Opinion: Lack of response to needs of private business and SMEs poses risks for economy - Kilkenny Live

As ministers gather to discuss what will make the cut in Budget 2024, the population is well-versed in the challenges facing the Government.

From inflation to capacity constraints, the Ministers for Finance and Public Expenditure and Reform will need to perform a delicate balancing act. With buoyant Exchequer receipts on the one hand, and the recent announcement of a drop in corporation tax receipts, can the Government balance prudence with popularity?

While the Government presses ahead with implementing global tax reforms, pro-growth initiatives that incentivise investment and encourage employment in domestic companies and groups are conspicuous by their absence.

Examples of such initiatives could include reducing the cost of employment, increasing the after-tax returns for entrepreneurs and incentivising climate change projects.

Pro-growth policies
Ireland’s SMEs employ more than one million people and are the backbone of the Irish economy. This sector is ignored at the economy’s peril, and Budget 2024 must support investment and innovation in it.

In its pre-Budget submission, PwC proposed some amendments to the Revised Entrepreneur Relief, which allows for entrepreneurs to dispose of shares in their business at an effective 10% rate of CGT, subject to conditions. It would be very beneficial to include angel investors as qualifying individuals for the purposes of this relief.

We have also called over many years for an increase in the lifetime limit of this relief, for example to €5 million (from the present €1 million) in order to make it a more attractive prospect for investors. Currently, investors must spend at least 50% of their time over three years working for the company in which they invest in order to qualify, so a relaxation of this working time requirement is also warranted.

The R&D tax credit has proven highly influential in attracting high value R&D investment and jobs into Ireland including the Kilkenny region. This is demonstrated by the success of the MedTech community that has developed in Ireland. Rising costs and inflationary pressures have come to the fore as one of the key challenges for Irish businesses investing in R&D.

An increase in the credit rate from 25% to 30% would make a marked difference to companies in the current inflationary environment, particularly those enterprises in their start-up phase. This would not be out of step with many of our continental neighbours. An increase in the subcontractor and university cap to 25% would also be beneficial and allow businesses to ‘buy-in’ skills they lack themselves, while still driving forward our knowledge economy.

As many readers may be aware, the Key Employee Engagement Programme (‘KEEP’) allows employees to avail of capital gains tax treatment on disposal of the employing company’s shares, if acquired subject to conditions. This is much more favourable than suffering income tax rates, given that the current capital gains tax rate is 33% whilst an individual’s marginal income tax rate may quickly reach 52%.

The uptake of the KEEP scheme is relatively low among businesses, however. Adjustments to the holding period condition and removal of the distinction between short options and long options in the technical weeds of this regime would be welcome if forthcoming in the budge.

Climate action
It is a stark reality that Ireland will not meet its carbon budget targets unless urgent action is taken. The adoption of the Temporary Crisis and Transition Framework (TCTF) at an EU level provides the Irish Government with a short window (until the end of December 2025) to introduce additional grants and tax incentives with our climate goals in mind.

We are calling for changes that could include the expansion of the accelerated capital allowances regime and the enhancement of its provisions; green tax credits; State-backed loans to facilitate investment in green energy projects/infrastructure by corporates, particularly SMEs; and the expansion of the grant regime to incentivise decarbonisation across all sectors of our economy.

Undoubtedly, bearing in mind the electoral cycle and economic headwinds with housing, health and ongoing inflation, this will be the coalition’s most politically difficult budget. Government has a large surplus to play with which brings flexibility. Public expectations are high, but with only a €6.4 billion core budgetary package to work with, everyone cannot be satisfied. The above suggestions would support businesses, both indigenous and internationally owned.

Importantly, they would also help ensure that the very fertile start-up and scaling community in the Kilkenny region is nurtured for the longer term.

It is not yet clear how the Government will deploy the funds at its disposal in Budget 2024, but one thing is sure — with this being potentially the final budget before the next election, how the Government allocates its resources will be interesting to observe!