The reduction of capital gains tax to 20% for small businesses will greatly assist investment capacity when they are getting equity investment or selling their business. It will be a significant boost to serial entrepreneurs looking to start ventures and create more jobs and will stem the flow of investment to the UK, which has a 10% entrepreneurial tax rate.
The commitment by the Government to accept the principle to stop discrimination in the tax system against self-employed and proprietary directors is historic.
Along with the introduction of the full equivalent PAYE tax credit, we will continue our campaign to abolish the additional 3% universal social charge (USC) that the self-employed face and the lack of a social welfare safety net in next year’s budget.
The reduction of the marginal tax rate to beneath the psychologically important 50%, with the USC reductions is also vital. The extra €600m back in people’s pockets will be a serious boost to the domestic economy, such as retail and hospitality, which is still struggling in many parts of the country.
This, along with the enhanced childcare subvention, will support working parents and will increase participation rates, in particular of women. It should also relieve wage inflation pressures (decreased USC amounts to an average 1.8% pay increase) and thus help small business competitiveness.
As expected, the Government announced its acceptance of the 50c proposed increase in the national minimum wage rate by the Low Pay Commission. This will have a very negative impact on businesses in rural areas that have very low profits and no potential to pass on such cost increases into the market, where inflation is predicted to be 0% this year.
The employer PRSI changes only mean that employers will not have to pay the higher PRSI tax rate on the higher wages but in no way compensates employers for the 6% forced rise in wages.
For some small businesses, this will mean they have no choice but to reduce hours, lay people off, or delay recruitment. On balance, the size and nature of the budget is right for the economy at this time.