A plan B that can ensure sustainable recovery

The rejection of the renegotiated Public Service Agreement (Croke Park II) has reignited a familiar debate within Irish political discourse. Once again we all have to ask how to get the country’s finances back onto a sustainable footing.

Some talk of more taxes being needed to close the gap. Others maintain that tax increases, coupled with a spike in joblessness, have driven the collapse in demand that is so affecting business and, ultimately, the State in terms of revenue collected. They suggest that recovery is only possible through substantial reductions in public expenditure.

However, all sides would accept that a thriving small and medium enterprise (SME) sector is a vital component that will help drive our economic recovery.

SMEs make up over 99% of businesses in the State; 56% of workers are employed in indigenous, non- exporting SMEs. That is why we need even more effort to support this sector.

Budget 2013’s Assistance for Small and Medium Enterprises, with a number of credit availability measures and a 10-point tax reform plan to help small businesses, was helpful in highlighting the need for more to be done to assist this sector.

However, too many of the measures were sector specific, too many imposed unnecessary limitations, too many were little more than extensions of existing schemes and too many were merely facilitators of change rather than actual stimulus measures.

In response to the Government’s 10-point plan, Chambers Ireland has produced an alternative 10-point plan for micro, small and medium-sized enterprises. It includes initiatives which are bold and can produce the type of transformative change necessary to stimulate the economy and create real and meaningful job creation. Furthermore, these initiatives can be introduced with minimal cost to the exchequer.

They include:

* A reduced Vat rate on housing repair, maintenance and improvements.

Cutting Vat to 5% on all repair, maintenance and improvements up to a value of €50,000 on residential properties would incentivise start-ups and create employment.

Research conducted in the UK suggests that such a cut could create 3,625 jobs in Scotland — a country broadly similar to Ireland in economic and demographic terms — by 2015.

It is estimated that this could result in an additional 2,178 jobs through the multiplier effect.

* Halve the level of capital gains tax for entrepreneurs to 16.5%.

Entrepreneurs innovating, creating and growing businesses should surely qualify for a more attractive capital gains tax rate than stock market investors. A successful entrepreneur contributes to the economy in terms of taxes on earnings, employment taxes, rates and economic activity; the other is passive and makes limited economic contribution. Capital gains tax only raised €414m in 2012 as opposed to the €25bn raised in income taxes and Vat. A change here would send a positive signal regarding Ireland’s support for business.

* Targeted rate cuts for businesses in town centres.

Many retail businesses are struggling to remain open due to excessive rates imposed by local authorities. In order to support their survival, we recommend the introduction of a rates rebate for companies, located within town and city centres, which provide much needed employment and contribute to the quality of life in these areas.

* Apply an ‘Ireland Rate of Return’ in tendering decisions for public sector contracts.

As one of the biggest buyers of services in the State, Government needs to remember the impact of awarding tenders to locally based suppliers. An obsession with selecting the lowest possible price, often to bidders from other jurisdictions who are not subject to our stringent employment and pay regulations, along with rate payments, does not capture the multiplier impact in terms of jobs created, revenue increased and welfare costs reduced arising from awarding contracts.

These four points, along with six others, are developed further in our plan.

While it’s back to square one for the negotiations between Government and the unions, it’s important that policy makers continue to do everything necessary to return the Irish economy to a sustainable footing. It is essential to get as many of the 323,000 people currently unemployed to join the 854,000 already working in the SME sector.

This will be achieved through radical proposals which encourage people to start new businesses and create an environment which facilitates growth.

Risk taking, which creates jobs and results in benefits for the whole of society, must be rewarded.

Applying the suggestions in this alternative 10-point plan would recognise these risks, provide such rewards and bring Ireland closer to the Taoiseach’s vision of “the best small country in the world in which to do business”.

* Ian Talbot is chief executive of Chambers Ireland