Budget 2022

The Highs & Lows

Neil McDonnell, Chief Executive, ISME

We welcomed one of the most-leaked budgets ever on 12th October. It’s hard to believe a Minister was dismissed some years ago for leaking budget details; this year politicians were apologising to journalists for having no more information to leak.

As in previous years, we had a significant number of “asks” on the table for the budget. It wasn’t all bad, so let’s look at what’s welcome, what’s understandable, and what’s yet to be done.

WELCOME

The phased withdrawal of the EWSS; partial maintenance of the commercial rates waiver; the additional capital expenditure on infrastructure and housing; the (limited) measures for start-ups and entrepreneurs; and additional measures for green business and the digital economy are all welcome. The widening of the standard rate tax band by €1,500, and the €50 addition to the earned income credit are as welcome as they are long overdue. Our marginal rate entry point at €36,800 is still €4,133 below the current average industrial wage. The childcare package announced is similarly longoverdue. However, we are concerned at the “fees freeze” condition in the Department’s proposal, which is worrying in a sector where payments have already been frozen for many years. The Federation of Early Childhood Providers wants to pay workers the higher “Mercer” scale, and will also have to pay yearly adjustments to their staff. Government proposals must allow the indexation to achieve this. Lastly, we welcome the fact, as set out in the Fiscal Advisory Council Flash Report on the budget, that Government did not use the additional tax revenues identified this year to finance additional expenditure. Ireland is already a highly indebted country, and this would have made our problems worse.

UNDERSTANDABLE

There was a significant focus in the budget on managing cost-of-living issues for the low paid, particularly now as inflation is back. September’s inflation level was 3.8% annualised, a level we have not seen for years. And inflation in energy costs is even higher. Therefore, it was no surprise that old-age pensions and fuel allowances were increased. We understand why Government won’t embark on major tax reform with a Commission on Taxation and Welfare in the pipeline. But in truth we don’t need a Commission to tell us that significant reform is required. In our Jobs Kill Zone Report, we set out four simple, vital reforms that Government could make to encourage the low-paid to seek better pay, promotion, and upskilling: 1. Fix PRSI to eliminate the high marginal rate on additional income in the income Transition

Zone from €18k to €22k. 2. Set the basic rate for qualifying for the medical card at more than 30% above the comparable

Jobseeker’s assistance rate. 3. Replacing the child element in Jobseeker’s payments and all other welfare schemes by increasing Child Benefit, phasing out Working

Family Benefit, and at the same time making the Child Benefit taxable 4. Significantly increasing the income thresholds for access to social housing. Reform or remove the link between income and local authority rent. Increasing what is already the second-highest National Minimum Wage in Europe to €10.50 will do nothing materially useful for the low paid. Government needs to focus on the cost of living for workers, and must stop taking actions that increase the cost of rent or property. We are losing our international competitiveness.

YET TO BE DONE

Budget 2022 included spending measures that permanently increase our State spending by 5% per annum. This has to be paid for. In order to do so, ISME proposed a “Solidarity Tax” for PAYE workers earning over €100,000, by extending the 3% USC surcharge levied on the self-employed to them (or introducing a 43% marginal tax rate for PAYE workers earning over €100,000). This didn’t happen.

A decrease in CGT from its current 33% would have generated extra yield, but there appears to be ideological objection to lowering it. The 9% VAT rate needs to be retained into the long term, and the “temporary” 23% VAT rate should be permanently lowered to its original 21%. The Employment and Investment Incentive (EII) scheme, R&D credit, Knowledge Development Box (KDB) and the Key Employee Engagement Programme (KEEP) all need substantial amendment to make them relevant and usable for the small enterprise sector. In order to address the skills shortage among owners and managers in the SME sector, Government needs to roll out ISME’s Blue Cert basic business qualification, and to encourage uptake via tax incentives. As we advised Minister Donohoe last month in our demand for Pensions Equity, we need to see meaningful movement to end the tax discrimination against the self-employed and private sector workers who are trying to save for a pension, otherwise we will be taking the Revenue and the State to court. While there has been some reform of property tax, ISME also wants: • A site value tax to replace the open-market valuation basis for LPT (and commercial rates) purposes. • A levy on road frontage (or a load factor on an

LPT valuation). • Government should complete a national review of LPT valuations by end of 2022. Thereafter,

LPT revaluations should recur every five years, perhaps in Census year. There is a real concern about value for money in public spending. If Sláintecare is to be continued, then the Sláintecare Implementation Advisory Council (SIAC) needs to include a Lean Sigma Black Belt with knowledge of the healthcare sector, and it needs to recruit a health economist. It also requires board-level senior management experience from the services sector.

Finally, it is important to make some realistic observations about the lack of direction in the Government’s small enterprise policy. We acknowledge that Ireland is just emerging from a pandemic that has imposed a global man-made recession. This makes it doubly harder to generate the political consensus needed for major reform. But it was not always so. Within seven years of the end of the War of Independence and the Civil War, the Irish State had diverted one seventh of its total income to the Shannon Hydroelectric Scheme and electrification. We need a similar level of determination now as we face structural issues on multiple fronts: climate change and the need to move from fossil energy; a health system that has proved resistant to all efforts at reform; an aging population coupled with a social insurance system unable to bear the weight of old age pensions; a fragility in the European and global political order with which our cosy, naïve national introspection is incapable of coping; an education system increasingly lagging our OECD peers; and an industrial policy which is driving our two-track economy - multinational and domestic - even further apart. Our political system struggles to recognise the existence of these problems, let alone address them. Worse than political apathy however has been the indifference of large enterprises to the need for change. While there was no love lost between Ibec and ISME members who broke away to form our Association back in 1993, there was quiet consensus on many things such as the macro economy, taxation, employment, etc. It was actually Ibec which pulled the plug on the “partnership process” at the end of 2009 when, even in the teeth of the Great Recession, the trade unions would not agree a halt to scheduled pay rises under “Towards 2016.” Since then, however, the conversation has changed. Whether it reflects indifference by its multinational members, or an increasing influence of its semistate and academic members, the messaging is consistently one of endorsing the “Big State,” with no mention of inconveniences such as efficiency, effectiveness or value for money. Despite our differences, our membership would have appreciated the support of big business in issues where we thought we had common cause through the last decade: in insurance reform; in tackling white-collar crime via perjury and defamation reform; in tackling legal costs; accessing affordable finance; reforming commercial rates; and latterly during the pandemic, in setting up an affordable examinership regime and advocating for small business with our friends in the Local Jobs Alliance and with the SME Recovery Plan. But when we looked over the shoulder for support, there was no one from big business there. We don’t know why this lurch to the left has taken place in Ibec. It may be the amount of subscription income coming from the semi-state sector? But as the business representative on the Labour Employer Economic Forum (LEEF) it needs to speak up for the needs of the small enterprise sector. Failing that, the voice of the employers of the largest number of workers in the productive sector of the Irish economy needs to be heard on LEEF.