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New "universal social contribution" must not hit the poor in Budget 2011

A proposal by the Minister for Finance, Brian Lenihan TD, to introduce a "new universal social contrtibution to be paid at a low rate on a wide base" provides major challenges to policy designers to ensure it is not a change that will benefit the better off while penalising those on low pay or on social welfare. The Minister has stated that the new social contribution will replace employee PRSI, the Health Levy and the Income Levy. Such a contribution would be more streamlined and has the potential to be fairer. However, it seems to be developed principally to increase the total tax-take and to target the "nearly half of all income earners" who will pay no income tax in 2010. So there is a real danger that the net outcome of this new payment would be some (or, perhaps, no) gains in take-home income for high earners but substantial reductions in the take-home income of medium to low earners.

The Minister for Finance outlined his proposals in a presentation to the Irish Taxation Institute.In this presentation the Minister stated there would be adjustments of €3bn in Budget 2011. This would be made up of

  • €1bn adjustment in capital spending already provided for, and
  • €2bn adjustment through reducing the cost of public services and reform of how we tax income.

It is under this latter item that the Minister ouitlined his proposal for a universal social contribution

The Minister for Finance outlined his proposals in a presentation to the Irish Taxation Institute. His presentation can be accessed below