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.