Part-time workers and others on low incomes were the big winners from the Government’s changes to the Universal Social Charge (USC) system, with highly-paid self-employed workers the biggest losers.
About 80,000 low-paid workers will no longer pay USC from January, after Minister for Finance Michael Noonan raised the entry point for the tax by €2,000 to just over €12,000. He also widened the bands and cut the USC rates paid by lower and middle income earners.
To lessen the benefit of these changes for the highest earners, however, the Government is also introducing a new top USC rate of 8 per cent for those earning more than €70,000. The self-employed will also pay the new higher rate of 11 per cent on earnings of more than €100,000.
"The self employed have been hit really hard. But he was always going to hurt somebody," said Pat Mahon, a tax partner with Price WaterhouseCoopers.
In a suite of changes designed to soothe the middle-income earners whose tax was hiked significantly in the early years of the budget, Mr Noonan announced several complex adjustments to the widely-resented USC system.
The band for the lowest rate of USC was widened by €2,000 to just over €12,000, while the rate for this band was cut by 0.5 per cent to 1.5 per cent.
The band on the next rate was widened by €1,500 to just over €17,000 while its rate was cut from 4 per cent to 3.5 per cent.
Workers will continue to pay a 7 per rent USC rate on all income between €17,000 and just over €70,000, when the new 8 per cent rate will kick in.
“This is a significant sting in the tail for all higher earners [with the new top rate],” said Mr Mahon. “Furthermore, whilst the 10 per cent rate for the self-employed over €100,000 was due to revert back to 7 per cent, instead it has increased to 11 per cent.”
Mr Mahon said the increases in USC for higher earners mean a 52 per cent effective rate “will continue to apply to higher earners and that their share of the tax wedge will become even greater than before”.
He said pensioners and medical card holders will be the “happiest” group.
“Although their USC rate cap was due to expire this year, they will now continue to avoid the 7 per cent rate so long as their income is below €60,000.”
Mr Mahon added that the USC is a very “effective” tax for the Government because of the exemptions or shelters that apply to personal income tax, and are often utilised by higher earners, none apply to USC.
The changes to the system mean that a worker on a salary of about €17,500 will now pay a USC of €374 next year, compared with €547 this year.
An employee on €35,000 will see their USC bill drop from €1,769 to €1,595, while someone on €175,000 will see an increase of €875 to €12,444.
