Brief for Minister for Finance and Public Expenditure and Reform

Business priorities and solutions



1. Adopt more sensible fiscal policy to support investment and productivity


Why?

Following the exceptional surge in both employment and the population, capacity constraints are now the biggest risk to continued economic growth. Ireland’s infrastructure stock is comparatively weak and the level of public capital investment is the lowest in the EU. Any calls to increase public spending further in real terms must be based on clear economic rationale such as increasing underfunded capital or R&D investment or supporting activities which are complimentary to a properly functioning labour market such as childcare, housing or education.


How? The Minister should:

  • balance current spending and taxation over the medium-term. Re-focus current spending on areas with large economic and social dividends, such as R&D, education or childcare
  • push for reform of the EU fiscal rules to treat capital more favourably than current spending
  • reverse the policy decision to smooth over the 2015 growth figures in the calculation of our stability and growth pact compliance, releasing an additional €7 billion is fiscal space for once-off public investment between now and 2021
  • abandon plans for a debt to GDP target of 45% which is well below the required EU mark of 60%
  • drive a more ambitious approach of the use of Public Private Partnerships (PPPs) in order to maximise the opportunities provided by the availability of private finance for infrastructure.

 


2. 
Make work pay and support talent development, attraction and retention


Why?

Business finds it increasingly difficult to source the talent it needs for further expansion. Meanwhile Ireland continues to have the highest marginal tax rate at average earnings in the OECD. Our income tax model is now a significant barrier to attracting and retaining mobile talent, while also providing incentive to work challenges right across the economy.


How? The Minister should:

  • reduce the fully loaded top rate of tax to 47% for all workers over the coming budgets.
  • increase significantly the entry point to the top rate of tax so that no worker on average earnings should be charged at the marginal rate.
  • support greater use of the National Training Fund to develop talent and to promote employer-led training initiatives such as Skillnets and Apprenticeship.


3. Preserve Ireland’s competitive corporate tax model


Why?

The OECD has just overseen the most significant change in global corporate tax in nearly a century. Ireland has been one of the leading beneficiaries of these changes; matching corporate profits with substance, and resulting in a cascade of new business activity. Foreign direct investment (FDI) is crucial to Ireland’s open globalised economy and this should remain so.


How? The Minister should:

  • maintain the competitiveness of our transparent 12.5% corporate tax regime
  • supplement our corporation tax rate with improvements to key areas of our FDI offering and stand ready to react if US corporate tax changes challenge our competitiveness for mobile investment
  • resist any efforts at EU level to harmonise corporate tax systems over and above that already agreed under the Base Erosion and Profit Shifting (BEPS) initiative.



4. Enhance tax policy to better support entrepreneurship and SMEs


Why?

More than 98% of Irish firms employ fewer than 20 people, with these companies employing 44% of the workforce. Unfortunately entrepreneurs and the self-employed are subject to more onerous tax treatment than employees. In order to create a truly entrepreneurial culture, and rise to the competitiveness challenges posed by Brexit, this must change.


How? The Minister should:

  • ensure a level playing field in relation to Ireland’s business tax offering for indigenous business. This is in the context of a raised possibility of Irish SMEs servicing the UK market from within because of potential trade restrictions post-Brexit, and the more preferable tax treatment of SMEs in the UK
  • equalise the personal tax treatment of the self-employed with their PAYE counterparts
  • make targeted changes to investment taxation which would make investing in indigenous Irish business a much more attractive proposition
  • introduce a simplified R&D tax credit meaning that smaller firms are better able to overcome funding constraints on their innovative activity
  • reform the taxation of share options to make it much easier for firms to attract and retain key talent.



5. Continue making progress on public sector reform and e-government


Why?

Reform fatigue is clearly setting in, but the drive to improve public services should not begin and end in times of fiscal rectitude. In recent years, the focus on public services was solely from the point of the provider. The politics of provision often loses sight of the actual services to be provided, and those who rely on them. These two perspectives should not be confused.


How? The Minister should:

  • establish a new five-year plan to transform public services based on the use of shared services, outsourcing, better public procurement and e-government
  • examine all government services for appropriateness to be delivered online. Targets should be set to transition specific services to online
  • benchmark the cost of providing services to consumers across all delivery channels so as to ensure a full understanding of the unit costs of provision. Savings on the reform dividend should be used to offset the technology investment.



6. 
Deliver the most competitive tax regime for R&D and innovation in the world


Why?

The advent of the OECD’s BEPS initiative affords Ireland an opportunity to secure high valued research projects. In order to realise our goal of 2.5% GDP spend on R&D, we need to make sure Ireland is an attractive location for large cross-border R&D projects, and that more small companies innovate sooner. The R&D tax credit has been a successful model in encouraging Irish companies to invest in R&D and create value in the economy. An Ibec study showed that for every €1 received in tax credit, participating firms spend approximately an additional €1.25 on R&D over and above what they would otherwise have spent.


How? The Minister should:

  • improve the reputation of our R&D tax credit by making it more flexible and providing greater administrative certainty in its operation
  • make cost neutral changes to the R&D legislation to provide companies with an option to claim the R&D tax credit at 37.5% ‘above the line’ while foregoing the associated corporate tax deduction at 12.5%.

 

7. Position Ireland’s regulatory stance to balance competitiveness and stability


Why?

Developments such as the rise of Asia as a potential market for service exports, the new administration in the US, and Brexit create opportunities for Ireland to grow employment in traded services. However differences in regulation could alter relative sectoral competitiveness, making it important that sectors with growth potential are supported to offset any sectors that are disadvantaged.


How? The Minister should:

  • complement the appointment of a Minister of State for Financial Services with continued support for and resourcing of the successful IFS 2020 strategy
  • assess Ireland’s attractiveness and challenges in terms of firms seeking an alternative location to London in the wake of Brexit
  • resource the regulation of traded services sectors (such as finance) so that authorisation and supervisory policies in Ireland do not disadvantage us vis-à-vis other EU states
  • develop a clear regional strategy to channel any jobs growth in traded services arising as a result of Brexit proportionately to Ireland’s regions
  • ensure transitional arrangements are in place to avoid disruption in service industries most affected by regulation and where employment is heavily dependent on Irish British trade.

About Ibec

Ibec is Ireland's largest and most influential business representative. We proudly speak on behalf of 7,500 Irish businesses; home grown, multinational, big and small, spanning every sector of the economy and employing 70% of the private sector workforce in Ireland. Together with our 40+ trade associations, we lobby government and policy makers nationally and internationally to maintain a positive climate for business and drive economic growth. Our policy is shaped by our members through the work of our board, national council, policy committees and trade associations.  We regularly produce market leading industry and business events, positions on issues impacting business, economic research, forecasts and analysis. We also provide a wide range of professional services and management training to members on all aspects of human resource management, occupational health and safety, employee relations and employment law.  With 200 staff in 6 offices around Ireland as well as an office in Brussels and connections in the U.K. and Washington, Ibec communicates the Irish business voice to key stakeholders at home and abroad.

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