While the next Government – whichever parties it comprises – will have scope to reverse some of the tax hikes and spending cuts that were introduced in recent years, the International Monetary Fund (IMF) has warned that the USC should be left off the table.
Pre-election noise over tax cuts and spending promises is growing in volume across the political spectrum, with Fine Gael recently pledging to abolish it altogether, Labour hoping to spare anyone earning less than €72k from the despised charge, and opposition entities from Fianna Fail to Sinn Fein engaged in cacophonous calls for change.
However, in its quarterly review this month, the IMF said that the maintaining the USC charge was crucial to Ireland’s “fiscal discipline”, and said that it had raised the matter with officials after the changes in Budget 2016.
In last year’s Budget, Finance Minister Michael Noonan reduced the three USC rates and also moved the brackets for low and middle earners, thereby freeing tens of thousands of workers from the charge.
“These changes aim to lessen the tax burden and encourage labour market participation for low wage earners and women. While supporting in principle the reduction in distortionary taxes, staff noted that the impact of USC changes appears regressive, with half of the benefit accruing to households with incomes above €70,000,” the IMF said in its report.
“While it is appropriate to share some fruits of the recovery after years of difficult adjustment, fiscal discipline must be maintained to rebuild room for policy manoeuvre,” the IMF added.