Mr. Gerard Brady:

I thank the Chair for the invitation to IBEC to appear before the committee.

We are grateful for the opportunity to appear before the committee today to examine chapters 9 to 12, inclusive, of the Commission on Taxation and Welfare report. The report comes at a crucial time. Our current economic uncertainties aside, the remainder of the decade will see significant ambitions being put in place for the economy in areas such as decarbonisation, digitalisation, increased competition for mobile investment, the prospect of a rapidly ageing population, overconcentration of the tax base and the impact of future global tax reform, which is very close at hand. These changes will have significant implications for fiscal policy. Over the coming decade, the focus of fiscal policy must be on policy that is not just sustainable in the narrow sense of debt and deficits but which takes a broader perspective on producing sustainable economic, social and environmental outcomes. For this reason, a balance must be struck between this narrow and broad sense of fiscal sustainability.

Chapter 9 of the report is titled Promoting Enterprise. IBEC recognises that business tax reform has a significant role to play in supporting Irish firms to grow and improve productivity. There are several levers within the tax system that can be used to help overcome some of the broader systemic disadvantages facing our indigenous business community. These include improved tax incentives to deepen the market for equity investment, encouragement for share options and similar schemes through the tax system, and enhanced investment incentives in areas such as research and development, low-carbon technologies and advanced manufacturing. To this end, IBEC broadly welcomes the commission’s recommendations to promote enterprise and business growth in Ireland, in particular the recommendations targeted at encouraging the founding and scaling of startups and SMEs, the promotion of research and development, driving innovation and increasing efficiency among Irish businesses. It is important to reiterate the commission’s finding that, while existing tax incentives for research and development, promoting equity financing, and enabling staff recruitment among startup and micro-enterprises are good in principle, they must be simplified.

Regarding changes to the social protection and income tax systems, IBEC acknowledges the need for reform to ensure the social insurance system is resilient both to potential shocks and to account for the inevitable increase in demands on the fund from an ageing population. These challenges will inevitably require greater levels of funding. Having said this, the cumulative impacts of labour market policy measures are causing concern among our members. The roll-out of auto-enrolment, the living wage, pensions, statutory sick pay, changes to the pension age, pay-linked social welfare and other leave proposals already announced will add significantly to labour costs over the coming decade. While these changes will be implemented across the whole economy, for many companies in domestic-facing sectors, particularly the SME community, the cost of implementing increased pensions coverage and wage floors will be higher. While many of the additions to the social wage have merits on their own terms, if phased correctly, they represent a major change in the Irish labour market model. The ongoing lack of co-ordination regarding their phasing is causing major concern among our members, especially in the current economic environment. In this context, IBEC wishes to emphasise the report's acknowledgement in recommendation 11.2 that:

There is a need to coordinate and manage the phased introduction of such reforms. The Commission therefore recommends the establishment of appropriate coordination mechanisms to monitor the cumulative effect of policy ... changes on enterprise.