Long awaited change in Self-employed allowance welcomed.
Entrepreneurial package will boost economic growth.
USC gains should ease wage demands.
Public sector inefficiencies must not be forgotten in the rush to election.
ISME, the Irish Small & Medium Enterprises Association, gave a general welcome to Budget 2016 and in particular to the change in the position of the self-employed, which the Association had been lobbying on for a number of years. The long awaited equalization of self-employed and employed will, over the next number of years, bring some measure of equity and help increase the start-up of new businesses.
The Association however, warned of pre-election propaganda, creating a false sense of completion of the recovery process. In particular the failure to control public sector inefficiencies and spending by a government in full re-election mode.
Commenting on Budget 2016, ISME CEO, Mark Fielding said: “The fact that ISME’s lobbying for the self-employed over many years has eventually paid off is welcome and we suggest that the job should be completed in two years. The Association had also been to the fore in the push to have the Capital Gains Tax on entrepreneurs reduced, we welcome the reduction to 20%, as the high rate is having a detrimental effect on business transactions”.
“Labour costs are still too expensive and restrictive in terms of trying to grow employment. The increases in the tax burden on hard pressed employees have in effect been “passed back” to employers in the form of wage demands to compensate for reductions in net pay. The ISME campaign ‘to make work pay’ has had some success in that the changes to the Universal Social Charge (USC) will certainly increase take home pay and thereby, hopefully reduce wage demands over the next year, while SMEs regain lost markets.”
The increase in the minimum wage will no doubt have a negative effect on wage rates as relativities will be expected to be maintained, as the 6% increase will ripple through the rates of pay. In addition, the introduction of statutory Paternity Leave will also add to business costs. These are viewed by private businesses as prohibitive in terms of job creation.
The reduced 9% VAT rate in the tourism sector has provided excellent benefits to the economy and is seen as one of the major catalysts for the significant revival of our tourism industry over the last three years. Tourism is a key industry and state incentives are seen as vital to allow Irish SMEs create sustainable jobs and improve their service offering. The retention of the reduced rate enables businesses to remain internationally competitive is very welcome.
The Association welcomes the Entrepreneurial package in the extension of the start-up corporation tax exemption, changes to TV and Film and the EII scheme, all of which we lobbied for in our pre-budget submission. The reduction in retailer’s card payment fees is also to be welcomed and must be monitored closely to ensure that banks comply. We await further information on the Knowledge Development Box initiative, with a reduced rate of corporation tax of 6.25%.
The changes in motor tax and the extension of the Home Renovation Initiative will positively affect the haulage and building sector.
The private Pensions levy was an unfair expropriation of private sector workers’ savings by a Government with no national pension’s policy. The cessation of the private sector Pension levy is welcome as it was a penal tax on private sector workers to pay for public sector guaranteed pensions.
“As this is the last budget before the election, a populist budget was inevitable. However there are many reasons to be cautious about the economic outlook. The recent growth performance of the Irish economy is in part down to good fortune in the form of positive but temporary external developments which could just as easily reverse. The three positive changes for Ireland in the last two years are a halving of energy import costs, borrowing costs are at an all-time low and the euro exchange rate has fallen sharply against both the dollar and sterling.
The recovery is partly due to these three external conditions and their reversal will have an adverse effect on the government debt and business debt and costs. We now must guard against a premature boom in private consumption and in private sector investment. If we do not, as a country, address our cost competitiveness then, when they reverse, this pre-election mainly populist budget will be regretted.”
“In the round, this year’s budget will assist entrepreneurs and make some inroads into ‘making work pay’. The real danger is that whatever slight focus on eliminating public sector inefficiencies will now disappear when government departments know additional funding is available. A failure to cut and control public sector spending is now a major threat to the continued recovery”, concluded Fielding.