Two polls, two different narratives. A Red C poll showed that an overwhelming majority in favour of abolishing the Universal Social Charge. An Ireland Thinks poll shows that a clear majority want increased public services over tax cuts. Which is a true reflection of public opinion? Discuss.
It may not be so contradictory. People want more services and social supports but they ‘hate’ the USC. For many, the USC is a legacy of the austerity period – part of a number of socially damaging measures. That political parties have used the tax as a crude bid for votes (e.g. Fine Gael’s 2016 election promise to abolish it) has created the impression that the USC is an ‘illegitimate’ tax. Add to this the cost-of-living crisis and you have understandable calls for support.
The USC, however, is a ‘good’ tax. Leave aside the issue of rates and threshold - elements which can be easily changed. The USC is good tax is because it is simple, transparent and no matter how many tax accountants you hire, you can’t escape it. The tax has almost no exemptions, reliefs, or allowances – unlike the income tax system. Most of all, because it attaches itself to nearly all income, relatively small tax rates can yield considerable amount of revenue.
Importantly, the USC is progressive. Its abolition would be a significant boon for high-income earners.
Someone on €30,000 would receive approximately €11 per week. The famed ‘middle Ireland’ earner (€40,000) would get about €20 per week. However, at the top end, someone on €100,000 would get €92 per week while a very high earner would get €322 per week (data taken from Deloitte tax calculator).
More perversely, those on low and average incomes would end up funding their own USC cuts. The tax took in €4.9 billion in 2022. Abolishing this revenue would mean longer waiting lists (housing, healthcare, home care), suppressed social protection increases, and squeezed public services which would impact most on older people as they will have greater reliance on health supports.
And it would pretty much wipe out government surpluses going forward (excluding windfall corporate tax revenue).
Regressive, squeezing public services, wiping out the surplus: this would return us to the reckless fiscal policies prior to the crash. Welcome to the politics of abolishing the USC.
Aidan Regan puts it in very trenchant terms (paywalled):
‘Ireland’s corporate tax boom is an invitation to do some very stupid things such as cutting income taxes, including the Universal Social Charge, further shrinking an already extremely narrow tax base . . . what the 2022 census clearly shows is that Ireland’s population is growing way beyond what our infrastructure and public services can handle. We ned a decade of ambitious forward-thinking investment, not tax cuts. We need to expand our tax base to finance future growth.’
Can’t disagree with a word of this – or any other word in his article. But I suspect that, in political terms, reliance on these arguments alone won’t win the public debate (though I really, really hope I am mistaken). Armed with Aiden’s logical arguments, progressives can make two strong counter-arguments.
First, show how an expansion of public services, government consumption and social transfers can make a transformative impact on people’s living standards in the short-term. Relying on a stronger social state can achieve far better results than crude tax-cutting.
In this regard, I will propose in my next post how progressives can argue that Budget 2024 should be a budget for families with children.
Second, we should argue for real tax reform. Here is just one example.
- Merge USC with social insurance to create a greatly strengthened social insurance system.
An enhanced social insurance system could start to deliver a range of pay-related in-work benefits (e.g. family, old age, illness and disability, caring, etc.). This would significantly increase living standards for all workers.
And like many other EU countries, we could provide health benefits from the Social Insurance Fund: free or heavily subsidised GP visits and prescription medicine.
This would, however, create a hole in Exchequer finances (public finances excluding social insurance). But we have the Commission on Taxation and Social Welfare proposals to extend the tax base primarily through increased taxes on capital, wealth, assets and property. And we would still need to increase employers’ PRSI incrementally over the long-term.
This is not so radical sounding. The Government published a report on merging USC and PRSI back in 2018. The report came up with five options. Progressives would do well to re-read this report with a view of privileging social insurance as part of a strong social state.
[Note: for a more radical tax reform option, see here for a proposal to abolish income tax and replace it with a reformed and enhanced USC. I still think it is valid.]
The last thing progressives should do is allow the Right to advance tax cuts as a solution to the cost-of-living crisis or an efficient way to assist low and middle-income earners. Lasting solutions lie in an expanded social state – public services, social insurance, and economic and social investment.
Let’s start talking about that now.
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