FRUSTRATION AT THE BUDGET

The Budget tackled some business issues but it equally missed some crucial opportunities. Linda Pearson reports.

The Independent Business Organisation, ISME, has described the Budget details as a mixed bag, with many positive aspects but has missed a significant opportunity to restore Irish competitiveness by failing to adequately address the cost environment in which business operate.

Frustration

ISME is disappointed that the Minister did not address out-of-control inflation, in particular the government controlled element. If anything, the Budget could exacerbate the situation and fuel inflation with an 11.5% increase in current government expenditure in 2007. This could result in short term gain, which may lead to long term pain.

The Association also said, “the Minister should have addressed the massive public sector pay bill and the shortfalls in local authority budgets, which will force businesses to pay more in commercial rates, water charges and other local charges. His failure will have significant consequences in the next number of years, particularly in relation to our competitiveness.”

BES Funding

While the decision to increase the Business Expansion Scheme (BES) and Seed Capital programmes and thresholds is welcome, the Association is disappointed that the Minister has failed to reintroduce dividend relief for owner managers, which previously recognised the risk taken by entrepreneurs.

Along with ISME, Ernst&Young also welcomed the increase in BES funding, “the extension of the relief for a further seven years and the increase in the amount of funding which companies can raise from BES schemes are welcome. Whether these changes achieve the objective of freeing up more risk capital for small businesses is questionable in light of the 2006 Finance Act cap on investment reliefs available for high income earners,” said PJ Henehan, tax partner.

R&D Expenditure

According to ISME, changes to the credit scheme for R&D expenditure recommended by ISME which would have made the scheme available to SMEs have been totally ignored. Consequently it remains a bonanza for big business and an irrelevancy for small business.

Joe Bollard, tax partner in Ernst&Young, also believes the tax credit scheme announced in the Budget for R&D is insufficient. “The Minister announced some welcome improvements to the R&D tax credit system. However, these changes fall significantly short of making the Irish regime competitive relative to the systems available overseas.”

Bollard also said the Minister should in future consider advertising Ireland as a universal centre for innovation. “Ireland has a proven track record in using tax incentives in attracting high-quality foreign investment to Ireland. We encourage the Minister to urgently consider investment in a longterm tax incentive package which will promote Ireland as the global centre for innovation and knowledge based industries,” said Bollard.

Positive Note

On a positive note however, the Association welcomed the reduction in the top rate of tax, the increases in tax credits and the widening of the standard rate band, which will benefit all employees.

While the Association is against any further increases in the minimum wage, it explained at least the Minister has had the sense to ensure that individuals employed on the rate will not be taxed. ISME strongly welcomed the increases in old age pensions, saying “it is important that our older generation of both retired workers and small business employers are taken care of in their retirement.”

The increase in VAT thresholds, which ISME has continuously highlighted, is welcomed by them but they say it still leaves Irish companies at a serious disadvantage in comparison to their UK counterparts.

Breen Cassidy, tax partner with Ernst&Young also welcomed the new VAT thresholds. “The Minister has announced that a specific measure will be introduced in 2007 to allow VAT deductibility in respect to conference related accommodation expenses. This is a welcome development which will go some way to ensuring Ireland is not at a major competitive disadvantage when attempting to attract the lucrative conference sector business to Ireland.”

Overall ISME said, “this year’s Budget has many positive aspects but unfortunately has utterly failed to address the ever-increasing cost burden for business. While an effort was made to assist startup business, the Association feels that the Minister could have gone further by introducing init iatives to reward the risk-taker who has generated 500,000 jobs in the last ten years.”