Universal social charge (USC) should be retained and more workers should be brought into the tax net, the Irish Business and Employers' Confederation (Ibec) has said.

In a report examining taxation, Ibec has said tax on work is too high, but too many people are not paying anything at all.

In pre-election promises Fine Gael has pledged to abolish USC by 2020, and Labour to abolish it for low and middle earners. Sinn Féin has said minimum wage earners will not pay USC and Fianna Fáil has promised to reduce USC and capital gains tax.

Emergency

USC was introduced as a temporary, emergency measure in 2011 and brings in €4 billion in revenue.

In General Election 2016: Rethinking the Tax Debate, Ibec states that including USC, PRSI, VAT and income tax, well more than half of all workers in Ireland pay marginal tax rates well in excess of 65 per cent and this should be reduced to 45 per cent.

Written by economist Gerard Brady, the report said core taxation in Ireland is slightly above the European average, but workers pay less social insurance than average. It said Ireland spends above the European average on health and working-age benefits, when adjustments are made for demographics, and below average on education and investment.

Income tax is the fifth highest in the European Union and workers hit the marginal rate too early, it said. Based on a €1 pay increase, only 12.4 per cent in Britain will pay more than half in tax, while in Ireland the figure is 39 per cent.

Tax base

It also said there are too many people who are not paying income tax. Some 32 per cent “of all income tax cases end up paying neither income tax nor USC”, while in Britain, only 11 per cent are exempt.

“Abolishing the USC would be a step in the wrong direction to a more efficient tax system, given that it is the most efficient of taxes, captures a broader base of income and is the only tax on income a large proportion of workers’ pay,” the report said.

“Its abolition would narrow the tax base even further, putting more pressure on smaller numbers of people for the total income tax take.”

Ibec suggested the USC could be converted to a contribution for workers to a defined contribution-based pension scheme.