Oireachtas Joint and Select Committees
Tuesday, 13 November 2012
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Job Creation and Sustainability: Discussion with Chambers Ireland
I welcome the following from Chambers Ireland: Mr. Ian Talbot, chief executive, Mr. Seán Murphy, deputy chief executive, and Mr. Barry Peak, policy and research executive. We hoped to have the witnesses before us earlier to deal with a report from the committee but it has not yet been completed. I apologise for the mix up. We will also be beginning a study of the retail sector which will involve chambers of commerce from around the country and we will keep in touch with the witnesses as we proceed. We can take the parliamentary practice as read. I invite Mr. Talbot to address the committee.
Mr. Ian Talbot:
As Ireland's largest business network, Chambers Ireland is pleased to be given this opportunity to address the committee. Our submission represents the views of the entire chamber network. It is the result of extensive consultation with representatives of the business community throughout Ireland. Our members include established indigenous and multinational companies as well as small and medium-sized enterprises taking their first steps in business. All of them recognise the role governments can play in producing the right conditions for job creation and retention.
When this Government came to power, we noted the importance it attached to job creation. Policies that support existing positions and help to create new employment will be a cornerstone of any future economic recovery. Throughout 2012 we observed the progress made in this area and commented on the action plan for jobs and the three progress reports made to date. Our general view is that while the action plan is strong on aspiration, we urgently need to deliver more rapidly. While high profile jobs announcements are very welcome and we congratulate the Government on successes in this area, the numbers on the live register remain alarming.
The policies pursued must create sustainable employment at a cost that is capable of being borne by businesses. We believe this can be achieved through a number of policy areas. There must be no increase in the cost of employment, wage setting mechanisms must not be excessively rigid, local government reform must help local economies, there must be a range of practical supports for SMEs and entrepreneurs, Ireland's infrastructure must be strengthened, and any changes in taxation must be sympathetic to the needs of the business community.
Our members believe that the most important factor affecting job creation is the cost of employment. If the Government is serious about helping businesses to create jobs, they must not increase these costs. An example members may not think about is that the profitability of companies which cover health insurance costs for their staff is affected by ongoing levy increases, which have increased from €160 for each adult covered in 2009 to €285 in 2012. With further increases scheduled, this has a real impact on the ability of these companies to retain existing staff and create new employment. We believe there must not be any increase in the employer's share of PRSI and additional costs of sick leave must not be transferred to employers. The Minister for Social Protection has suggested that such moves would be justified as they merely bring Ireland into line with international norms. We reject that claim, however. A number of major OECD countries have similar sick leave regimes as in Ireland. Furthermore, employers bear the brunt of the cost of sick leave through their contributions to the Social Insurance Fund. The extraordinary rise in health insurance costs also adds to companies' cost burdens and is a matter of concern. These costs would not only harm existing indigenous companies but also have a harmful impact on foreign direct investment. Companies considering investments in Ireland will not like to see the cost of employment rising. The Minister's logic is flawed because the outcome of these policies would run counter to the Government's stated aims on job creation.
This August saw the enactment of the Industrial Relations (Amendment) Act. A number of changes were welcomed by Chambers Ireland and the wider business community. In particular, the reduction of Sunday premium rates of pay could prove vital in guaranteeing the survival of many small businesses in the retail and service sector. For job creation to be sustainable, conditions of employment must be flexible. Artificially inflated wage levels actually threaten jobs. Many EU countries are seeing the benefit of flexicurity in employment because flexible terms and conditions actually produce more secure and stable outcomes for employers and workers. Future legislation must be clear, simple and easily understood and implemented to ease the regulatory burden and make it easier for employers to comply with the current cornucopia of legislation in this area, which itself is a disincentive to employment creation. Approximately 35 Acts apply to employment. We reiterate our call for a fully consolidated single Act in this area.
Considerable attention has been given this year to the reform of local government. While the local government reform action plan mainly focused on the restructuring of local authorities, if the Government is intent on putting people first it needs to ensure local authorities work with local companies to assist in the task of job creation. The local enterprise offices, LEOs, which replace the county enterprise boards, should have clearly defined roles and functions and must not duplicate the services already offered by private companies.
Instead they should fill the gaps between existing services to ensure businesses are supported.
Furthermore, representatives of the local business community ought to be included on these bodies. For instance, given the experience of and local knowledge accumulated by chambers of commerce, representatives of such bodies could be an invaluable addition to any LEO. The Government must emphasise the importance of local tendering. Public sector organisations should be encouraged to tender from local firms and consortia. Specifically, Department of Finance circular 10/10 giving guidance on SME participation in tenders should be fully enforced.
I refer to supports for SMEs and entrepreneurs. This is another key area affecting job creation and availability and we have a number of proposals. First, the cashflow of SMEs can be improved by implementing the EU directive to allow them to utilise a cash accounting system for a greater cap. While the Revenue Commissioners have implemented a cash accounting scheme, allowing companies to account for VAT on sale on the basis of payments received rather than tax invoices issued, it requires that annual turnover of the business must not exceed €1 million. This threshold is low by international comparison, being approximately two thirds of the thresholds that apply under similar schemes in the UK and Australia. Where a VAT registered trader has an annual turnover exceeding €1 million, it can only apply the cash accounting scheme where its supplies goods or services almost exclusively to unregistered persons. This limits its application in practice to retailers and others businesses that sell to consumers and it does not assist the large number of SMEs with a turnover of marginally in excess of €1 million that carry out mainly business-to-business sales. We fully support recommendations regarding the extension of the scheme to businesses with a turnover of less than €2.5 million. The full year cost of this proposal is zero, as there is no reduction in VAT paid. It is simply a deferral while a number of companies adjust from one system to the other.
Businesses must be encouraged to use the services on offer from the microfinance fund and credit guarantee scheme. A perception persists that many businesses will be rejected when they apply for credit and we must challenge this. Businesses must be encouraged to apply to the banks, appeal through the CRO and use the credit schemes as a final resort. We have called for a credit guarantee scheme since 2009 and we are disappointed by the number of applications being made to the CRO but the fact that so few are going to the office tells us something about demand levels in small businesses. Our sense on the ground is that this is as much a demand issue as a supply issue. The schemes are a vital component in improving confidence and the key is to encourage companies to apply to their banks because there are still companies that are afraid to go in and ask. If any of these schemes give them a good reason to go in and ask, it is up to the bank then to keep them there. The key issue for us is that when the recovery starts in earnest, we need to make sure banks have plenty of money to lend as well.
The Government should take measures to reduce the level of black market activity in the economy. Legitimate businesses, which create numerous jobs, suffer as a consequence of these activities. We believe hundreds of millions of euro are at stake.
Entrepreneurs should be rewarded for their risk tacking activity through the introduction of entrepreneurs' relief. This would reduce the effective capital gains tax rate from 30% to 10% for qualifying disposals. This should apply to gains made on the disposal of entrepreneurial businesses by individuals following the sale of all or part of a business. We are looking for measures that will help entrepreneurs to start businesses and create jobs. The seed capital scheme should be simplified and promoted to encourage more people to start their own businesses and grow job opportunities in the future.
Infrastructure is another area that allows business to grow and develop and, subsequently, leads to job creation. The Government must invest in the development and maintenance of primary, secondary and tertiary roads across Ireland. One example of a project that could greatly assist Ireland's business community is to upgrade Newlands Cross to complete the upgrade to the N7, which began in the 1960s. Electronic infrastructure is also essential. Given Ireland's dispersed population, it is essential that all businesses benefit from a fast, efficient and reliable broadband service. The national broadband plan must be fully implemented.
As we approach the budget, taxation is not far from most people's thoughts. From a business perspective, corporation tax must remain at 12.5%. This will give businesses, internally and externally, the confidence to grow and develop, creating sustainable employment while allowing them to reinvest in their businesses. The new local tax ought to lead to an appropriately targeted reduction in rates and other charges paid for by local businesses. This again would give those in the business community increased confidence and security to enable them to expand. In recent years, the hospitality sector has benefitted from a 9% VAT rate. This should have a rolling two-year guarantee to enable businesses to guarantee advertised prices and accept bookings well in advance. Typically, that system works on a one to two year timeframe for bookings and a guaranteed rate would be valuable. This would safeguard many jobs in this vulnerable sector.
The solutions presented here seem straightforward and that is because we believe they are. A number of Ministers have repeated the mantra that while governments do not directly create jobs, they help produce the right conditions for job creation. To do that, practical measures must be introduced to support indigenous companies and encourage increased FDI. If the jobs action plan 2012 was strong on aspiration, any new document must deliver quantifiable results. I thank the committee for its interest in our position and for its attention today. We are willing to address any questions the members might have.
I thank Mr. Talbot for sharing his thoughts with us. We all agree with most of them. Will he expand on how Chambers Ireland wants the seed capital scheme simplified? I thought it had been simplified where only a company could apply under it as opposed to a sole trader.
The Taoiseach has guaranteed that the corporation tax rate will stay and, therefore, that is one issue the organisation will not have to worry about. The pension levy was applied to guarantee the 9% VAT rate in the hospitality rate for four years.
Mr. Seán Murphy:
We raised the issue relating to the seed capital scheme in our pre-budget submission last year as well. The lack of awareness about the scheme is still a big issue. The other issue we keep hearing from our membership around the network relates to how one qualifies and where one goes to get the thumbs up. The Minister for Jobs, Enterprise and Innovation has talked about simplification efforts and he says it is on his agenda when he talks to the business community. We continually encounter businesses in start-up mode that are not aware of it. This is about profiling and promoting the scheme and being sure about what the timelines for approval and what sectors qualify under it.
Do the representatives have any ideas about how initiatives such as this can be advertised? We are hearing repeatedly that businesses do not realise these schemes are available. Many of us do not have time to go through the paperwork. How do we target them? If additional tax was to be imposed, we would know about it straight away. Providing a cash payment for creating a job is probably the simplest way to do this rather than giving tax back to cover the initial costs of employing somebody. What are the view of Chambers Ireland on that?
Mr. Ian Talbot:
The CRO is a powerful example. Surely, every business in the country must know the office is there, yet few people apply. One cannot fail to hear the CRO advertising and, therefore, there is a dilemma. The Revenue has the best mailing list in the country for businesses. Perhaps the Revenue could advertise in its messages the legislation that is key. We have mentioned this the odd time previously and I acknowledge there are data protection issues. Some of the entrepreneurial initiatives we are looking at, for example, very much try to make people who have recently been made redundant to think about reinvesting their pot of cash.
Perhaps the information sent by the Department of Jobs, Enterprise and Innovation about redundancy claims could be accompanied by a snapshot of key items. Government mailing lists are probably the best on the market. Membership organisations such as ours depend on members signing up, being entitled to receive e-mails from us, etc.
Mr. Seán Murphy:
We have supported the profiling initiatives by the Minister for Social Protection, Deputy Burton for hiring the long-termed unemployed at nine locations in the past month or thereabouts. Just as 1,000 staff have been transferred from the HSE into the Department of Social Protection to profile new workers, questions should be included on the menu of solutions. Has a seed capital scheme been considered? How much tax has a person paid in the past X number of years? I would be surprised if the officials with whom people must sign a contract to meet are aware of the potential for these ideas to be included on the menu of solutions that they should be embracing.
Some businesses can qualify if they want to set up a new company or get into a new area. That more people do not use this process is baffling. Access to the business incentive scheme has been made easier. Accountants are setting up funds and using clients' money to invest in three or four of them, which was not the case previously. Rather, an accountant would raise money for a client. There seems to be activity in that space. The seed capital scheme is great but only one client used it in my time as an accountant.
Mr. Ian Talbot:
We appreciate that the 12.5% corporation rate is embedded but we cannot emphasise enough how important it is. Talk of increasing the rate creeps into some people's agendas from time to time. According to the figures, the actual corporation tax contribution has tended to be stable regardless of the rate. We will keep reminding people that the 12.5% rate should continue.
There is a version, but we have asked all Departments to ensure that everything is covered and that, when the information is ready, it be provided to us for consideration. We know of many schemes that are not on the brochure. The information will then be finalised and the committee can publish it.
I agree with the Chairman's idea about using Government resources, but the negative side is that cranks will ask us about why we are wasting them. There will always be negativity but the idea is a good one. A ready-made database would be useful.
I would like to see the delegates putting pressure on everyone, including the committee, regarding another issue. We have dropped from tenth to 15th place in the list of the world's best places to do business. Singapore is No. 1 and our tenth placing was not bad, but we have slipped to 15th in the past year. We should make an effort in this regard.
The other measure lies in trying to set up a new business. Singapore is good in this respect, but New Zealand is even better. One can set up a new business in one day through one procedure. In Ireland, one can only set up a new business in ten days through four procedures. The cost in New Zealand is less than €100. In Ireland, it is approximately €140. This is not a significant difference, but a real effort to remove red tape and delays would be welcome. The delegates and the committee should make that effort.
I thank our guests for attending and for their excellent presentation. When reading newspapers, I always find the comments by Chambers Ireland interesting. I appreciate those observations.
I agree with our guests regarding the action plan for jobs. It is aspirational and the high-profile announcements are deflecting attention away from the facts that more than 400,000 people are on the live register and 87,000 emigrated last year. As an Opposition party, Fianna Fáil must be more vigilant in our tracking. When one hears about 100 jobs here or 200 jobs there, it is good news and one could believe that everything was rosy.
As Senator Quinn will concur, Government and Opposition parties in the Seanad agree on the issues of jobs, bank lending and the availability of money. We in Fianna Fáil were in office for most of the recession but we must stay on our toes and reduce the numbers unemployed. Unemployment is a scourge. There is a brain drain.
I was disappointed to learn that county and city enterprise boards, CEBs, were being merged with local authorities. If adequate leadership is provided, however, it could be good. Mr. Trethowan referred to viewing local authorities as one-stop-shops, in that people knew where they could get information on available schemes, etc. It could work and I am coming around to the idea. If the Enterprise Ireland contacts who deal with local management are missionaries and visionaries for employment creation, it could work. If they are bureaucrats, it will not. I will be optimistic.
Last week, I attended a Fianna Fáil breakfast in Dún Laoghaire. Deputy Michael McGrath, our finance spokesperson, addressed it. Many business people from the area also attended. They pleaded that the budget not add further costs to companies. Will the Government increase the cost of employment? It is a serious issue.
Mr. Talbot and his colleagues should keep up the good work. It is excellent.
Mr. Ian Talbot:
There must be a clear division of responsibilities. We do not want someone in a Government-funded position deciding that it would be great to do what the chamber of commerce does in the local area, for example. The chamber of commerce has its own function and the two bodies should work together.
We would like to have input into the service level agreements for particular areas.
Mr. Ian Talbot:
Service levels in chambers around the country differ. For example, services in cities may differ from those in towns. We would like to be involved.
On the Senator's other point in regard to pleas that the budget not hit employers' costs, we are happy to debate any issue at the right time. However, this is not the time to add costs to employment.
Ms Connie Doody and I set up Lir Chocolates in the late 1980s, following which I immediately joined the Dublin Chamber of Commerce. It was an incredibly fruitful network for me. The former chairman of Superquinn, Mr. Vincent O'Doherty, was also a member at that time, which meant if I had difficulties on the ground with Superquinn locally I was able to speak to him about them and have them sorted out. Mr. George McCullagh former chairman of Brown Thomas at the time was also a member. It was fantastic. I also had the pleasure of being elected twice to the council of the Dublin Chamber of Commerce.
Mr. Seán Murphy:
We understand the Department of Jobs, Enterprise and Innovation will publish a draft service level agreement or will set up contracts between it and the local enterprise offices through Enterprise Ireland. There will be consultation on this issue, which the joint committee might like to examine. We will be making a submission to the process in consultation with our chambers. These contracts will be important in terms of ensuring the local enterprise offices can work properly in the coming years.
We have asked the implementation body to appear before us shortly to tease through the process of timelines and so on. It is important we get this right. The local enterprise offices will only work if they become one-stop-shops.
Senator Quinn, who has left the meeting, has been raising the issue of the need to encourage entrepreneurs for a long time. Does Mr. Talbot have a view on the widening of the net for PRSI for self-employed people? He may already have presented on this issue to the Joint Committee on Education and Social Protection. In his view, is this necessary? The danger is that if introduced it would have to be mandatory rather than optional if it is to work. Perhaps Mr. Talbot would share his thoughts on that and will say whether in his view this would be helpful in terms of assisting entrepreneurs.
Mr. Ian Talbot:
The Chairman has caught us on the hop on this one. We are trying to make it as attractive as possible to grow and build businesses. We do not tend to get into personal tax rates around this and so on. It is important that entrepreneurs who, having left a PAYE job, invest in a business and take on the worry of paying salaries every month and so on, are rewarded for doing so. There can be a grudge factor in Ireland about people who do well. If people are not encouraged to get into business and create jobs that presents as a crisis for us. The argument again is whether it is a good time to penalise people who are in the job creation space.
I invite the witnesses to engage on a regular basis with the joint committee in the context of its study of the unemployment sector, in respect of which it hopes to put forward suggestions and initiatives that might help create jobs. It is hoped this process will feed into the Action Plan for Jobs in 2013, which will probably be launched in February. I accept that much of the first action plan focused on basics. However, we had to get the basics right. It is hoped the next plan will move on from that and will be a lot more imaginative in terms of job creation. We need everyone to feed into the study process, the results of which will be included in the plan. The role of the joint committee will be to monitor implementation of the plan. Much of what is proposed in the current plan is basic and should, perhaps, have been done years ago. However, it is important it is done now so as to ensure we get the foundations right. It is hoped the initiatives will be increased as we move forward.
The witnesses should feel free to engage with the joint committee on any ideas they have or in regard to any opportunities to create jobs which it may have missed.
Mr. Seán Murphy:
Real job creation will occur when the domestic economy improves. The foreign direct investment sector is doing a good job but until the domestic economy recovers there will not be massive job creation. We need to be mindful of this in terms of the impacts we are having. This is the reason we continually espouse the concerns about tax increases as opposed to cost containment measures. The sick pay bill in the HSE last year was €250 million. A cost saving measure in that area would do a lot less damage to the economy than would other types of initiatives.