THE GOVERNMENT is considering reducing the rate of the universal social charge for lower paid workers as part of an effort to lessen the burden of heavy cuts on that cohort in the budget.
The USC was introduced in last year’s budget to replace the health and income levies and the charge brought very low paid workers into the tax net for the first time. The charge is currently applied to anybody earning over €4,004 at a rate of 2 per cent. It is applied in three rising increments, with the highest rate, 7 per cent, being applied to incomes over €16,016.
A Government Minister said last night that the reduction of the USC for low paid workers is likely to form part of the budget which will be presented by Minister for Finance Michael Noonan on December 6th.
The Minister, speaking on grounds of anonymity, said it would be grouped together with a few other positive measures in an effort to counter a perception of a budget that was overwhelmingly negative and austere.
“We need a narrative in the middle of the budget speech that is positive. That would be a reduction in USC, new initiatives on jobs and some pro-business ideas,” said the Minister.
Separately, Mr Noonan, in a speech last night, criticised the previous government’s introduction of the USC, saying it had been a “very painful experience for the economy and we have no desire to repeat this”.
However, speaking to the Dublin Chamber of Commerce he gave no indication of his intentions to alter the charge.
Mr Noonan defended his proposal to increase the standard rate of VAT by 2 per cent. He said that all international economic analysis showed that increases in indirect taxes such as VAT rather than increases in income tax were – in relative terms – more employment-friendly policies.
He said he was well aware that VAT increases will not be popular but said that it was differences in currency exchange rates – and not the 3 per cent difference between Irish and British VAT rates – that drive people over the Border. Mr Noonan also said that GDP would increase by 1 per cent this year.
His speech came after the first of three days of Cabinet meetings this week, primarily focused on the budget. Yesterday’s meeting focused on two of the biggest spending departments, health and education. The final meeting tomorrow will be geared towards finalising social welfare cuts – including a decision on child benefit – as well as the Government’s job initiative.
Another Minister told The Irish Times yesterday that the Government will conclude its deliberations on expenditure cuts of €2.2 billion this week and then turn next week to the matter of the taxes and charges that need to be imposed to reach the revenue-raising target of €1.6 billion.
Asked last night if the introduction of a new drive to create jobs was a tacit admission that the Government jobs initiative had been a failure, the Government spokesman contended that the early assessment of that initiative indicated it was a success with tourism figures in particular being good. He said the Government would strive to come up with new means of job creating.
“This budget is creating conditions for job creation,” he said.
Speaking earlier yesterday, Taoiseach Enda Kenny said that all budgets were difficult and said that did not mean there was tension between Government parties.
“The preparation of any budget, particularly if you have to take €3.8 billion out of the economy is always sensitive, is always difficult and is always unpalatable.
“Everything is not rosy in the garden and Government have a set of very difficult choices to make here,” he said.
