Small firms sound warning on spending

SMALL businesses have criticised the Government’s decision to keep spending on public services above the rate of inflation.

The Small Firms Association said no business could allow its costs to “spiral” at the rate the Government was planning to increase current spending by in 2008. SFA chairman Pat Crotty said it was vital that spending, which Finance Minister Brian Cowen said will grow by 8.2% next year, returns to more modest levels.

ISME, which also represents small businesses, said it welcomed the fact that spending was coming down from 12.5% this year but wanted a commitment the Government would get more efficiency from the public services.

IMSE said it was also concerned some measures in Budget 2008 would lead to higher inflation: “For instance, the decision to increase the employees’ PRSI threshold will add an additional tax on labour, which will be reflected in increased wage demands. By increasing the excise duties on cigarettes, the minister will further contribute to an inflation environment that is already out of control.”

ISME also claimed the changes in VRT and motor tax were a “sop” to the “green lobby” and that moves, which will be officially announced by Environment Minister John Gormley today, will unfairly impact on many businesses.

The SFA said Mr Cowen missed an opportunity to cool inflation by reducing the standard rate of VAT by 2% to 19%. “The SFA calls on the minister to look at this issue seriously in advance of Budget 2009, as a critical aspect in lowering the inflation rate and in boosting consumer confidence and thus consumer spending. It would also be of huge assistance to those companies operating in the international marketplace, as our current VAT rate is significantly out of line with competitor countries,” said Mr Crotty.

Meanwhile, ISME was also disappointed the budget contained little to “encourage entrepreneurial activity” and warned that continuing to run a higher inflation rate will reduce competitiveness “leading to an uncertain economic future” for small businesses.