Some of the funds the Government plans to inject over the next few years into its rainy day fund could be much better used to lift the crisis of funding facing higher education, business group Ibec has said.
In its annual submission ahead of October’s budget, Ibec said it broadly approves Finance Minister Paschal Donohoe’s spending priorities for 2019, but wants monies destined for the rainy day fund to go instead to universities and colleges, which it said were losing international status.
The business group argues that strong economic growth and prosperity and the huge corporate tax bounty flowing from multinationals give the Government room to focus on boosting Irish firms, SMEs and start-ups.
Current incentives designed to help Irish SMEs close the gap with foreign-owned firms were “tied up in restrictions and red tape” and were not working, it said, adding that the challenges of US tax cuts and Brexit demand cutting-edge policies.
It favours a business- focused cut in capital gains tax to 12.5% for entrepreneurs to encourage SME owners build their businesses, and it wants the introduction of a stock ownership scheme to allow firms to hire and compete with multinationals in pay.
It estimates the cut in capital gains tax would cost the exchequer €60m a year.
SMEs also need to be encouraged through tax incentives to invest in robotics and automation in a bid to close the huge productivity gap as highlighted by the OECD and other expert bodies between multinationals and Irish-owned firms.
“We have now a window of opportunity with the economy performing well, and we still have this money flowing in from the multinational sector in corporate tax, but we need to be reinvesting to support education and to support the indigenous enterprise sector,” said director of policy and public affairs Fergal O’Brien.
The proposed rainy day fund will be too small for it to succeed in its purpose of offsetting any future fiscal crisis, Ibec said.
It wants the Government to follow through with plans to inject €500m into the fund in 2019 and to draw down some of the funds to finance higher education. The bounty of corporation tax receipts could also be diverted into the higher education fund.
The perceived fall in Irish university and colleges, as measured by global rankings, is a serious matter that will in time influence the amount of investments Ireland attracts from overseas.
Following the US corporate tax cuts, it is already getting harder for some US multinationals to persuade their boards to invest in projects overseas, including Ireland, it said.
“Although education has been central to Ireland’s business model, the country is falling further behind its counterparts in higher education, as international rankings show, which is a real cause for concern in the business community.
“In the light of this worrying trend, Ibec believes that €250m earmarked for the ‘rainy day’ fund should be redirected to investment in the higher education sector in 2019,” Mr O’Brien said.
Ibec said that its proposals for new SME incentives will also effectively support regions outside Dublin.
“The Government needs to bring a new focus to indigenous business. Ireland’s tax base has become dangerously concentrated, so the time is right to make a step-change in how we treat our indigenous business sectors through the tax system.
“We must also recognise the significance of the recent US business tax reforms for the foreign direct investment sector. The most effective response will be to underline the certainty of the business tax regime and intensify the emphasis on competitiveness,” Mr O’Brien said.
On housing, Ibec believes the ramping up of construction will deliver 18,000 to 20,000 houses this year, but that it will take five or seven years to reach the annual target of an annual 40,000 houses that many experts believe will be required to meet shortages.
Rents will likely continue to shoot up in urban areas, while building sprawl will become a major risk as people buy and rent homes further from their work, it warned.