Exempting high earning employees from the 10% USC paid by the self-employed may be unconstitutional

Issued : Sunday 2 December, 2012

If we are to get through the current crisis it is vital that the application of taxes and charges is applied fairly and equally.  The higher rate of USC for workers earning more than €100,000 makes sense and self-employed workers have paid it.  There is no rational reason for exempting high paid workers just because they are employees.
If the government wishes to avoid losing goodwill it is vital that the universal service charge is applied equally to all high earners and not just the self-employed.

It is widely reported in the media today (Sunday 2 December, 2012) that Fine Gael will hold the line against requests by Labour for the 10% universal social charge, currently paid by all self employed workers on earnings over €100,000, to be extended to all workers earning over that amount.
If this turns out to be true, it will be a remarkable breach of solidarity with those self-employed business people and workers who paid their tax in November and paid a 10% USC on their earnings over €100,000.
Many people have stomached the USC on the basis that it has been calculated progressively and applied equally.  It has been put forward as a temporary charge to help the nation deal with our fiscal crisis.
It will be a total breach of solidarity if high paid bank officials for example, with secure jobs in state funded banks, pay a 7% USC while the self employed, many of whom have small businesses, pay 10% on the same amount of earnings.
It will also have the effect of building into our tax-code a unique discrimination in tax rates as between employees and the self-employed worker.
No reason has been advanced for this invidious decision.
In view there will be legitimate questions about the constitutionality of such a discriminatory approach.
In Michael Daly, Applicant  v. The Revenue Commissioners, Ireland and The Attorney General, Respondents [1994 No. 367 J.R.], High Court, 27th July 1995 Mr. Justice Declan Costello struck down as unconstitutional changes made to the withholding tax regime for the self-employed contained in section 26(1) of the Finance Act, 1990 on the grounds, inter alia, that:
“That s. 26, sub-s. 1 failed the test of proportionality for the following reasons:—(a) it produced results which were manifestly unfair in that the withholding of tax reduced the ability of the taxpayer to pay the tax the sums had been withheld to discharge, and required double payment of tax; that
this unfairness was not adequately mitigated by s. 19 of the Act of 1987; and that the hardship was exacerbated by the fact that the sums withheld in a particular period might ultimately exceed the taxpayer's liability for that period;(b) the sub-section was designed to deal with a transitional situation but was a permanent measure which involved a permanently unfair method of collecting tax; and that the effect was not confined to those taxpayers who would otherwise have enjoyed a windfall in respect of the period 1990/91, but was also suffered by those who had subsequently entered the withholding regime.”
He outlined the test of proportionality as follows:
“the test of proportionality could be stated as follows:—(a) the objective of the impugned provision must be of sufficient importance to warrant over-riding a constitutionally protected right, and must relate to concerns pressing and substantial in a free and democratic society;(b) the means chosen must be rationally connected to the objective and not be arbitrary, unfair or based on irrational considerations; they must impair the right as little as possible; and must be such that their effect on the right was proportional to the objective.”
In my view there is no rational basis for treating two workers who both earn the same amount in such a different way just because one happens to be self-employed.  Certainly no reason has yet been advanced.
If we are to get through the current crisis it is surely vital that the application of taxes and charges is applied fairly and equally.  The higher rate of USC for workers earning more than €100,000 makes sense and self-employed workers have paid it.  There is no rational reason for exempting high paid workers just because they are employees.
If the government wishes to avoid losing goodwill it is vital that the universal service charge is applied equally to all high earners and not just the self-employed.
Contact: Oisín Quinn
Oisín Quinn is a Labour Party Councillor and a practicing barrister.

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