Neil McDonnell: Revenue must plan to write off half the debt warehoused due to pandemic

Revenue will be left to ponder their options where these businesses decide to take their chances with restructuring and opt for the Scarp process. Picture: Leah Farrell / RollingNews

As we enter the twilight of 2022 with our relatively placid, boring body politic, it is important to recognise that a trustworthy, competent government administration is of huge importance to Irish society.

Listening to the opposition and sections of the media, you would be forgiven for thinking otherwise.

Yet, the only reason Irish mortgage holders are not now looking at huge rises in repayments this winter, like our British neighbours, is because we did not set a budget for 2023 that was fiscally unsustainable.

That said, one of the reasons our exchequer is in good health, compared to our British neighbours, is down to the extraordinary performance of corporation tax. Our spending plans for 2023 would look a lot different, and more unpleasant, if we were not taking in bucket-loads of corporation tax.

The landscape for small business, unfortunately, remains difficult.

Throughout the pandemic, Ireland consistently maintained one of the longest and most stringent lockdowns in the world.

Not alone did the stringency of our lockdowns affect businesses financially, but it permanently altered patterns of employee and consumer behaviour, particularly in the hospitality, entertainment, leisure and grooming sectors.

Workers, looking at Government-mandated unemployment of up to two years, simply moved on to other sectors where they could earn a living. They did so as a matter of personal and family survival.

Many have not returned, and never will.

The knock-on effects still ripple through the economy. While Government supports for employees and businesses finally tapered out this year, business and commercial activity has not returned to normal, a fact compounded by the Russian invasion of Ukraine and an enormous spike in energy prices. This exacerbates inflationary pressures already rising since the middle of 2021.

Which brings us nicely up to date, and how small business and consumers will handle the energy crisis this winter.

Some argue the supports are insufficient, others that they are too expensive. Sectoral interests and lobbyists urge caution everywhere. In the words of the late British prime minister Anthony Eden: “Everyone is always in favour of general economy and particular expenditure.”

The fact that there has been no sting to opposition reaction to the budget suggests the measures taken are about right.

However, that does not mean small businesses are out of the woods.

The temporary business energy support scheme will mitigate but not minimise costs for larger energy users in retail, leisure, and hospitality.

The only relief they enjoyed in the last week was the news that Revenue had decided to place a moratorium on tax debt recovery due in May 2023 and push it out to April 2024.

This moratorium is likely to prove the only thing standing between thousands of small businesses and insolvency.

The commercial debts incurred by many of them during the pandemic were not lifted by Government support, nor by Revenue forbearance.

And the loss of sales incurred in the pandemic can never be retrospectively made good, even with a good Christmas or a good 2023.

The red ink amassed during the pandemic must, unfortunately, come to rest on someone’s balance sheet. The Central Bank estimates that thousands of SMEs are in a distressed financial condition.

When the music stops, and Revenue eventually demands repayment in 2024, this is likely to be the end of the line for many of those businesses.

Revenue stated last week that the warehoused debt currently stands at €2.58bn.

When the Revenue reckoning falls due in 2024, those businesses who cannot discharge their warehoused debt will become insolvent.

Revenue, and the State, will be left to ponder their options where these businesses decide to take their chances with restructuring and opt for the Scarp process.

Isme’s position is clear, half a loaf is better than no bread. Revenue must plan for at least half of that €2.58bn of warehoused debt being lost forever to the Great Pandemic of 2020-2021.

• Neil McDonnell is the chief executive of the Irish Small and Medium Enterprises Association (Isme).