Minister for Employment and Social Protection Regina Doherty has said the recent proposal to merge the universal social charge (USC) and PRSI is not a U-turn in policy.

Minister for Finance Paschal Donohoe on Wednesday said he intends to merge the charges into a single social insurance payment. Taoiseach Leo Varadkar made a similar pledge during the Fine Gael leadership campaign.

On Thursday morning, Sinn Féin’s finance spokesman Pearse Doherty welcomed the move, but said: “It’s the biggest U-turn I’ve ever seen, but we welcome the fact that the penny has dropped. Dropping the USC was a populist policy by Fine Gael to try to win votes.”

“Our position in Sinn Féin has been vindicated,” he said, speaking on Morning Ireland.

“There will be people who voted for Fine Gael who will feel let down,” he said.

Ms Doherty rejected the claim later on Thursday: “It’s not a U-turn if it’s the right decision to make better services.

“It’s not going back, it’s changing. You’d have to delve into the reasons why it’s changing,” she told RTÉ’s Today with Sean O’Rourke show.

She said she was not aware where the term “U-turn” came from.

“We have a new leader, in his manifesto for leadership of the party he clearly stated that he would explore reinvesting the USC into society, into communities, into new services,” she said.

“That’s what’s being done now by a Government and a new leader, by a new Taoiseach.

“Things change according to responses, according to the times, according to economies presented to government, and how they ebb and flow.”

Ms Doherty said she had not forgotten the very clear message that people gave on the doors prior to the last election: “They want money invested in services - that’s what we’re doing now.”

She said: “You can’t expect things to be exactly as they were when you have a new driver behind the bus. Leo Varadkar has listened very carefully to what the Irish people have said.”

“I have no issue with changing plans according to people’s needs.”

Guiding principle

Speaking in the Dáil on Wednesday, Mr Donohoe said the guiding principle of the move was reducing income tax burden for those on low and middle incomes, which he said “must be achieved in a way that is both affordable and sustainable”.

The Minister has asked his officials to prepare papers looking at a range of policy options in advance of October’s budget.

Also speaking in the Dáil on Wednesday, Mr Doherty said the plan conflicted with the pledge to “continue to phase out the USC as part of a wider medium-term income tax reform plan”.

Fine Gael’s election manifesto wanted to complete the abolition of the USC over five years, he said.

The Donegal TD said “the penny seems to be finally dropping”.

He noted that Fianna Fáil wanted to abolish 90 per cent of the charge but “Fine Gael wanted to go the full hog and abolish 100 per cent, which would erode more than €4 billion of our tax base”.

Mr Doherty said that “at least now we seem to be hearing that a substantial portion of it - if not all of it - will be retained, but will be renamed or remodelled into the PRSI”.

Replying, Mr Donohoe said: “I will not take any lectures from Sinn Féin on economic competence or economic policy-making”.

He said Mr Doherty had the right to his view but “he certainly does not have the track record to comment on the merits of economic policy options being considered by the Government”.

The plan to merge USC and PRSI is a move away from a previous commitment to gradually abolish the charge. Senior Government officials, examining the options for tax and social insurance changes before the last budget, outlined how the first step towards merging USC and PRSI might work.

The USC is currently paid by anyone earning more than €13,000 per annum, and the officials proposed that this limit could be raised to some €18,000.

However, part of the income gain from the USC change for the lower earners involved would be clawed back by making earnings above €13,000 liable to a lower PRSI rate. Officials said this would help to support the social insurance fund, into which PRSI receipts are paid.