping the status quo, and saving some workers from an otherwise inevitable tax hike, is the best Michael Noonan can do.



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