Mr. Fergal O'Brien:

Good afternoon, I thank the Chairman and members for the invitation to appear before the joint committee. Let me introduce my colleagues from IBEC, Ms Majella Fitzpatrick, our director of communications, and Mr. Tony Donohoe, head of education and social policy. I am the chief economist.

The items on our agenda are the pre-budget submission, and jobs and unemployment, specifically youth unemployment. Our pre-budget priorities very much align with the issue of jobs, which is the focus of business. I will be brief when giving the feedback IBEC has received in the past number of months from its 7,500 members. The single most important thing the Government needs to do in the budget is not to put additional costs on work and employment. IBEC draws its members from right across the economy and has 60 to 70 sectorial organisations. We represent companies in the multinational sector that are doing quite well and in the more stressed sectors of the domestic economy, be it retail or other small and medium-sized enterprises engaged in the domestic market.

One of the main concerns of the SMEs is the policies that are being floated around about putting additional costs on work. The statutory sick pay proposals are very much at the sharp end of this issue. I know my colleagues from the Small Firms Association will outline their perspective and the impact it will have on their ability to employ people. We are aware of the concerns in companies of all sizes that if such proposals are introduced it will mean savings will have to be achieved elsewhere in the labour cost bill. For most companies, whether they employ ten or 100 people, it will mean they will hire fewer people next year and cut back on overtime or introduce redundancies. Such will be the impact of any levy on employment. This will be the case even in some of the larger organisations. Multinational groups will have their labour cost budgets completed and should the Government put an additional cost on work in the December budget, those savings must be found by reducing the pay bill in another way.

The focus of our pre-budget submission is on how we can create more jobs in the economy. We see some private sector companies recruiting quite significant numbers at present. For example, some sectors in technology and medical devices and in the pharma-chemical sector have significant skills shortages that are limiting their growth.

The issue coming up on our tax agenda is related to property tax. Our members are quite concerned about the property tax. The Government's proposals and suggestions that the property tax may be delivered through the income tax credit system is seen by IBEC as a de facto tax on work. That tax will be come out of people's pay packets on a monthly basis. It will be another tax on work which will take from the merit of having a property tax in the first place. It would be branded as a tax that only workers will pay. It would act as a further disincentive for people who are out of work to take up a job. We have concerns about the problems in respect of the incentive to work in the Irish economy.

There has been a poor analysis of the PRSI burden for Irish employers. While we acknowledge the PRSI rates for employers are relatively low at 10.75%, as we do not have a cap on the bill or there is no step down as one goes up the salary levels, one finds it becomes a significant competitive disadvantage, particularly for the employer of higher end staff. We see this in the multinational sector where some locations and sites would be competing internationally in a multinational group, so the Irish staff will be competing with a site in the Netherlands or in the Unites States and the employer's social security cost is a significant competitive disadvantage. Very often it is one of the reasons Irish companies do not win projects. While the rate of PRSI might be low, the actual amount the company pays is quite high because of the structure of our system. It is a fallacy that the employer's PRSI is low in Ireland. We need to do some proper analysis and have a full debate and discussion on the matter.

The main issue for the challenging labour market and the reason so many people are out of work is that demand is so weak. Some of our members are again hiring people and some are meeting international demand. For companies in the domestic economy, demand remains exceptionally fragile. We support the €3.5 billion budgetary adjustment as there is no other way of adjusting the public finances and it must be done now. However, even in the constraints of a difficult budget, we must ensure that what we do will be revenue neutral and would support some activity in the domestic economy. I discussed some of these suggestions with the committee in the past and we are still pushing quite strongly for Government to look at innovative ways whereby we can get some spending and activity into the domestic economy. We have made a suggestion about the limited early release of some pension funds, which we think has significant potential. This has been done internationally. We have seen the experience in Denmark and Iceland. It is one of the few ways we can get money that is currently invested outside the county and put it into our consumers' pockets. It will give the Government a windfall when the funds leave the pension fund and it means we can avoid the need for some of the more damaging taxes in terms of making the adjustment.

The household construction sector is another good example. We see this massive surge in terms of the informal economy activity. With a bit of clever engineering of taxes, or a grant scheme, we could bring some of that activity into the formal economy and get more tax revenue for Government and generate new activity which does not cost the Exchequer anything.

Child benefit payments are very topical. From our experience of previous reductions in the child benefit payment, we know that if one takes the child benefit payment from those at the lower income spectrum, that takes the full 100% of that cut straight out of the domestic economy. If one can find some way of targeting the adjustment then one will limit the damage to the domestic economy. It does matter how one makes cuts and savings. If one does it across the board, one is more likely to limit the spend in the domestic economy. If Government can take a more targeted approach it will still get the savings but will reduce the impact on spending.

We have looked at the research which would suggest that about a quarter of the child benefit payment is going into savings accounts. We have a suggestion that will incentivise people to spend that money via an electronic card format. If people wanted to be paid in cash, they could get it, but at a reduced amount of cash. It would be a saving for the Exchequer. People who would opt for the electronic card model would get discounts from retailers. It could be a win-win all round.

In terms of the broad SME sector, access to credit for investment remains challenging. We think there are some clever things we could do in the budget around the tax agenda, particularly in terms of encouraging the re-investment into small businesses, from the sales of some businesses. We have many success stories of businesses being sold. Right now the tax system does not give an incentive to keep that money in the economy and to put it to work in other start-ups or business opportunities.

The business expansion scheme was a very important source of funding for many businesses. The follow on we have in terms of the employment investment incentive scheme does not seem to be working. We know it is a tough investment climate but we need to change the focus of the scheme. We need to attract a new type of investor. To bring that new type of investor in, we will need to do something about the risk that is built into the scheme. We have looked at the detail of the state aid rules and we think there are things that could be done that will attract more investors with a reduced level of risk. That would have a big impact.

In regard to mobile investment, Ireland's offering remains attractive but our competitors are catching up with us in the wider business tax. The Minister spoke about innovation in particular. The UK has closed in on us in the past couple of years. It has reduced its corporation tax rates and has done some very clever things around intellectual property and patents which is really getting the attention of mobile investment. We need to look at that issue.

On the unemployment agenda, we have two main issues. We have been very supportive of the Pathways to Work initiative. On paper it is a very good plan. If delivered fully, it can make an impact but we have a great many concerns because as of yet we are not seeing the change on the ground. We are not seeing this connection with the workplace. For us the key in terms of upskilling, training and labour market activation is to keep all the action as close to the workplace as possible. We have not seen that. In terms of the Pathways to Work initiative, getting a strong engagement with employers will be crucially important. We know there are initiatives being rolled out in the Department. We need to see them properly resourced.

The real key to success is going to be getting that client intervention and client focus correct. We are not certain that the system as it is currently set up has the capacity to do that; new delivery models will most likely have to be considered. If we are not getting that intervention right, we will not provide the support that is desperately needed by hundreds of thousands of people who are out of work and want to get back into the workplace.

The creation of SOLAS and the local education and training boards presents a significant opportunity to reform, reshape and modernise the most crucial component of the system that improves people's skills and gives them the training they need to find work. We have significant concerns about the degree to which employer issues and requirements are being built into that model. We are going through such reform in the economy that it is very important for us to grasp the opportunity to design these things properly. We are not yet seeing that in the roll-out of SOLAS.

My colleague, Mr. Donohoe, is much more of a specialist on the area of youth unemployment. I will make a few brief comments on it. The efficiency of the education system will be key. That brings us back to the point about the need for proper interaction between the requirements of business and the requirements of employers when we are focusing our resources and our investment in the education system. I do not think there can be any one-size-fits-all solution to youth unemployment. Very different types of young people are out of work. They have very different skill levels, education levels and requirements in terms of upskilling.

I think Ireland has done incredibly well, across the qualification space, in terms of the number and quality of students coming through our third level education system. We have shortages, deficiencies and vacancies right across the skills base. Interestingly, we even see from our members that it is not just the high-tech guys who say they have unfilled vacancies. Many engineering companies cannot get apprentices, for example. We need to focus our resources right across the skill level and qualification level systems. There are vacancies at all levels. It is not just a matter that relates to third and fourth level computer specialists.

I would like to speak about the European agenda. Initiatives such as Youth on the Move and New Skills for New Jobs potentially have a lot to offer. IBEC will be very engaged with some of these agenda items with a view to the Presidency. The crucial thing is that we will need some funding as well. There are funding opportunities out there, for example under the ESF. We would like to see a really strong focus on where those opportunities might be.

I have probably taken too much time for my opening remarks. I will leave it at that. I will be happy to take comments and questions.