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Opinion: 4 things that can be implemented in the Budget to promote economic growth

For Ireland’s recovery is to be truly successful, our growth must be sustainable – and felt throughout the entire country – writes Ian Talbot of Chambers Ireland.

Ian Talbot Chief executive, Chambers Ireland

FOR THE FIRST time in many years, there is an aura of expectation surrounding the annual Budget. An expectation that Budget 2015 will signal the end of a litany of ‘austerity budgets’, and mark a new phase in Ireland’s economic recovery. Budget 2015 is being viewed by many as an opportunity for Ireland to build on the positive economic performance of 2014 and to make 2015 a watershed year in Ireland’s recovery. However risks still abound for a small, open economy such as ours and the uncertainty caused by global events completely outside our control cannot be ignored.

We believe that if Ireland’s recovery is to be truly successful, our economic growth must be sustainable, and it must be felt throughout the country. The most effective way of ensuring this is the case is by helping businesses, large and small, to create jobs.

Notwithstanding the positive trend in live register figures in recent quarters, the spectre of a recovery with very slow employment growth looms large. Budget 2015 must have at its core a series of measures to encourage the business community to create more jobs.

It is unlikely that this will be a ‘give-away’ budget. Nor should it be. We recognise that given Ireland’s fiscal position, there are serious constraints in terms of what Government can do to support the business community. Nonetheless, we believe there are a number of measures that can be implemented in Budget 2015 that will have a limited impact on the exchequer, but that will yield significant benefits in terms of job creation and economic growth.

1. Encourage Entrepreneurship

Setting up and building a new business is an incredibly risky undertaking. We are depending on the men and women across Ireland who are willing to take that risk, and invest their savings and time in starting a new business and creating new jobs. While efforts have been made to support entrepreneurs via the Employment Incentive and Investment Scheme and the Seed Capital Scheme, these schemes have seen low take up rates and should be revised to make them more easily accessible and use friendly.

The same can be said of the Credit Guarantee Scheme and we look forward to a promised enhancement to this programme. With a capital gains tax rate (CGT) of 33%, we believe that the risk taken by entrepreneurs is not being adequately rewarded. CGT should be reduced to 20% to incentivise entrepreneurs to take risks and create jobs. Improved support for entrepreneurs will create jobs.

2. Reduce Employers’ PRSI for Class A employees

The rate of Employers’ PRSI for Class A employees earning less than €356 per week is currently at 8.5%. There had been a temporary reduction to 4.25% from January 2011 to December 2013, but the rate has now reverted to the full 8.5%.

This additional cost is proving a significant deterrent to businesses who may wish to take on new employees. It has a disproportionate effect on the retail and services sectors, which are the sectors that we need to create employment in the small towns and rural areas of Ireland. We believe that this rate should again be reduced to the 4.25% level to incentivise business owners to take on staff and create jobs.

3. Encourage Construction in Key Locations

Ireland is in a housing crisis and the current tax regime isn’t helping. The disparity of 13.5% in VAT on the construction of residential housing versus commercial properties is inhibiting the construction of residential developments in key locations as the funding costs are significantly affected. Parity of treatment in both sectors based on the current commercial property rules would make many residential projects economically viable for construction firms and investors.

The 80% ‘windfall’ tax on rezoned land should also be abolished with standard Capital Gains Tax rules applying. A business owner who will receive a tax bill for 80% of any capital gains attributable to rezoning of land will be unable to afford to relocate the business and will therefore be unlikely to sell the land for residential development purposes at a time when suitable sites around urban centres are scarce.

A new stock of residential housing in a number of urban areas will help prevent the spiralling price increases in house prices we have seen of late. Government must prioritise Capital Expenditure, which has been stripped bare with 2013 spending only 38% of the 2008 total.

Finally, the Government’s standard Public Works contract is not fit for purpose and must be updated as a matter of urgency. These measures will not only support the building of much-needed housing but also give a boost to the construction sector and create jobs.

4. Maintain the 9% VAT rate for the Hospitality Sector

The hospitality and tourism sectors are labour intensive and employ significant numbers of unskilled or semi-skilled workers, a section of the labour force that has been hit hard by the collapse in the construction industry. Maintaining the 9% VAT rate will help sustain and grow employment in these sectors. Additionally, the economic returns from this employment are distributed throughout the country, with every county and city having the chance to benefit.

Budget 2015 can be used to drive economic and employment growth. If the economic recovery is to benefit people throughout Ireland, and be sustainable into the future, we must ensure that job creation remains our primary priority. Measures such as the tax relief on the Home Repair Maintenance and Improvement Scheme and the 9% VAT rate introduced in past budgets have been effective and supported job creation. It has been done before and can be done again. Our recommendations made in our pre-Budget Submission will help businesses across Ireland create jobs.

Ian Talbot is Chief Executive of Chambers Ireland.

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About the author:

Ian Talbot  / Chief executive, Chambers Ireland

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