220. Deputy Séamus McGrath asked the Tánaiste and Minister for Finance to address the anomaly whereby people on occupational pensions are subject to USC as opposed to State pensioners who are not (details supplied); if a waiver up to the limit of the State pension should apply to those on occupational pensions; and the estimated cost of introducing such a waiver. [53614/26]

The Universal Social Charge (USC) was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely the Health and Income Levies. The primary purpose of the USC was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services.

The USC, like the Health and Income Levies before it, does not apply to social welfare payments, such as the contributory and non-contributory State pensions, or payments of a similar nature. However, occupational pensions are liable to the USC, if the payment is greater than the exemption threshold, which is currently €13,000 per annum.

The USC has been reviewed and considered by my Department on many occasions. The issue of USC applying to occupational pensions, in particular of retired public servants who entered the public service before April 1995, has also been examined by my Department. Such individuals are (or were) liable to modified rate PRSI, which does not generate an entitlement to the State Pension.  In retirement therefore they receive an occupational pension only, and do not receive a separate State Pension unless as a result of PRSI contributions made in another employment during their working life.

It was decided not to exempt the occupational pensions of these individuals from the USC charge as an exemption could be very costly and difficult to achieve, potentially involving all income earners with the equivalent income benefiting from the exemption. In addition, it would also undermine the principle of the USC being applied to all income with few exceptions.

I would point out that the entry threshold to USC has increased significantly since it was introduced. When introduced, the entry threshold was €4,004 and now sits at €13,000 per annum.  The rationale for the exemption threshold is to provide assistance to the cohort of taxpayer earning less than €13,000 per annum, such as part-time and seasonal workers and persons in receipt of small occupational pensions.

Turning to the Deputy's specific question regarding the cost of providing such as waiver.  I am advised by Revenue that it is not possible to estimate a cost associated with increasing the USC exemption threshold, to the level of the State pension on an annual basis, for those in receipt of occupational pensions. Occupational pensions are reported to Revenue through payroll in the normal way and therefore are not readily separately identified from payments associated with an active employment. I am also advised by Revenue that their micro-simulation tool, Tax Modeller, is the basis on which estimates for changes to income tax policy are arrived at. The  Tax Modeller is not designed to apply an exemption to USC to specific income sources, but rather it applies an exemption to USC to the total income subject to USC. Therefore, any changes to the exemption threshold would apply to all income sources subject to USC.

Similarly, if the envisaged waiver is not an exemption, but rather a 0% rate to apply to a specified amount of income, again it is not possible to estimate the cost associated with this as it is not possible to apply such a rate and rate band to a specific income source only.

However, it is important to acknowledge that the structural changes implemented to the rates and thresholds of the USC since its inception in 2011 have resulted in a significant reduction in USC liability for all taxpayers.  For example, in 2011 the rate structure was 2 per cent to €10,036, 4 per cent to €16,016 and 7 per cent on the balance.  Whereas, in 2026, the rate structure is 0.5 per cent to €12,012, 2 per cent to €28,700, 3 per cent up to €70,044 and 8 per cent on the balance.

Finally, as the Deputy will appreciate, decisions regarding taxation measures are made in the context of the annual Budget and Finance Bill processes, at the appropriate time, and having regard to the sound management of the public finances.