John Lyons (Dublin North West, Labour)
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The first session is a discussion with Chambers Ireland on its alternative ten point plan. I welcome Mr. Ian Talbot, chief executive, and Mr. Sean Murphy, deputy chief executive, to the meeting to discuss the plan.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person(s) or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I ask Mr. Talbot to make his presentation on Chambers Ireland's alternative ten point plan. After that we will take questions from members of the committee.

Mr. Ian Talbot:

Chambers Ireland is the largest business organisation in the State. With over 50 member chambers, we represent the needs of the business community in every geographical region and economic sector in Ireland. Therefore, we are in a unique position to understand the concerns of the business community and express its views at national level.

One of our core policy priority areas is the support of small and medium sized enterprises, SMEs. Given that over 90% of all businesses in Ireland are SMEs and that most employment is located in this sector, meaningful and sustainable job creation depends on a strong and vibrant SME sector. The inclusion of a ten point plan for micro enterprises in budget 2013 was welcomed by both Chambers Ireland and the chamber network around the country. However, our analysis of the proposals led us to the conclusion that they would have limited impact on the trading conditions of most businesses. Specifically, we believe too many of the measures included unnecessary limitations, were limited to certain sectors, were merely extensions of existing schemes or were merely facilitators of change rather than actual stimulus measures. Transformative outcomes will only be possible through more ambitious and far-reaching measures.

In response, we brought together a range of representatives from around the network and subject matter specialists from major accounting and taxation firms to produce an alternative ten point plan. Throughout these deliberations we were guided by certain key principles: that the proposals must be ambitious; they must be designed to achieve job creation and retention; as far as possible restrictions on business and trade ought to be removed; our focus was to remain on indigenous, non-exporting companies which currently receive little support from State agencies; and all proposals must be revenue neutral as far as possible.

What resulted is a set of policy suggestions which I believe can help produce the type of change necessary to transform Ireland into a country that inspires entrepreneurial behaviour and rewards the risks taken when starting and growing a business.

I propose to highlight some of the main points in the ten point plan rather than go through each one in detail. The first point is the introduction of a reduced VAT rate on housing repair, maintenance and improvements, RMI. The continuing crisis in the construction sector remains a major concern. Accordingly, we recommend a reduction to 5% of VAT on all RMI on residential properties up to the value of €50,000. This would stimulate rapid growth and create new jobs. Not only would this incentivise start-ups and create employment but it would also increase the circulation of money in the economy. This would be fully in line with EU law, which allows member states to permanently reduce VAT in this area to 5% in order to support economic growth. This rate reduction may be delivered by way of the home owner applying for a refund of VAT directly from the Revenue Commissioners to assist in ensuring work done is in the legitimate economy.

While critics have argued that under EU regulations, it is not possible to place a ceiling on such a scheme, precedent would suggest this is not the case. In this regard, the plan points to a couple of examples where ceilings have been put in place for specific industry sectors. Research conducted in the UK suggests that such a cut could create 3,625 jobs in Scotland by 2015, a country somewhat similar to Ireland in economic and demographic terms. Furthermore, it is estimated that this could result in a further 2,178 jobs through the multiplier affect. Another similar successful scheme designed to produce a temporary, timely and targeted stimulus is the home renovation tax credit introduced in Canada in 2009. We believe the benefits of this initiative would go well beyond the construction sector because as home owners refurbish their properties, there would be an increase in the purchase of soft furnishings, white goods, electrical appliances and so on, all of which are liable for VAT at 23% and are in the area of retail, which is currently suffering badly.

The next point is a proposal to halve to 16.5% the level of capital gains tax for entrepreneurs. We are all aware that the capital gains tax has been increased over progressive budgets from 20% to 33%. We believe it is unfair to apply the same level of capital gains tax to an entrepreneur who is risking so much to establish an enterprise as that applied to an individual who, say, is investing savings in shares in the stock market. A successful entrepreneur makes a significant contribution to the economy in terms of taxes on earnings, employment taxes and rates on economic activity, while the other investment is significantly more passive and does not make the same direct economic contribution.

Cyclical taxes such as corporation tax, capital gains tax and stamp duties as a total of the tax intake have fallen considerably since 2008, when CGT stood at 20%. This supports the international evidence that increases in CGT rates can actually reduce revenue. Furthermore, CGT makes up a small proportion of the total tax take. For example, in 2012 it raised €414 million as compared with almost €20 billion from VAT and income tax. Accordingly, we believe that capital gains tax should be reduced significantly for entrepreneurs so as to incentivise and reward risk. This would also help companies to grow into small and medium-sized enterprises and develop internationally. The key point here is that many innovators have the skill set to get a business up and running. However, it is a completely different challenge for them to turn a micro or small business into a large internationally traded business and it may be more appropriate for them to sell up and move on and start off their next bright idea. The current tax system does not necessarily facilitate this.

The next point is to encourage a targeted rates reduction for businesses in town centres. We recognise that the retail sector remains an important part of the microenterprise and small and medium enterprise, SME, sectors. However, many are struggling to remain in business due to excessive rates imposed by local authorities. To guarantee their survival and allow them to retain the important jobs they provide, we recommend the introduction of a targeted rates reduction for companies located within town and city centres and which provide much needed employment and contribute to the quality of life in these areas. While we recognise that the issues of rates and development contributions are reserved functions for local authorities, it is the role of the relevant Department to provide the statutory and policy framework which enables these authorities to implement initiatives focused on business development and job creation.

The next point is to enable start-ups to offset corporation tax losses against other taxes due. We believe that in the start-up phase, a company should be able to offset trading losses against other taxes due. Furthermore, an initial start-up period of five years would, in our view, be more beneficial for new companies. This would assist cashflow for start-up companies, a vital ingredient which could enable them to overcome the most challenging period in their development. The calculation could be done on a value basis so that the Revenue Commissioners do not ultimately lose out financially but refund VAT in a given year in lieuof a corporation tax deduction in future years when profits are made. We recommend the introduction of a pilot scheme at the earliest opportunity, to be extended to all business start-ups once its efficacy has been established.

The next point is to employ "the Ireland rate of return" - which is a take on the internal rate of return - in tendering decisions for public sector contracts. As one of the biggest purchases of services in the State, Departments and agencies need to be mindful of the positive outcomes of awarding tenders to locally based suppliers. Rather than applying a strict value for money criteria, consideration must be given to the value produced to the national economy in terms of jobs created, increased revenue and reduced welfare costs arising from the award of contracts within the State. The Department of Jobs, Enterprise and Innovation and the Department Public Expenditure and Reform need to work closely to ensure their policies are complementary. The Department of Jobs, Enterprise and Innovation is putting in place incentives to encourage SMEs while the Department of Public Expenditure and Reform may be adopting tendering and procurement policies which favour large firms often not resident in the State. The method of single sourcing being pursued is a risky strategy which deviates from best practice internationally and could result in the collapse of large numbers of small local companies throughout the country. From what we can see, the discretion of lower nominal contracts being awarded locally is being withdrawn from 2014 onward.

Cost efficiencies and savings must not be achieved at the expense of jobs. The Comptroller and Auditor General should be mandated to review value for money critiques in the context of the wider return on investment for the economy achieved by awarding contracts locally. The Committee of Public Accounts could then be empowered to review the Comptroller and Auditor General's reports via a jobs improving analysis of such contract awards. We recently came across a report carried out prior to the awarding of contracts for campus development at UCD which showed that work carried out by individuals not paying tax in the State can lead to a fiscal loss to the State, which we estimate at between 20% and 30%. We support cost containment and efficiencies by Government. However, this cannot be at the cost of our SME community, the jobs it creates and the taxes it pays. The business generated by local authorities is significant and plays a vital role in the local communities in terms of job creation and economic sustainability.

The next point sets out a number of operational changes which we believe will make business easier for small businesses and start-ups, including the consolidation of existing HR legislation, in respect of which there are currently 30 pieces; the creation of a one-stop website for exporters; the promotion of further joined-up government and a recognition that local authorities can do more to improve the conditions in which micro and small businesses operate. More details on these proposals can be found in the full ten point plan.

Since the publication of the plan, we have received a great deal of feedback and input. Many members of the chamber network have raised two further issues which we believe should be considered by the joint committee. It will be no surprise to hear that improved access to working capital remains an issue. Problems with working capital place a considerable burden on companies, leading to payment delays, cuts in wages and working hours and the use of personal funds or resources by employers and entrepreneurs to maintain the business. To date, the response from Government has largely focused on investment finance, with measures such as the temporary partial credit guarantee scheme and the microfinance scheme. More recently, measures were introduced to improve working capital, with the increase in the turnover threshold for companies to pay VAT on a cash basis rather than on an invoiced basis and the increase in the de minimislevel of the closed company surcharge announced in budget 2013. We welcome any move that addresses the concerns of SMEs and acknowledge the work that is being done to increase the supply of credit. However, we are concerned that Government policy may not be focused on the most pressing needs of SMEs. Availability of working capital and support for extended cashflow must become priority areas. Enhancement of the availability of investment capital, while welcome, does not address the issue of supporting cashflow in the economy.

The second report on the temporary partial credit guarantee scheme states uptake of the scheme remains disappointing. Given the low demand for these funds the Government has the opportunity to redirect unused amounts to support cashflows in business by raising the qualifying amount for companies to use the cash basis for accounting for VAT from €1.25 million to €2.5 million.

We cannot ignore the impact of the euro crisis and the push for improved trading conditions in the entire euro area is critical to Ireland's well-being. The success of any recovery in Ireland is dependent on the surrounding economies on which we depend for exports and trade, and until economic conditions improve in the EU recovery in Ireland will be slow at best and the Government must do whatever it can to assist in the stabilisation of the European economies.

On behalf of Chambers Ireland and the entire chamber network I thank the committee for this opportunity to address it on our alternative ten point plan. We hope committee members have found the presentation useful and that it will inform their interactions with the Government. We are happy to take any questions committee members might have.

John Lyons (Dublin North West, Labour)
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We will take questions in groups and we will start with Deputies Dara Calleary and Peadar Tóibín and Senator Quinn.

Peadar Tóibín (Meath West, Sinn Fein)
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If three speakers are taken together and they comment on all ten points the witnesses may have to deal with 30 comments. Perhaps it might be better to break up the speakers even more.

John Lyons (Dublin North West, Labour)
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Does the Deputy suggest we deal with questions from individual committee members?

Peadar Tóibín (Meath West, Sinn Fein)
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I would like to comment on at least eight of the ten points.

John Lyons (Dublin North West, Labour)
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Perhaps doing so may remove the need for later speakers to ask the same questions. I ask committee members to bear in mind other witnesses will come before the committee at 3 p.m.

Peadar Tóibín (Meath West, Sinn Fein)
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I am aware of the other witnesses.

John Lyons (Dublin North West, Labour)
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I call Deputy Dara Calleary who will be followed by Deputy Peadar Tóibín.

Dara Calleary (Mayo, Fianna Fail)
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I welcome Mr. Murphy and Mr. Talbot. In the interests of transparency I must declare that I worked for the organisation prior to being elected to the Dáil.

I welcome the plan. Everybody around the table agrees on the importance of small and medium enterprises. I will start with point 11 of the ten point plan and I am surprised Chambers Ireland forgot about it. This is the issue of credit. Will the witnesses give us an update on the availability of credit to Chambers Ireland members? Reference was made to the poor uptake of the schemes and we are anxious to discover why the schemes are not going down as well as everybody thought they would. Will the witnesses give us feedback on this?

With regard to the proposals on town centres, a double rent reduction is proposed for those on upward-only rent reviews. Will the witnesses outline how this would work practically and who would be in charge of implementing it? I would also like to hear their thoughts on upward-only rent reviews generally. Chambers Ireland proposes a targeted rates reduction, and it seems to go for the French model as opposed to the model in operation in Northern Ireland, the so-called "Tesco tax". Will the witnesses outline the difference between the two and the reasons for Chambers Ireland's preference?

The committee is doing much work on procurement at present and we are all in favour of jobs. Does Chambers Ireland have specific recommendations on procurement? When the Office of Public Works and the Department of Public Expenditure and Reform come before the committee they tell us their hands are tied by EU procurement rules and that they cannot get around them. Does Chambers Ireland have specific thoughts on this? I welcome the idea of joined-up government and the issue of procurement shows we do not have this. Chambers Ireland has pointed this out. Do the witnesses have any thoughts on breaking down the silos in government?

Did Chambers Ireland manage to maintain revenue neutrality throughout the document? What is the overall cost of implementation of the ten point plan?

Peadar Tóibín (Meath West, Sinn Fein)
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If the Chairman wishes, I can ask my questions now and the witnesses can deal with questions from two committee members at a time rather than individually.

John Lyons (Dublin North West, Labour)
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I would prefer that.

Peadar Tóibín (Meath West, Sinn Fein)
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With regard to a reduced VAT rate for housing repair, my party has a proposal on green energy funds for the development of retrofitting in housing. Has Chambers Ireland calculated the cost benefit of its proposed reduced VAT rate for housing repair? A five year period has been proposed for offsetting corporation tax against other taxes for start-ups. This is a long time for start-ups, in that after the third year sustainability issues come into question. How would this work in practice? Would all losses over the five years be used to write off all forms of PRSI, VAT and corporation tax? I understand the idea that a reduction in capital gains tax would allow for investment in the business, which would be better for the business. Would it not be more efficient to provide a tax break against capital gains taxes on money invested into the business? This would mean it would not be a case of profit-taking and there would be close alignment of investment in the business with reductions in capital gains.

We have been speaking with Chambers Ireland about rates in town centres and we believe there is a necessity for a progressive rates base which reflects the profitability of particular businesses. The problem with double rent reductions is that the Government would be subsidising landlords directly. What is the view of Chambers Ireland on the possibility of the introduction of legislation or constitutional reform with regard to upward only rents? It is a significant issue. It does not affect a broad section of businesses in relative terms but it is very significant for the businesses which are affected. Would constitutional reform be useful?

I could not agree more on the "Ireland rate of return" element. There needs to be a value for money basis on how the wider local economy is affected. In the North it was very significant that tenders were broken up into small bite sized chunks so small and local businesses could start to consume them.

With regard to a tax incentive policy and private sector investment, the issues of demand for credit and bank lending are core and should come before tax credit. I have no problem with nearshoring. The 2.5% for research and development is a good idea. Incentives with regard to research and development often do not reach small businesses and this needs to happen. Smaller businesses sometimes have problems with matched funding. Does Chambers Ireland have proposals on how smaller businesses could better access matched funding? I also agree with consolidating human resources legislation as long as low-paid employees are protected.

Mr. Ian Talbot:

Mr. Murphy and I will do a double act as we have overlapping and complementary expertise in many areas. Both Deputies raised the issue of credit. Plenty of work is being done separately on credit. The group which worked on these proposals was very much focused on taxation and business costs specifically rather than the credit issue. This is why there is very little focus on credit in the document. Our overall view on the credit situation is that the predominant issue in the economy is still a lack of demand. Businesses are still consolidating and waiting to see future opportunity before they invest.

We are now six years into the crisis and many of the survivors are coping where they are. There are many issues as companies have property debt, for example, that may be interfering in core business, and we still need to find a solution in that regard. Our gut feeling is that the core economy is not investing for the future, and it is important to ensure the banking system has money to lend when the economy starts to pick up and turn around aggressively. It is important that the banking system is fit for purpose in future as there is currently a demand issue in place as much as anything else. That is the feedback we are getting from members.

The issue of double rent reviews has been raised twice in different ways. Deputy Tóibín has summarised our views on the upward-only rent situation quite well. Around the country we are finding that most landlords and businesses have managed to get together and find accommodation, so it is not a matter that preys on our members' minds significantly. Ultimately, contracts are what they are so it would not be smart for the Government to overturn an agreed contract. That is why we tried to suggest that the Government could find some way, in the absence of being able to legislate historical upward-only rent reviews, to recognise particular cases that may threaten jobs and provide some form of capping process. It is not that we are saying there should be unlimited relief rather that there should be a form of capped payback for somebody who can prove it was impossible to renegotiate rent with a landlord on a contract going back before the start of the recession, for example. That is the thrust of the recommendation in that area.

With regard to breaking down silos in Government, we do our best to ensure we present our ten-point plan, for example, to every Department that will entertain us. Nevertheless, breaking down silos in Government will always be a challenge and we will do everything we can to socialise the work we do with the various Departments with an impact on us. That is a combination of the Departments of Foreign Affairs and Trade; Jobs, Enterprise and Innovation; Environment, Community and Local Government and so on. We deal with multiple Departments on multiple issues but we cannot manage to solve the challenge of breaking down those silos.

With regard to overall cost and velocity of money, hardly any of these measures will have any significant impact on tax revenue, as almost everything we are proposing is targeting an area where nothing is happening at the moment anyway. A 5% VAT rate on housing repair, maintenance and improvements, where virtually nothing is happening anyway, amounts to 5% extra revenue. We are also considering velocity of money, and we have tried to come up with areas that have connected impacts. If somebody does a kitchen extension or attic conversion, they would buy new fridges, dishwashers, televisions, carpets or curtains, and all of these would create VAT at 23%, making back the small margin between a 13.5% rate and a reduced rate. We would propose the imposition of a sensible cap on any of these proposals to get things moving at the bottom end, so there would be no licence for people to rebuild a mansion.

We may never agree with Deputy Tóibín on capital gains tax, as our idea is that low tax generates increases in taxes paid. We also feel that decreasing corporation tax in this fashion would just help velocity of money, keeping more of it circulating in the economy and helping to regenerate economic activity. That was the basis for our introduction.

Mr. Sean Murphy:

The tax system already incentivises entrepreneurs nearing retirement in how they exit the business, and I am sure Deputy Collins and others are very familiar with those measures. Rather than having people wait or hanging on for retirement, why not let them exit a business and then use their resources and skills to create a new business? That is as opposed to hanging on and waiting for people to retire, or starting to scale back five years beforehand. It is about velocity of money and getting cash in circulation when we know demand is the big issue.

Mr. Ian Talbot:

Deputy Tóibín mentioned corporation tax and there should be a cap on what can be reclaimed in any one year. The advice we got from accounting an tax professionals in the group is that a three-year period, given where we are in the economic cycle, is not long enough to prove whether a business will succeed or fail. That is why we propose a five-year period, with a cap to limit any Exchequer exposure.

We are formulating proposals to get entrepreneurs thinking about establishing and growing businesses, as currently they are not doing so. People are still afraid to invest in the future and we are trying to think of ideas that will encourage, stimulate and give people a sense that the Government is behind them, although perhaps in a number of small ways rather than one big way. A number of incentives could contribute a couple of thousand euro to help businesses keep the doors open.

With regard to research and development, the manner in which we produced the proposal was to recognise that there are State resources with significant pools of money for investment. We want to have the State companies responsible for taking 2.5% of their budget and ensuring this is pushed out to small businesses. There is not much take-up now but we want to try to get 2.5% accountable to a sponsoring Department getting into small businesses and making innovation projects work. We did not really get into the challenges of raising matched funding and so on and we wanted a combination of carrot and stick. That would allow people with budgets to be empowered and encouraged to get out there, find ideas in small businesses and deliver to them. It is a psychological incentive as much as anything else and getting people's mindsets - particularly in the semi-State and public sector - to focus on getting some of that budget into the right type of companies.

Mr. Sean Murphy:

Deputy Calleary asked about the local tax initiatives and target town centres, as opposed to the large retail levy and expanded small business release scheme, as it is called in the North. Our thinking is that the French model is a little more nuanced and targeted, focusing on a retail mix that is vital in getting footfall in town centres. Phone shops are very welcome additions to the streetscape but we do not want five in a row. We want a baker, the candlestick maker and the phone shop. The French model allows for a more targeted approach to diversity and shop mix.

We have been a supporter of local property taxation and we welcome its introduction, although the timing is poor in terms of the economic cycle. It has always been needed to disincentivise local authorities in chasing development levies etc. When the local property tax is being rolled out, we have a once in a generation opportunity to support and recalibrate funding and taxing of local government in a way that supports jobs, often with low-skilled staff or businesses with a low margin. That would help to enhance and animate town centres.

Feargal Quinn (Independent)
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I welcome the delegation. On initial reading of the document I was quite critical because it seemed to be a list of ten items outlining reductions, and my concern is that as a nation we are spending more than we are earning. Every time somebody comes in they seem to want reductions in charges, and that will not work the whole time. Nevertheless, it can work, and a shopkeeper knows that if he brings down a price cleverly, he can take in more money. Mr. Talbot mentioned that ability a few minutes ago, and the explanation of a reduce VAT rate on housing repair is exactly right. There is an opportunity to be able to reduce the VAT rate on housing repairs, and there will be benefits from 23% VAT coming from other items.

There are not enough similar ideas in the document. The case has been made that if capital gains tax is reduced to 16.5%, there will be a fair chance of providing incentives. In the past 20 or 30 years, Ministers for Finance have reduced rates and taken in far more money on that basis.

I would like to see more of that in this instance. If there were more figures in Chambers Ireland's ten point plan and if it were more targeted, the organisation would have a better chance of achieving something.

I will mention my own business as an example. We used to allow the local managers of our 24 stores to purchase on their own locally. When we eventually decided to bring it in together and buy centrally, we could not get over the huge savings we achieved compared with when we bought locally. I am not all that enthusiastic about giving responsibility to local businesses unless it can be shown that the figures are there. In our case, there was a dramatic difference in price.

I understand the delegation's point that the VAT rate is not necessarily paid in Ireland. The profit could be paid somewhere else on that basis. We have a good example in the form of last year's decision by the Minister to reduce the rate of VAT in the tourism sector. It seemed to give tourism a boost. It has been of benefit in that area. I would love to see more of that in these plans. The simple suggestion that has been made with regard to housing repairs sounds like a no-brainer to me. It seems to me that it is likely to work very easily if it is produced and promoted on the basis that has been outlined.

People are still saving rather than spending. They are saving because they do not have confidence in the future. Confidence is a delicate enough flower, but it could take off very easily if we made some changes. I think some of the steps that have been proposed by the delegation would improve confidence. I would love to see more figures. Rather than pursuing this ten point plan, perhaps Chambers Ireland could concentrate on a smaller number of proposals. I have some difficulty with the Northern Ireland approach of charging larger stores a higher rate to help the smaller stores on the main street. We need to find a way of making the main street work better. That will come from individual entrepreneurs. There are thriving main streets in some towns. The shops on those streets are generally not the traditional ones, however. As Mr. Murphy said earlier, we have the candlestick maker as well as the baker and the others. If we can find a way to encourage a mixture of shops, I think we can take off. The main one is confidence. I think expenditure will increase when we create confidence.

Áine Collins (Cork North West, Fine Gael)
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I welcome Mr. Murphy and Mr. Talbot. We welcome all suggestions about how to create jobs and make the SME environment far more friendly. We are familiar with the proposal regarding housing. We hope something will happen in the budget. I would like to mention an interesting statistic in that regard. The building sector is worth approximately €8 billion at present. If that figure increases by €1 billion, some 10,000 jobs will be created and the Exchequer will receive €500 million in tax returns. That is a no-brainer. We have to ensure we do not encourage growth in the black economy. We must ensure the advantage of any scheme is confined to builders who are tax registered and tax compliant.

I do not understand the proposal to allow corporation tax to be offset against other taxes. I should understand it because I studied tax for long enough. As I understand it, start-up companies are currently exempt from corporation tax up to approximately €1 million. I am not sure how this tax can be offset against VAT and PAYE. Small and medium-sized enterprises are supposed to collect VAT, hand it over to the State and offset it against their own tax. I also have concerns about how the payroll aspect of this proposal would work manually because it would affect people's PRSI claims. I think the capital gains tax proposal is a great idea. We need that. The more movement we have on that, the more innovation we have.

My biggest issue relates to the whole area of soft supports. I do not see anything in this regard. From what I am hearing on the ground, SMEs are constantly calling for supports of this nature to help them to access information and new markets when they are trying to develop their businesses. We could do a much better job in that regard. I am sure the delegation welcomed this morning's announcement by the Minister, Deputy Bruton, that €21 million is to be committed for research and development under the competitiveness fund. I do not think we are doing half of what we need to be doing in research and development. We need to increase threefold, at least, our current level of investment in this area. According to the EU, we need to increase our current investment, which is approximately 1.15% of GDP, to approximately 3% of GDP by 2020. That is very interesting. When the US had its biggest economic crisis in the 1930s, it poured money into innovation and research. We could learn some valuable lessons from what the US did to pull itself out of the depression. It is obvious that Europe is still very sluggish. We are particularly concerned about France. If there is no lift in an area that comprises 40% of the global economy, we will have a problem in Ireland. Innovation is still a big issue.

The seed capital and investment incentive schemes have never worked. They are fantastic, but there is a big blockage in this regard. We need to make them simpler. I wonder whether Chambers Ireland could look into that. I know the Irish Taxation Institute will be in. There seems to be a blockage with regard to these schemes. They need to be open to everybody. They need to be made far simpler. Under the seed capital scheme, one has to spend the money before one can get it back. Perhaps there is another way of organising it. I ask the delegation to consider this aspect of the matter and come up with some ideas on it.

Seán Kyne (Galway West, Fine Gael)
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I welcome Mr. Murphy and Mr. Talbot. Senator Quinn asked a number of the questions I had intended to ask. It is great to see proposals like this. Like other speakers, I would have liked to have seen more figures with regard to costs, etc. Perhaps the members of the delegation can work on that over the period ahead. Can they elaborate on the French model to which they referred?

The fourth proposal in the ten point plan involves the adoption of a targeted approach to rates reduction for businesses in town centres. This committee has received presentations from retailers and has visited a number of towns. The retailers have expressed similar concerns and made similar proposals. I know where they are coming from when they speak about the effects of big multiples. It may be the case that smaller outlets associated with a large multiple are struggling or dealing with their own issues. It might be counter-productive to impose higher rates on them to benefit other smaller shops.

Are the businesses represented by Chambers Ireland placing an emphasis on the regeneration of town centres to encourage people to live in them? Have the members of Chambers Ireland spoken about any initiatives aimed at developing living spaces above shops, etc.? I would support a review of rates with an emphasis on large multinational industries that could easily pay higher rates, as opposed to out-of-town centres, if that would lead to a reduction in the rates paid by smaller businesses. The current rates model needs to be scrapped. I hope the valuation Bill will deal with that when it comes before us.

A number of the issues I had intended to raise have already been raised. I would welcome the delegation's first proposal aimed at kick-starting a whole area within the construction sector. It is labour-intensive and it has huge potential. It has been pretty much stalled for a period. Obviously, the proposal would have a knock-on effect with regard to job potential. I am interested in the costs in that regard. Chambers Ireland has pointed out a 5% VAT rate in this sector would be 5% better than the current position, where no VAT is being paid because there is no activity. I suppose the Department of Finance might look at it in a different way in terms of the potential VAT loss.

Mr. Ian Talbot:

I thank the members of the committee for asking such great questions and for taking so much interest in the document. Senator Quinn suggested that we have could have been more ambitious. One of the opening points I made was about ambition. We mulled long and hard over this document because we wanted to be able to stand over it and say it was capable of being implemented. We did not want it to be stripped away to the point where little of it remained.

In the pre-budget submission we made last year, we recommended that the threshold pertaining to the payment of VAT on a cashflow basis, rather than on an accruals basis, be increased from €1 million to €2 million. The Minister and the Department ultimately decided in the budget to increase it from €1 million to €1.25 million. The increase of €250,000 was not enough to make a difference. We felt that an increase to €2 million could have made a difference.

We try to come up with things that can be done, that will be essentially revenue neutral and that have great potential for the rebuilding of confidence. We are trying to get people's mindset away from saving and paying down debt and towards the future. That might encourage them to pursue the extension they have been putting off for five or six years. I am sure the Department of Finance will have a view on the potential VAT loss. That is where we have to examine things like how many households have formed during the last six years of recession, when we have not been doing any building. Families with two children who are living in two-bedroom apartments and desperately need to move will need new carpets, curtains and televisions, etc. All of that activity, on which the 23% rate of VAT is imposed, is not happening at the moment.

Senator Quinn also mentioned procurement. As I stated, while Chambers Ireland fully accepts that the Government needs to save money, be smart and so forth, we must represent our constituency, which is business. Many small businesses which depend on relatively small contracts with local authorities for items such as stationary or paper clips are worried that these contracts will ultimately be provided in a single central contract. Companies are concerned that local printing contracts may be lost to overseas companies. I recognise the challenge presented by the requirement to strike a balance between protecting jobs and securing the best price for everything. We met Mr. Paul Quinn, whom the Government recently appointed as head of procurement. Mr. Quinn has some great ideas and we will seek to support him in his efforts. Nevertheless, local chambers of commerce are afraid of the outcome to which centralised procurement may give rise. This creates an issue for us in any of our outputs.

Senator Quinn and Deputy Collins raised issues in respect of information. Chambers Ireland is concerned about information for small businesses. If one considers the manner in which information is presented to businesses on the Government side, one has the county enterprise boards, which are migrating to local enterprise offices. Although this migration has commenced, it is a matter of concern that the endpoint is not yet in sight. The county enterprise boards typically focus on micro-enterprises with up to ten employees. Enterprise Ireland deals with high-potential exporters and the IDA deals with foreign direct investors. The vast majority of local businesses do not receive any State support for information content. The chambers network has the Enterprise Europe network in place in five local offices, which provides additional assistance to those involved in the export market. In most of the rest of Europe, chambers of commerce are public bodies that receive State funds to provide information to all businesses. While the chambers network in Ireland seeks to fill the information gap, it is a membership-driven organisation and some companies do not see the value in joining a local chamber of commerce. Fortunately, many companies do see the value, but they must help themselves. It is frustrating that people do not read the information we make available or allow it to pass them by. We will continue to push the Government to work closely with the chambers network as the local enterprise office network becomes established.

The Department of the Environment, Community and Local Government is producing a service level agreement. We are seeking to actively participate in the process to assist in setting out the role of the local enterprise offices, deciding how they will interact with chambers of commerce and other organisations in the communities and ensuring there is no duplication of effort. For example, the chambers network could be undermined if a local enterprise office decides it wishes to do nothing more than run free networking events for non-members. While the development of the local enterprise office network presents some challenges, Chambers Ireland is strongly focused on the need for companies to secure access to information. We recognise, however, that irrespective of how hard one tries, some people will read information without taking it in.

On research and development, it is difficult for small companies to find out whom they should contact. Chambers Ireland produced a book some years ago on in the seventh framework programme, FP7, and how companies can access it. The latest framework programme is Horizon 2020 and Chambers Ireland will take an active role in this area. It would be a good idea to impose on groups and organisations that receive a significant block of State funding an obligation to push some of their money out productively.

Mr. Murphy will elaborate a little on the French model.

Mr. Sean Murphy:

On the question of training, which is covered in the pre-budget submission, businesses pay a compulsory levy of 0.7% of payroll to the national training fund, which generates €330 million. This is a significant amount, yet the small and medium-sized enterprises that pay for it receive limited access to it. I assure members that this will be reflected in our pre-budget submission. Half of the €330 million figure should be specifically earmarked for owner-managers and their management teams to help them upskill. The major challenge is that a relatively small number of firms are involved in the export business and many of them are companies established through foreign direct investment. Chocolatiers and so forth also export their products, but the vast majority of companies are domestically focused. Training funds should be earmarked to assist companies seeking to export their products. As far as our members are concerned, they do not receive any return on the levy on salaries they pay to the national training fund. This money is washed into SOLAS and FÁS and does not come back to companies. Our message is that half of the national training fund should be earmarked specifically for owner-managers and their management teams and staff for use in retraining. While we want the unemployed to continue to receive retraining, ultimately it is viable firms producing viable jobs and taxes upon which the economy is built.

Áine Collins (Cork North West, Fine Gael)
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Will Mr. Murphy comment on Skillnets and the ManagementWorks initiative?

Mr. Sean Murphy:

Chambers Ireland fully supports Skillnets and Mr. Talbot is a member of its board. I understand the scheme's orientation was changed halfway through the most recent rotation to focus on training for the unemployed.

Mr. Ian Talbot:

If one looks back to the good years, Skillnets was a component of training for employers and people in business. At one point, the scheme had a budget of approximately €25 million, although this has since declined to approximately €14.5 million. The large sums FÁS used to spend on training people in employment have been substantially eliminated. As Mr. Murphy indicated, I am a director of Skillnets. While it is a very good model, its budget is relatively small in the scheme of things.

Mr. Sean Murphy:

One must bear in mind that small and medium-sized companies raise approximately €330 million for the national training fund.

Áine Collins (Cork North West, Fine Gael)
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Skillnets has a very good scheme known as ManagementWorks, which provides training for owner-managers and their management teams. A pilot scheme was recently completed and is under evaluation. I hope it will result in the roll-out of ManagementWorks nationwide. While more money is needed for the scheme, it is an example of the initiatives taken in this area.

Mr. Sean Murphy:

We have profiled Lorcan Ó hÓbain, who runs ManagementWorks on behalf of Skillnets, in our publications and he has addressed some Chambers Ireland events.

Our pre-budget submission makes a number of proposals in respect of the employment incentive and investment scheme and the seed capital scheme. As we stated last year, more needs to be done to raise the profile of the seed capital scheme because people are not familiar with it. Certainty about the scheme is poor, as is drawdown. I recall a Deputy commenting last year that only one client in a particular operation had ever drawn down funds from the scheme. There is considerable pent-up demand in this area which could be tapped.

It is sobering to note that whereas €152 million was drawn down from the employment incentive and investment scheme in 2007, only €20 million was drawn down from the scheme last year. Demand has clearly collapsed. The Government must take action to address this issue. Measures it should consider include: the introduction of a seed employment investment incentive scheme; the removal of the high income earner restriction; the reinstatement of the minimum holding period for five years; and automatic qualification for medium-sized companies in non-assisted areas. We have a number of other suggestions but our main point is that action is needed. It is clear that something is wrong when the funding drawn down from a scheme declines from €152 million to €20 million. This ties in with our critique that demand is a major issue. If demand increased, debts would become much more manageable for everyone. This is a major issue and must be addressed.

As regards the French contribution économique territoriale scheme, having discussed the issue with some experts in this area, our view is that this scheme provides for a more nuanced approach to local taxes.

John Lyons (Dublin North West, Labour)
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Perhaps Mr. Murphy will provide some detail on the scheme.

Mr. Sean Murphy:

In addition to the rateable value of a property, the scheme takes into account the contribution made by a company to animating the high street. A retail mix is vital to attracting more consumers. Certain categories of retail store are proliferating in Ireland. All consumers, especially the young, have been willing to prioritise data and telecoms over fashions in recent years. Every kid on the street seems to have a smartphone because that is where children's priorities lie. This is reflected in the spread of telecommunications and telephone shops. While such stores are a welcome addition to retail, if one wants to broaden the retail mix to attract mums and dads as well as teenagers, one needs to recognise and incentivise certain types of low-margin, high-employment retailers to locate in shopping streets. The contribution économique territoriale gives the local taxation authorities more flexibility in prioritising investment in that regard.

In terms of the people to whom we talk, our view would be that the northern version is somewhat blunt and could be more nuanced. We can go into greater detail off-line, if needs be, for the Deputy.

As regards animating town centres, we are in favour of people living above shops. However, the perennial problem in this regard is parking. Letterkenny Town Council, working in conjunction with Letterkenny Chamber of Commerce, developed a great model of incentivising a turnover in respect of car parking. As I understand it, this involves rotation cameras being used to measure the number of car turnover on the streets of the town. The pricing model that has been put in place as a result has worked very well. We can obtain more detail for the committee in that regard. Ennis is bedevilled by a lack of parking.

Dara Calleary (Mayo, Fianna Fail)
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What was the first town to which Mr. Murphy referred?

Mr. Sean Murphy:

Letterkenny. The local chamber informs us that the town council has been extremely successful in changing the parking regime there. Ennis has a very successful living-over-the-shop scheme but the difficulty which arises is that many of the people who now live in the town have their cars parked there all day. Parking is, therefore, a real problem in Ennis. As we understand it from our colleagues in Ennis Chamber of Commerce, not enough is being done in respect of this matter. We should, by all means, incentivise people to live above shops but there is also a need for others to be able to drive their cars into and out of town centres. Free parking for the first two hours should be mandatory all year round and not just in the three weeks leading up to Christmas. In this way we could put an end to cars blocking up parking spaces and mothers, fathers and their children would be able to visit town centres.

Mr. Ian Talbot:

Those are the replies to all of the questions we can remember being posed.

John Lyons (Dublin North West, Labour)
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Are there any additional questions from members?

Áine Collins (Cork North West, Fine Gael)
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What is the position on corporation tax?

Mr. Ian Talbot:

Yes, the Deputy asked for further detail on that.

Áine Collins (Cork North West, Fine Gael)
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I just do not understand what is involved. Perhaps our guests could provide further information on this matter.

Mr. Ian Talbot:

If one loses money in the first few years and one has a capital gains loss which one can carry forward, my understanding is that some of the capital gains tax would be deductible against, for example, VAT, other taxes due or, dare I say it, rates. Then when one earns one's money and pays one's tax, the amount in question would be offset. It is really a cashflow mechanism - with a cap in place - to assist companies negotiate their early years in operation. I accept that there are incentives in the first couple of years in respect of corporation tax, etc. Some of this comes down to psychology rather than the amount of money involved. We talk to many potential and existing entrepreneurs - people who have established businesses and who are considering setting up others - who are currently of the view that all that is happening at present is that rates are either being increased or maintained. They are certainly not being reduced to the same extent as other costs. In addition, they are of the view that new taxes on employment are forcing them to examine the position with regard to their employees' salaries. Setting up a business is extremely hard work, particularly as the global economy is in such a mess. The mechanism to which I refer is designed to give people something of a psychological boost to the effect that the State is behind entrepreneurs and is offering them a few incentives.

In our critique of the ten-point plan in last year's budget we indicated that too many of the measures did not have much general applicability. They were real niche mechanisms and hardly anyone qualified for them or the changes they introduced were so insignificant that they did not make a difference to anyone. We tried, therefore, to come up with a few more targeted initiatives which could be applied more generally to people establishing businesses. I am not sure that, in general terms, Irish people are disposed to accepting that entrepreneurialism is good. I am of the view that people do not generally make the connection between entrepreneurs and job creation.

Áine Collins (Cork North West, Fine Gael)
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I have a major issue with the attitude to failure in this country. I have never met an entrepreneur or businessperson who set up an enterprise with the intention of failing. Businesses can fail for many reasons. Sometimes things may just not go right, the person involved might not have obtained the correct advice or the market might not have been there. It can be difficult to break into markets, particularly if one is trying to expand and obtain support. I agree with Mr. Murphy that we must do a great deal more in the context of providing supports and encouraging people to establish businesses. Employing people is a huge issue for small businesses at present, particularly in light of the costs involved and all the extras which one must put in place. Small businesses are obliged to shoulder the same burden as multinationals. The position is similar, regardless of whether one has one member of staff or 2,000. Obviously, there are far more supports for companies which employ 2,000 people. Small business owners are obliged to try to do everything themselves, including sales, employing staff, ensuring cashflow, banking, etc.

Mr. Ian Talbot:

And collections.

Áine Collins (Cork North West, Fine Gael)
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It is very difficult for them. We must do a great deal more, particularly in the context of providing soft supports. Everyone present is aware of my interest in this regard, especially in the area of mentoring and how we can assist people. There is major work to be done in respect of this matter by the LEOs. I have stated on many previous occasions that we must stop placing people behind structures. We spend far too much time discussing where particular LEOs should be located. I really do not care whether they are located in Mallow, Cork city, Dublin or wherever. I want those involved with them to go out and meet business people and ask how they can assist them. Rather than networking, there is a need for real and much greater engagement. Those to whom I refer must meet people face to face in order to discover what are the difficulties they face. If this is done, we might then be able to solve some of those difficulties.

Mr. Ian Talbot:

It is also important to have the right people with the right experience involved with the LEOs.

Áine Collins (Cork North West, Fine Gael)
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Absolutely.

Mr. Ian Talbot:

I intend no disrespect to people on county enterprise boards but as the LEOs become established and seek to do much of that to which the Deputy refers, they need the correct individuals with the necessary experience.

Áine Collins (Cork North West, Fine Gael)
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There is far too much duplication. We now have Leader groups and LEOs. I accept that these are all going to be realigned and amalgamated but there is a need to decide who will be responsible for doing what. There is a great deal of activity and LEOs and SOLAS are both running courses. However, I am not sure there has been a great deal of evaluation with regard to what is happening.

Mr. Ian Talbot:

And we have chambers - which, of course, are small businesses - in every town. The chief executives of all the chambers are equally challenged by the need to build membership, provide services, collecting debts, paying payroll taxes, etc. They are small businesses, they have the experience and we are of the view that they have a great role to play in the context of future economic development.

Áine Collins (Cork North West, Fine Gael)
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Those in the retail trade are very hampered by rates. This is because they operate on the high street and the rates in this regard are much more expensive. Would it be worth considering introducing a separate rates-based tax for the retail area?

Mr. Sean Murphy:

In a way, the French economic tax we have profiled effectively does that. It is recognised as a special-----

Áine Collins (Cork North West, Fine Gael)
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I am not familiar with it.

Mr. Sean Murphy:

I accept that but retail is recognised as having a special place in France. Retail is clearly facing a massive structural change in terms of the dash to purchasing online. One cannot stop that so it is a question of how one addresses it. The two big areas in which jobs were lost in recent years are construction and retail. Many of those affected have retrained but others remain on the live register and we need to take action in respect of them.

Áine Collins (Cork North West, Fine Gael)
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Some of the difficulties which arose relate to the fact that multinationals such as Tesco were making huge profits. If one lowers the base - by, for example, 2% - it has a huge effect on such companies. The owners of small shops would be obliged to pay €2,500 in rates. This matter has always come down to how one achieves a balance. For example, it could be linked to turnover. Perhaps there is a need to separate them by sector as opposed to the rate base being calculated on the basis of square footage.

Mr. Ian Talbot:

We would certainly support a rating system that reflects other measures such as employment creation. By their nature, different business have completely different cashflow requirements, etc.

Áine Collins (Cork North West, Fine Gael)
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I was shocked when I discovered that town councils could set their own rates, reduce them, etc., but that other councils could not do so.

Mr. Sean Murphy:

That is an important issue in the context of the Deputy's constituency. I accept that I am digressing slightly but the chambers of commerce in Mallow and Midleton would not forgive us if we did not highlight the fact that the rates there are lower than elsewhere in the county. The position is the same in Westport. There are approximately eight or ten town council areas in which the rates are lower than those which obtain elsewhere in the county. The transition in this regard needs to be managed very carefully.

Dara Calleary (Mayo, Fianna Fail)
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Given that Government Deputies are somewhat sensitive about that matter, I did not want to raise it. However, have our guests had any engagement with the Department in respect of the roll-out of the so-called reforms of local government and on the impact they are going to have regarding this matter? Have they discussed with the Department the investment on the part of town councils in promoting their towns, retail promotions, etc.? Rates equalisation is the most important matter here.

Áine Collins (Cork North West, Fine Gael)
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I understand all the rates are going to be revalued in the near future so I presume all of that to which the Deputy refers will be done at the same time.

Mr. Ian Talbot:

Mr. Murphy has volunteered to answer that question.

Mr. Sean Murphy:

Colm Lavery, a the principal officer in the Department of the Environment, Community and Local Government, chairs the group charged with examining this matter. The membership of the group in question is quite extensive and includes, among others, several directors of services and a couple of town council representatives.

Dara Calleary (Mayo, Fianna Fail)
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Are any business people involved with the group in question?

Mr. Sean Murphy:

I would have to look at the membership list but I am not aware of any. The members tend to be from the Government side of the table. We addressed the group and the chairman and the president of Dungarvan Chamber of Commerce highlighted that the differential between Dungarvan and other areas of rural County Waterford is approximately 15% to 17%.

The Government is sensitised to the issue of the discrete number of town councils wherein the rates are lower than for the county. For example, the rates of Sligo town council are higher than those for the country and, therefore, their abolition is not of significant sensitivity to our chamber colleagues in Sligo. This is a big issue in Letterkenny, Navan, Ennis, Dungarvan, Mallow and Midleton. These are the areas for which the transition is of particular concern. At a minimum, we are seeking a sliding scale of interaction as rates plug into the county. However, we believe that the rates should ultimately fall to the lower rate of the two.

The group has not yet produced a report. We have discussed the issue with Mr. Colm Lavery and are due to meet the Minister on these matters. This is a matter of great concern to struggling towns, including Dungarvan, that have been through a lot during the past couple of years.

Damien English (Meath West, Fine Gael)
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I thank Mr. Talbot and Mr. Murphy for their extensive engagement with the committee today. The level of engagement on the issue was welcome and is an indication of how important members of the committee feel about the issues raised today.