Fine Gael and Labour differ on future USC cuts

Differences are emerging between Fine Gael and Labour over plans to abolish the universal social charge during the lifetime of the next government.

The junior party is only committing to phasing the charge out for low and middle income earners.

Taoiseach Enda Kenny and Tánaiste Joan Burton placed the abolition of the USC, should the Coalition win a second term, at the centre of their Dáil speeches on the budget yesterday.

Mr Kenny said the charge will be abolished in its entirety by 2020, with the first moves taking effect as a result of this week’s budget.

The 7 per cent, 3.5 per cent and 1.5 per cent rates will fall when the budget measures kick in next year.

While the Coalition last year warned abolishing the USC would not be realistic because it brought in €4 billion annually, Government sources say it can be wound down as economic growth continues.

Growth rates

They pointed to predicted growth rates of 6.2 per cent this year and 4.3 per cent next year, with tax revenues for 2015 anticipated to come in €2.5 billion ahead of target.

The elimination of the deficit by 2018 will also mean increased scope for tax cuts and increased spending.

In her Dáil speech, Ms Burton said: “If re-elected to Government, we’ll work to phase out USC completely for low and middle-income workers.”

Labour sources, while not ruling out full abolition, said their priority is workers on €70,000 or less.

While the Department of Finance says there is scope for the USC to be abolished by 2020, the method by which this will be achieved is a matter for individual party manifestos.

Fiscal rules

Meanwhile, the Government remains confident that the budget will not break European fiscal rules.

There was some confusion over the rules yesterday until the chairman of the Irish Fiscal Advisory Council, Prof John McHale, clarified the position.

Speaking on RTÉ's Morning Ireland, Prof McHale suggested the Government was obliged to cut the underlying structural deficit in the public finances by more than set out in the budget.

A number of Ministers rejected Prof McHale’s view. He later conceded he had made an error.

A special analysis of the impact of the budget by the ESRI, published in today’s Irish Times, shows that the overall gain to many taxpayers will be limited.

This is because wage levels are rising for many, meaning much of the gain from the USC cuts will be offset by the higher tax take.

The troika is scheduled to travel to Dublin on November 9th for talks with the Department of Finance and the Central Bank as part of the fourth post-bailout review. Mr Kenny travels to Brussels today for an EU leaders' summit.