Paschal Donohoe orders study of USC and PRSI merger

Minister for Finance Paschal Donohoe has ordered his officials to compile a paper on how a key element of Taoiseach Leo Varadkar's Fine Gael leadership election manifesto – merging the Universal Social Charge and PRSI – can be implemented.

Mr Donohoe on Thursday outlined his priorities as he takes up his new position as both Minister for Finance and Minister for Public Expenditure and Reform.

He said the October budget will effectively be a balanced budget because it will deliver a structural deficit, which is the permanent deficit net of cyclical and temporary measures, of 0.5 per cent. Mr Donohoe said this will be the “foundation” upon which “sustainable prosperity” can be built.

Merging the USC and PRSI to form a new social insurance payment was a key element of Mr Varadkar’s manifesto, but is a complicated process that could take years.

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This was an alternative to outright abolition of the USC, and Mr Donohoe said it would lead to a “deeper social contract between those who pay taxes and the services that they receive in return”.

Tax cut

He said his “guiding principle” would be to reduce taxes in a sustainable and affordable way, as the programme for government promises. He said he would seek to further reduce taxes in October’s budget.

“The commitment in our programme for government looks to reducing taxation on work in a way that is affordable and sustainable,” he said. “That is a commitment I will be honouring and will be looking to do so again in Budget 2018.”

Mr Donohoe said he would only be in a position to say when the merger work could begin once his officials concluded their report, which would give him an idea of the “magnitude of work that needs to be done”.

Independent Ministers – such as Kevin “Boxer” Moran – have said they want continued reductions in the USC.

Mr Moran has said the programme for government commits to USC reductions, although it is not that specific. It promises “budgets that will involve at least a 2:1 split between public spending and tax reductions”.

Rewarding work

It adds: “The reductions in personal tax rates – such as the continued phasing out of the USC – needed to reward work.”

The confidence-and-supply agreement between Fine Gael and Fianna Fáil commits to "reductions in the Universal Social Charge on a fair basis with an emphasis on low and middle-income earners".

Michael McGrath, Fianna Fáil finance spokesman said Mr Donohoe’s comments are a “clear admission” that Fine Gael is abandoning its election policy of abolishing the USC. However, he said that Fianna Fáil “will, of course, look at any proposals” on reforming the taxation system.

“The priority is to reduce the burden on income tax on lower and middle-income earners,” the Cork South Central TD said. Any such merger of USC and PRSI would be hugely complicated and would take a number of years, sources said. Mr Donohoe said it would take a “number of budgets”.