Government plans to merge USC and PRSI into single payment

Minister for Finance Paschal Donohoe has said he intends to merge the universal social charge and PRSI into a single social insurance payment.

Taoiseach Leo Varadkar made a similar pledge during the Fine Gael leadership campaign.

In his first Dáil question time as Minister for Finance, Mr Donohoe told Pearse Doherty of Sinn Féin that “my long-term view of the USC is to see its integration into the existing PRSI code”.

His “guiding principle” was reducing the income tax burden for those on low and middle incomes, which he said “must be achieved in a way that is both affordable and sustainable”.

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The Minister has asked his officials to prepare papers looking at a range of policy options in advance of October’s budget.

The plan to merge USC and PRSI is a move away from a previous commitment to gradually abolish the charge. Senior Government officials, examining the options for tax and social insurance changes before the last budget, outlined how the first step towards merging USC and PRSI might work.

The USC is currently paid by anyone earning more than €13,000 per annum, and the officials proposed that this limit could be raised to some €18,000.

However, part of the income gain from the USC change for the lower earners involved would be clawed back by making earnings above €13,000 liable to a lower PRSI rate. The officials said this would help to support the social insurance fund, into which PRSI receipts are paid.

Conflicting positions

Mr Doherty highlighted what he termed the “conflicting positions” of the Taoiseach and the programme for government.

The Taoiseach’s plan to merge the USC and PRSI into a new charge conflicted with the programme pledge to “continue to phase out the USC as part of a wider medium-term income tax reform plan,” Mr Doherty said.

Fine Gael’s election manifesto wanted to complete the abolition of the USC over five years, he added.

The Donegal TD said “the penny seems to be finally dropping”.

He noted that Fianna Fáil wanted to abolish 90 per cent of the charge but “Fine Gael wanted to go the full hog and abolish 100 per cent, which would erode more than €4 billion of our tax base”.

Mr Doherty said that “at least now we seem to be hearing that a substantial portion of it – if not all of it – will be retained, but will be renamed or remodelled into the PRSI”.

Replying, Mr Donohoe said: “I will not take any lectures from Sinn Féin on economic competence or economic policy-making”.

He said Mr Doherty had the right to his view but “he certainly does not have the track record to comment on the merits of economic policy options being considered by the Government”.

Mr Donohoe added that “we have a new Minister for Finance and a new Taoiseach and we are entitled to make our assessments of the landing points for important policy areas such as this”.

Mr Doherty said the Minister had taken a populist position in the general election that “a €4 billion tax base could be eroded” and Fianna Fáil had followed suit. He said it had been pointed out by Sinn Féin, the European Commission, the IMF and others “that it is reckless”.

The Minister said that Sinn Féin accusing another party of populism was “the pot calling the kettle black”.