Some tax proposals currently being considered by Government should be rejected because they would give far greater benefit to people earning higher incomes than to lower income employees. While there should be no net reduction in tax in Budget 2017, a study conducted by Social Justice Ireland, published today, shows that the impact of some proposals currently being considered would be profoundly unfair because they would favour only those with higher incomes.
The study shows that changing the income taxation system through the elimination of the first three rates of the USC is an expensive and unfair policy path. From the perspective of fairness, the question arises as to whether such a large amount of annual taxation revenue could be used in a much fairer and better way?
This study examines the impact of changes to the USC being suggested by many of those currently commenting on the Budget. The measures examined include:
- the elimination of the current 1% USC rate – that applies to income below €12,012 (full year cost €247m);
- the elimination of the current 3% USC rate – that applies to income between €12,012 and €18,668 (full year cost €471m);
- the elimination of the current 5.5% USC rate – that applies to income between €18,668 and €70,044 (full year cost €2,024m); Total full-year cost of this income taxation package = €724.9m
The total cost of these changes would be €2,742m in a full tax year; equivalent to 13.7% of the expected income taxation yield in 2016. The results show the dramatically unfair impact that would flow from these changes to the USC.
The gains are heavily skewed towards those on the highest incomes.
- Single earners above €70,044 gain €3,145 per annum, more than 4.5 times the gains for a worker on €25,000.
- Couples with two incomes totalling €125,000 gain over €4,000 per annum, almost three times the amount that goes to a similar middle-income couple on €50,000.
- Looked at as a proportion of gross income the regressive nature of the tax change is further visible. As income increases so too does the proportional gain, peaking at a value of 4.2% of gross income for single earners at €75,000 and peaking for couples with two incomes at an annual income of €100,000.
Social Justice Ireland is not in favour of any net tax reductions in Budget 2017, or in reductions to the USC. Any available money should be used to improve Ireland’s social services and infrastructure, reduce poverty and social exclusion and increase the number of jobs.