Budget 2024: Paschal Donohoe hints at cut in Universal Social Charge

Minister for Public Expenditure Paschal Donohoe has pointed to a possible reduction in the Universal Social Charge in Budget 2024, saying he and Minister for Finance Michael McGrath are “on the same page” about it.

In an interview with Morning Ireland, on RTÉ Radio 1, Mr Donohoe said he and Mr McGrath are “committed to safety in [our] public finances”.

“Because we know that is the best insurance policy for our country being able to grow its living standards, being able to withstand external shocks in the years ahead while investing in our public services today. And I know that approach will continue in Budget 2024.”

He said there is precedent for changes being made to the Universal Service Charge.

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“We have changed Universal Social Charge before. We are many weeks away from the budget being decided and Minister McGrath and I will work co-operatively and closely together on it. Universal Social Charge has been reduced in the past.

“The key thing is at a time at which inflation is leading to employers who are able to give wage increases giving wage increases to help workers against the pressures in the standard of living, that we want to ensure that workers don’t pay a higher rate of tax just because they get a wage increase.

“And how that can be achieved is something Minister McGrath, myself, the Government will work on in the weeks ahead,” Mr Donohoe said.

Mr Donohoe said that due to the surplus, the Government is in a position where it is able to invest in tax changes and better public services while assisting with the cost of living challenges facing Irish people.

Mr Donohoe said the Government had acted upon the “broad thrust” of what the Irish Fiscal Advisory Council has advised on the forthcoming budget.

“Obviously the spending recommendation that Government accepted from myself and Minister McGrath is different to 5 per cent growth for next year,” he said.

“We are aiming to grow Government expenditure by 6.2 per cent bringing overall expenditure to €91.2 billion. As the Taoiseach has also said, and I have said on countless occasions, the broad thrust of what the Fiscal Advisory Council have recommended we have acted upon.

“The Fiscal Advisory Council has said we should be running surpluses and we should not be feeding an increase in corporate tax receipts into day-to-day Government spending or lower taxes.

“That is why we believe we are going to be able to run a surplus of €10 billion this year. Because we don’t want to spend money we might not have tomorrow on day-to-day spending and we are aiming to increase that surplus again next year.

“I appreciate this is a difficult argument to make with all the needs, with all the demands that so many causes that people have at the moment but I have been around before when that money ran out and myself and Minister McGrath don’t want that to happen.”

Broader trend

He added that in August of last year there was a “very large additional increase” in corporate tax, with August of this year looking very different. “But I think it is still worth noting that corporate tax revenue overall for this year is still up. It is up by 7 per cent versus a year ago,” Mr Donohoe said.

“As Minister McGrath has said we will have to take a look at where we are in November in particular to see if it is part of a broader trend.”

Meanwhile, Tánaiste Micheál Martin said on Monday that the Government will look at the option of reducing USC when it is drafting Budget 2024.

‘We going to look at a range of measures to try and alleviate pressure on people. She of that is through tax relieve, we will look at all the options including USC and also through reducing costs in terms of services, " said Mr Martin, who was speaking at the Fianna Fáil parliamentary party meeting in Co Tipperary.

Speaking at the same event, Minister for Finance Michael McGrath said he had come to no final decision on USC as yet. He said that in his first Budget, the income tax package would be the largest and most important part of the €1.1 billion tax element.

“From our point of view, the important thing is that we achieve the fairest and most equitable distribution of the benefits of the tax reductions and that means ensuring that people on low and middle incomes, as well as those in higher incomes, benefit from the tax reductions.

“I have over €1.1 billion of a net tax envelope available in the Budget. It will only go so far. Beyond the income tax area. I signalled that I am examining a whole range of enterprise tax measures to see what more we can do to make Ireland a more attractive place for entrepreneurs to start a business; how we can better support small and medium sized enterprises.

“I’m doing a trawl right through the entire taxation code to see what opportunities there may be to be more innovative, more creative (and to address) the cost of living.

“I am examining the role that USC can play in that regard, but have come to no final decision yet.”

Significant

In his Morning Ireland interview, Mr Donohoe acknowledged the financial needs of the HSE are “significant”.

“There are various estimates in relation to what the estimate of HSE funding needs will be later on in the year. I am working on that at the moment with the Department of Health.

“There are many, many meetings. There was an engagement there last week. It has been a perennial feature of budget management over the last number of years, the role of health expenditure.

“But the reason why health expenditure is an important part of our budgetary negotiations is because of how busy our hospitals are and the huge difference they can make and are making to the health of our country where they are doing such vital work,” Mr Donohoe said.

“What I will be doing in conjunction with Minister Donnelly is doing all we can to maintain the focus on patient care but to try and bring spending more in to line with what we want it to be.

“We have a target regarding what every Government should spend and every Government department should spend in a given year and what is happening is our hospitals are an awful lot busier as is the case all over Europe in the aftermath of Covid.

“We need to ensure patients get the support and care they need, but I also want to ensure that we have the ability to invest in other public services and make changes elsewhere next year.”