Varadkar strategy on USC key to FG leadership contest

Leo or Simon? So far the debate about who will succeed Taoiseach Enda Kenny as Fine Gael leader has appeared to be something of a personality contest. There has been little talk of policy, though in fairness the real race has yet to start, with Kenny still to name the day of his departure.

However, the opening shots are now being fired in the policy battle. Leo Varadkar, still the favourite for the job though seen to be in a close contest with Simon Coveney, is expected to promise a move away from the Fine Gael focus on abolishing the universal social charge (USC). This was central to the party's general election campaign and was the focus of tax changes in the last budget.

While full details of Varadkar’s programme are expected to be announced only this weekend, he looks set to move away from this sole USC focus. Instead he will promise to address what is surely the key problem in the Irish taxation system: the low income level at which income tax earners enter the higher 40 per cent rate. Currently this is just €33,800 for single earners, way out of line with international norms.

Merger

Varadkar is also expected to propose a merger of the USC and PRSI into one charge, also a sensible view albeit one that will bring significant practical complications. However a way to do this was outlined by the Department of Finance in the tax strategy group papers for the last Budget. This involved increasing the income limit on which USC was charged and partly compensating by lowering the earnings level at which employees become liable to PRSI.

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A few other points are relevant here. One is that while there is likely to be some room for manoeuvre in the 2018 budget, it may not be enormous. Also, the programme for government promises that €2 of every €3 available for new measures will be directed to higher spending. This is where Coveney is expected to direct his fire, in what looks set to be a more centre-left approach than Varadkar.

The other key question is whether, with this agenda, Varadkar would want to move Michael Noonan, the man who has led the USC charge, out from the key Department of Finance role in the inevitable reshuffle which will follow a leadership change?