Mr. Fergal O'Brien:

I thank the Vice Chairman and members for the invitation. We are delighted to present the views of IBEC members in advance of budget 2019. Before I address some of the specific priorities from a broad business perspective, I would like to share the insights into how we regard the Irish economy to be performing, as relayed to us by our members from over 40 sectors of the economy. We continue to experience very good trading conditions in the economy. If we consider the main drivers of economic growth, we note the consumer economy is performing very strongly. Our export markets are doing very well, with the exception of the United Kingdom. Pretty much every other developed market is performing very strongly. We estimate that the growth rate of the UK economy is probably about two percentage points below what it should be currently given the strength of the overall global economy. Notwithstanding that, export demand is very good. The third main driver of the economy is investment. We see a strong increase in investment both from the business sector in terms of capital deepening that is occurring across industry and in respect of a much-needed recovery in construction activity.

When we consider the economy in the context of the latest observable data, we note it is performing strongly. It is, however, very much a rear-view perspective on the economy, to a significant degree. When we look ahead we are quite concerned about the external pressures we now see emerging. We see real risks to our global trading system, as we have known it for so many decades. It has been a bedrock of the Irish economy and has helped us prosper in respect of international trade and internationalisation. The economy has not yet felt the impacts of Brexit, whatever they will be. We see a significant risk on the horizon. The third risk, and perhaps the most significant, is that we are now witnessing the most rapid decline in our competitive position that we have seen in a decade and a half. The cost base for Irish business is increasing very rapidly. We are experiencing severe capacity constraints in the economy in the context of labour and other resources. Irish business is rapidly losing competitiveness. That is the context in which we approach budget 2019.

I will mention five specific priorities we would like to set before the committee this afternoon. We may discuss other issues during questions and answers.

First, we believe this is a budget that should deliver a step change in the supports for indigenous business. We urgently need some brave and bold moves to achieve a better balanced economy to really bolster the SME and indigenous sectors. That will help to protect us against some of the international threats to the Irish economic model that we see emerging. Specifically, we are proposing that capital gains tax for entrepreneurs be set at a flat rate of 12.5%, and we would move beyond the current restrictive regime we have. Also for indigenous business and entrepreneurs, we propose that Ireland follow the lead of Sweden by introducing a much more meaningful share-based remuneration scheme for start-up and SME firms to help them to attract and retain talent. That is a real pressure point for the indigenous sector, particularly the start-up sector. We should adjust the stamp duty regime on equity to have a more diversified range of funding options for the indigenous sector. We should move with a much more ambitious programme of capital allowances to encourage indigenous businesses to invest more in capital and improve automation and to help them to be better prepared for Brexit. That is the platform for the indigenous sector.

Second, let me make some remarks on the international traded sector, particularly the inward investment sector. This has long been the bedrock of the Irish economy. Notwithstanding our objectives to achieve better economic growth, we must recognise how important the foreign direct investment sector is. We also need to be realistic about the challenges we now face as a result of US tax reform. The US tax reform of the past year has been highly significant in terms of the Irish business model. We no longer enjoy the type of competitive advantage we had in the past in terms of being able to win and retain mobile investment projects.

Specifically in the upcoming budget, we will be looking for certainty on our corporation tax regime. We probably regard that as the most important element of the regime in order that business can be given certainty that allows it to plan. While many US tax reforms have been very attractive, there are some questions remaining over the long-term certainty of the US corporate tax reform regime. In particular, we point out the need to have the administration and functioning of our research and development tax credit scheme, which supports research and development activity in both indigenous and multinational business and which is really a key pillar of Ireland’s international attractiveness, streamlined and improved and the need to make it as accessible as possible for all businesses. There is a very significant opportunity now for Ireland to be a world leader in robotics and increased automation in industry. We would like to see some dedicated schemes to help us accelerate in that domain.

The third priority, which is associated with a key challenge we see across all our sectors, concerns the ability of business to attract and retain talent. We are now approaching an unemployment rate of just 5%. We have a very tight talent and labour market at the moment. Probably the most significant challenge facing businesses is that they are struggling to get and keep the right type of staff to meet strong demand. With regard to what we believe we can do in budget 2019, we think some income tax reform needs to be delivered. In particular, workers on average earnings should not be taxed at the higher rate. That would be our primary income tax reform priority for the budget. We really need to do more to help all businesses, large and small, to attract and retain talent through a meaningful share-based remuneration model. Ireland simply does not compare well with other jurisdictions in terms of the taxation of share benefits. This needs to be radically reformed. A key factor, which is driving quality-of-life concerns we have in the context of the Irish labour market, relates to housing. In recent weeks, IBEC has published a major report on the housing challenges we face. Specifically in budget 2019, we will be favouring a move towards a new site valuation tax encompassing the existing residential property tax, the vacant site levy and other development charges on business. That would lead to a much more efficient use of land. It really is the high cost of land in the Irish economy that is driving our uncompetitive position in respect of housing, affordability and availability.

Fourth, we believe sustainability and our environmental challenges will become a much higher priority for our members. Business is very keen to embrace the opportunities provided by the circular economy, in particular. Some specifics we believe can be achieved in budget 2019 include long-term certainty on the tax treatment of electric vehicles and much more effective planning for low-emission and zero-emission vehicles for bus and rail transport. We want to see much more effective funding provided for renewable heat technology.

The funding available to the Sustainable Energy Authority of Ireland for retrofitting existing building stock should be doubled.

On the broad fiscal position for the budget, as I said in my opening remarks, Ireland’s competitive position is being eroded rapidly. It is time to be cautious on the economy. We favour a prudent budgetary stance. It would be right not to add to any overheating pressure which might appear to be emerging in the economy. However, we do not support the principle of the rainy day fund; rather, we support a prudent budget that is not excessively expansionary. When it comes to the rainy day fund, there are existing pressures elsewhere on public expenditure, specifically in the higher education sector, through which there is a storm ripping. The university rankings are falling significantly and we are experiencing reputational damage internationally. This is leaving us ill-prepared to face a future downturn in the economy. The best way to protect its sustainability is to invest now in infrastructure and the education system. We have a plan in place for infrastructure under the national development plan and the ten-year capital plan. However, we have no plan in place to address the crisis in funding in the higher education sector. We urge the committee to support our position that we take a prudent budgetary stance but instead of putting the money into a rainy day fund, it should be ring-fenced to tackle the crisis in the higher education sector which we are experiencing.

This afternoon we saw corporation tax receipts in the first half of the year come in at €335 million more than expected. Over five years corporation tax receipts will most likely have jumped from €4 billion to €9 billion. We need to ask ourselves what are we doing with the additional resources coming into the Exchequer and how can we continue to allow the level of under-investment we are seeing, in particular in the higher education sector.