2026-06-25

13. Deputy Catherine Callaghan asked the Tánaiste and Minister for Finance his plans for the reduction or abolition of USC in budget 2027; and if he will make a statement on the matter. [48308/26]

I ask the Minister his plans for the reduction or abolition of USC in budget 2027, in particular, if there is scope to reduce the USC that is payable on occupational pensions for people aged over 66.

As I know Deputy Callaghan is aware, the programme for Government and our party manifesto commit to making progressive changes regarding income tax. The aim here is to make sure that people can keep some more of their own money. People in this country still feel that when they work hard, play by all the rules and then look at the slip at the end of the week or month and see the take-home pay figure, they are left struggling to get by, let alone get ahead. We want to make progress on that over the course of the next four budgets. There was not a personal income tax package in the previous budget. There will be one in this budget. I expect and hope there will be one in each of the next four budgets. Over the course of those four budgets, we can make real progress. In the previous Dáil, to give an example, we managed to get from a situation where people were paying the higher rate of tax at €33,000 and brought that up to the higher rate of tax being paid at €44,000. We also made some progress on the USC in the previous Dáil when we saw the middle rate of USC, of 4.5%, reduce by 1.5 percentage points to 3%. About a third of people are not paying any income tax or USC, which we need to factor in too. When people talk about progressivity, we need to balance that. The USC is an individualised tax, which means that a person's liability for the tax is determined on the basis of his or her individual income or personal circumstances. It is therefore seen by some as a more sustainable charge than those it replaced, and it is applied at a lower rate on a wide base. The USC yield for last year was €5.6 billion. For this year, it is projected to be €5.9 billion, so there is a significant yield. What we decide to do on personal income tax, whether on income thresholds, tax credits or the USC, will be considered in the weeks ahead. The ultimate aim will be to see how we can most help people who are either working hard or the people who, as the Deputy recognised today, have worked hard with respect to their net income. We will consider all the options in the round.

I acknowledge all the work that has been done to date. I am sure the Minister hears from his constituents as regularly as I do that the fact that the USC was first introduced in 2011 as a temporary measure but is still with us 15 years later has made this particular tax a point of contention. I absolutely acknowledge the reality that there are many major investments into public services and infrastructure projects across the country that were only possible because of this tax, which, as the Minister mentioned, will bring in €5.9 billion this year. The medium-term fiscal and structural plan, which the Minister published in December, is a strong statement of the Government's intent and ambition to achieve key social and economic targets. Of course, it is essential that under this plan, our public finances remain stable, resilient and ready, which goes to the Minister's point that there is a need to decide how exactly we make changes in the upcoming budget. While the USC will play a key role in delivering on this plan, I wonder, as we continue to experience a budget surplus, if there might be room to alleviate the pressure this tax places on certain sectors. For instance, would the Minister consider measures to increase the income disregard for USC or to reduce the amount payable on pension contributions at this time?

I have to give the annoying answer that we will consider all of these matters in the budget. I do not want to rule anything in or out today, other than to say a couple of things. The Deputy is right to acknowledge the burden that people feel from taxation. She is also right to acknowledge, very fairly, the benefit that we see from the taxes that people pay. The USC is expected to bring in €5.9 billion this year. It would be a very different challenge if we did not have that almost €6 billion. The next staging post as regards the total amount available for tax measures will be the summer economic statement in July. That will outline how much we intend to put aside for tax measures. We can then start to have an informed debate about the best way to spend that money and the best policy options. In general, regarding the surplus, I am pleased to live in a country where we have an economic surplus. It comes with challenges, but it much better to have a challenge than a deficit. I am conscious that some of that surplus is based on a temporary windfall tax and, therefore, a more appropriate use of it is to put it into our investment funds to deliver infrastructure and deal with future demographics.

It is really hard to argue with that point of view. Above all, I know that the Government is dedicated to delivering on the commitments made in the programme for Government, which will work towards a fairer, more equal Ireland. One of the key components of the programme is a commitment to progressive changes to personal income tax, which I am glad the Minister has recognised will happen, and to ensure that, as we push forward and grow our economy, nobody is left behind. In budget 2026, the Government lived up to those commitments. It is important that we note that. It raised the 2% USC tax band up to €28,700. This measure meant and means that a full-time worker on minimum wage will not be pushed into the higher 3% tax rate. That allows for a meaningful increase in take-home pay. Across the country and in my own constituency of Carlow-Kilkenny, there is an appetite for similar measures to be considered in this year's upcoming budget. Is further indexation planned?

I thank Deputy Callaghan for acknowledging that there will be a personal income tax package. The aim is that it will deliver in line with the programme for Government commitments around progressive changes. We will look at the various options in the round. We will decide them on 6 October and will have plenty of opportunities to engage directly and to engage through this structure in advance of that. The point the Deputy made about the minimum wage increases not being gobbled up for low-income workers by USC is important. That is a principle that we have had for the last number of years and is certainly one that I would hope we could continue. There is another issue and I will say this honestly. Around a third of people are not paying any income tax or USC. I do not say that in a judgmental way but sometimes the some of the low-income workers we want to help have to be helped in ways other than the income tax system too. I said this earlier, but I really believe it. While I firmly believe a personal income tax package can play a role in assisting people with the cost of living and we will have one, it will also need to be supplemented by what we can do on the spending side to reduce structural costs that families face in areas like childcare, an issue I know the Deputy is passionate about with the carers' allowance. We will see the carers' allowance income threshold increase next month as an example. We need to look at all of this in the round. I look forward to continued engagement in the time ahead.

We only have a few minutes left, but I will let Deputy Murphy ask his question and the Tánaiste reply.