Fianna Fáil Finance Spokesperson Michael McGrath TD has said that the Tax Strategy Group papers published by the Department of Finance highlight the significant challenges posed by a possible merger of PRSI and USC and that there is no evidence the government has done the necessary detailed policy work to proceed with the policy in October’s Budget.
Deputy McGrath commented, “During the course of the Fine Gael leadership election, Leo Varadkar signalled a u-turn on Fine Gael’s election pledge to abolish the Universal Social Charge and instead he proposed merging it with PRSI.
“While there would be undoubtedly benefits from a simplification of the tax system, pre-budget briefing papers prepared by the Department of Finance indicate that there are significant challenges associated with merging the two charges. There is no evidence of any work by government on these issues.
“The Department of Finance report clearly highlights that one of the biggest decisions to be made is whether the €4 billion currently raised from the USC would be added to the Social Insurance Fund or would accrue to the Exchequer. This is not just an accounting exercise, it goes to the heart of the provision of social protection benefits in the State.
“The Social Insurance Fund is currently in balance having been in deficit for many years. The deficit was closed following major changes to the base on which was PRSI is applied and cuts to social welfare benefits.
“If the Social Insurance Fund is to receive additional money through the merging of PRSI and USC, the question arises as to what extra benefits those who pay PRSI can expect to receive.
“PRSI payers who have seen entitlements such as jobseeker’s benefit restricted and other payments such as the bereavement grant abolished in recent years will undoubtedly want to know if these entitlements will be restored to previous levels which applied.
“Other significant concerns in respect of merging the two charges include the treatment of persons over the age of 65 who are currently exempt from PRSI and the compatibility of a new combined charge with bilateral social security agreements with other countries in particular the U.K.
“It is clear to me that any decision to proceed with merging the two taxes must be linked to a major reform of PRSI and in particular the benefits to which insured persons are entitled. There are currently 5 rates of USC ranging from 0.5% to 11%. By contrast there is a single 4% rate of PRSI for employees with a credit for low income earners. Merging the two systems will undoubtedly create winners and losers and could undermine the overall progressive nature of the taxation system. It is essential that whatever reform takes place gives greater certainty to both employees and the self-employed and is fair and equitable.
“At present, all we have from the Taoiseach and Minister for Finance is a slogan for purposes of grabbing headlines and distracting from their decision to drop the centre piece of Fine Gael’s 2016 election strategy. The Minister for Social Protection appears to be absent from the debate thus far.
“What is needed now is far more detail on how the taxation and social insurance system can be reformed to support employment and generate the revenue necessary to fund the vital work of the State. It remains to be seen if the Taoiseach can move on from his internal party posturing and produce a policy which can actually be implemented in practice,” concluded Deputy McGrath.