Budget Reaction: Business groups
IBEC, the employer lobby group, yesterday criticised the budget for being too harsh in its implications for economic growth.
“While the scale of adjustment in the budget was required, it could have been done in a way that was less damaging to economic growth and employment, it said.
The group said the budget focused too heavily on raising tax revenue and cutting capital expenditure.
IBEC’s director general, Danny McCoy said: “The scale of the budgetary adjustment is required, but how it is achieved is just as important.”
He said more should have been done to cut current spending, which is still too high given the major fall in tax revenue.
He added the scale of the public sector was out of line with the size of the economy and more action is required to tackle that imbalance.
“Business is disappointed that there is little in the budget to help job creation or to restore the competitiveness of the Irish economy.
“The budget should give consumers greater certainty about their future incomes and encourage a resumption of more normal spending and saving patterns.”
McCoy said that even allowing for the tough nature of the budgets the economy was still on track to recover in 2011, thanks mainly to the good performance by the exports. He warned the reduction in the employer PRSI relief on pension contributions would cost Irish business “about €90m per year at a time when many employers are already struggling to keep pension schemes afloat”.
“Cuts to some working-age welfare rates will also result in higher employment costs for business. Tax changes for employee financial involvement schemes will also be an additional cost to employers.”
The cuts in capital spending were “excessive and it is particularly disappointing that the budget did nothing meaningful to facilitate financing from other sources in order to offset the collapse in the Exchequer capital budget”, he said.
He added that the proposed internship programme was a good idea that would help get graduates connected to employment opportunities and limit the increase in emigration.
“Business is concerned about the excise hike on transport fuels. When the carbon tax is added to this over coming budgets it will lead to a significant loss of competitiveness for Irish business. It would have been better to generate the revenue by increasing the proposed property tax,” he said.
THE Government did not introduce enough measures to help small businesses but the announcements will create a certainty among firms.
Small business group, ISME said the budget was a “wasted opportunity”. However, another group, the Small Firms Association (SFA) said that the budget should generate greater certainty among small businesses.
Chairman of the SFA, Dr Aidan O’Boyle, said: “Now we have a plan in place to tackle our problems and hopefully the creation of a better environment for business and growth.”
He welcomed the extension of the 15-day prompt payment by the end of June next year to the HSE, local authorities and state agencies.
He did, however, say that the budget is not sufficient to improve consumer confidence and get people spending.
ISME welcomed that the majority of adjustments will come from cuts in current expenditure but said it is disappointed at the scale of increases in income taxes, which it said will “reduce spending, slow economic growth and pile further pressure on hard-pressed businesses”.
“The decision to increase PRSI for the self-employed is incomprehensible and is an additional tax on that sector of the economy,” said ISME chairman Mark Fielding.
ISME said the decision to increase excise duties on diesel and petrol flies in the face of the Government commitment to reduce costs to business.
“Contrary to what was announced in the recent National Recovery Plan, little or no effort has been made to address cost-competitiveness, which makes a nonsense of the so-called business focused recovery policy,” added Mr Fielding.
ISME said overall this “slash and burn” budget failed to provide a sufficient business stimulus.
“By ignoring the specific concerns of SMEs, and doing little to assist, promote or incentivise enterprise, the area of the economy which is relied on to produce wealth and generate employment, the minister is running the risk of killing the patient,” said Mr Fielding.
Dr O’Boyle said while further investment was being made into the banking system, the Government had ignored the issue of credit for small firms.
“This budget has ignored the fact that many viable small businesses lack two key ingredients to access financial support from the banking system: they lack collateral because of the property bubble collapse and associated high-negative equity, and they lack a good track record over the past two to three years because of the worldwide recession.”
IMPROVEMENTS to the Business Expansion Scheme (BES), a range of work training schemes for the unemployed and a three-year exemption from corporate tax payments for start-up companies; provided some positivity for business in yesterday’s budget.
Finance Minister Brian Lenihan included scope for an update to the BES programme — which is aimed at helping companies gain access to capital investment — depending on final approval from the European Commission.
Once that approval is granted, the BES scheme system will become known as the Employment and Investment Incentive and will have a higher limit of how much money can be raised by companies; increasing from €2 million to €10m. The amount that can be raised in a single year will increase from €1.5m to €2.5m.
Pat Burke, partner with accountancy firm, Grant Thornton, said: “The reform of the Business Expansion Scheme to increase the amount that companies can raise will be welcomed by entrepreneurs across Ireland.”
The Government added that its 12.5% corporate tax rate for multinationals won’t be altered, while the temporary tax exemption for new start-ups (forming in 2011) is aimed at rewarding companies that are looking to create jobs.
“Businesses need confidence and certainty — the Minister’s statement on corporate tax rates has been well received across the corporate sector in Ireland,” added Mr Burke.
Some 15,000 “activation places and supports” are being provided for the unemployed, at a cost of about €200m and these will be divided between work placements, community work schemes and skills development programmes.
Mr Lenihan said the government “are refocusing the National Employment Action Plan to establish clearer pathways to employment by ensuring that State agencies interact early and often with those who have lost their jobs to provide opportunities for education, training or work experience placements as appropriate”.
THE Government has introduced a 1% tax for bookmakers on revenues from online and telephone channels — but has been warned, by industry players, that such a move might not succeed.
Betting services firms already pay a 1% levy on revenue from their high street/retail outlets. The concern about an online/telephone betting tax, however, is that many companies plying their trade in the Irish market are located, for tax purposes, overseas. Of all the online betting providers operating in the Irish market, only two — Paddy Power and Boyle Sports — are tax domiciled in Ireland. There is a strong fear of an uneven playing field being established by those two companies being the only ones having to pay this extra tax.
Paddy Power reacted to the budget measures by claiming there is a lack of positive precedent.
“Countries with deeper pockets than Ireland — such as the US, Germany and Australia — have attempted enforcement measures on international Internet operators, with very limited success,” according to Paddy Power chief executive Patrick Kennedy.
“We’ve consistently said that we’d support a tax introduced on Internet betting by Irish customers, as long as it doesn’t result in an uneven playing field for domestic employers,” he said.
“All of the operators servicing the Irish online market must be forced to pay this tax, irrespective of where they’re located. Any failure to enforce in full will lead to Irish-based employers being put at a competitive disadvantage, which in turn will equate to a tax on Irish jobs,” he added.
Boyle Sports said it was disappointed with the tax increase, saying it put the company at “a huge disadvantage”.
“We’re very concerned with how the Government is going to regulate offshore competitors who aren’t registered in Ireland and we’ll need further clarification in terms of how this new tax will be implemented and when it will come into effect. It will also have a negative effect on job creation,” a company spokesperson said.
The chief executive of the American Chamber of Commerce in Ireland Joanne Richardson welcomed the Minister for Finance’s restated commitment to Ireland’s 12.5% corporation tax rate.
“It is imperative that the Government continues to restate its commitment to maintaining the 12.5% corporation tax rate to reassure and provide certainty to Ireland’s investment community.
“Given the continued debate in Europe on Ireland’s competitive tax regime, the Government must continue to stand firm on this issue and resist pressure for change from within the European Union.
“Today’s budget speech recognised the importance of Ireland’s export sector to our economic recovery. The latest Forfás statistics confirm that 91% of Ireland’s exports are created by the multinational sector, emphasising the importance of foreign direct investment to Ireland’s economy. It is important that we maintain the climate which continues to attract this much needed investment to Ireland.”
The failure of Finance Minister Brian Lenihan to change the Research and Development (R&D) Tax Credit regime is regarded as a missed opportunity by Leyton who are nevertheless pleased that at least the regime still remains, even if unchanged.
Consulting manager at Leyton, Eoin Brennan, said it is encouraging to know that they have acknowledged its significance by protecting it and not imposing any measures which could be perceived to be anti-business to the many companies who are engaged in R&D activities here in Ireland.
“While the announcement will not dramatically enhance the attractiveness of the R&D Tax Credit to SMEs and large companies operating in Ireland, Leyton believes that retaining the R&D Tax Credit gives a strong signal that our Government is taking foreign direct investment and the rewarding of innovation seriously,” he said.
The head of William Fry Tax Advisers, Martin Phelan, said the continued obsession with taxing deposit interests at a more favourable rate (27%), compared to active employment income (52%), begs the question of how this is stimulating the economy and will lead to job creation.
“Private savings in bank deposit accounts represent dead money to the economy, especially now when our banks can’t lend. Offering a lower tax rate on savings income (without even a limit) just encourages the private citizen to save. Most of the billions of profits made by people from the property bubble are sitting dead in deposits earning millions of euro in interest and still only paying 27% tax.
“Compare that to a worker who earns €50,000 and pays a top rate of 42% income tax. We are rewarding those who earn passive income and penalising those who work, surely everyone should pay the same rate of tax on income, earned or otherwise.”
Finance Minister Brian Lenihan said legislation “to facilitate further burden-sharing” by subordinated bondholders in Irish banks will be submitted to the Dáil next week.
Banks’ subordinated bondholders “have absorbed losses of about €7 billion to date,” Lenihan told the Dáil, when presenting the budget for 2011. He said that “there is a limit to burden-sharing and that Irish banks can’t unilaterally renege on senor bondholders against the wishes of our European partners and European institutions”. He said such a “course of action has never been an option during this crisis”.
Chief economist of Ulster Bank in the Republic of Ireland, Simon Barry, said it is important to point out that even a budgetary adjustment of this magnitude is more a growth limiter rather than a growth killer.
“Ireland is a very small, flexible and extremely open economy with exports amounting to some 90% of Irish GDP. Indeed, with exports continuing to perform very strongly, we expect that next week’s GDP report for the third quarter will signal a return to positive quarterly economic growth. While quarterly Irish growth figures are notoriously volatile and difficult to predict, we expect to see quarterly expansion in excess of 1% in GDP terms. While some of this performance is certainly attributable to a buoyant multinational sector, we wouldn’t be surprised to see a marginally positive reading on GNP also, which would mark the first positive quarter since early 2008.
“Such an outcome would serve as a timely reminder that a return to positive economic growth in a small, open economy such as Ireland has much more to do with the supportive impulses of global recovery than domestic fiscal policy,” he said.
Cork Chamber acknowledged that difficult decisions were required in order to stabilise the public finances, saying the swift implementation of measures to build on the strengths of the economy was essential to build confidence and achieve the priorities of economic growth and employment creation.
Cork Chamber president Ger O’Mahoney said: “Any increases in the cost of employment are regrettable in the current climate. We are extremely critical of the reduction by 50% of employer PRSI exemptions on pension contributions.
“Also, the increase in self-employed PRSI contributions may dissuade entrepreneurs. The extension of the employer PRSI incentive scheme until the end of 2011 does however offer employers some respite.”
“As called for in our pre-budget submission to Government, the chamber is pleased to see a revised and simplified Business Expansion Scheme.
“The new Employment and Investment Incentive will include a greater maximum amount that can be raised by companies and will enhance the ability of growing companies to access investment.”
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