Oireachtas Joint and Select Committees
Wednesday, 1 October 2025
Joint Oireachtas Committee on Enterprise, Tourism and Employment
Competitiveness and the Cost of Doing Business in Ireland: Discussion (Resumed)
2:00 am
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Good afternoon. I welcome everyone to our ninth public meeting. Some of our members are away on official business. Apologies have been received from Deputies James O'Connor, George Lawlor and Senator Mary Fitzpatrick.
Before we proceed, I have a few housekeeping matters to go through. I wish to explain some limitations to parliamentary privilege and the practices of the House as regards references witnesses make to other persons in their evidence. Witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means that they have an absolute defence against any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Chair to ensure that it is not abused. Therefore, if witnesses' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction. One of today's witnesses is giving evidence remotely from a place outside of the parliamentary precincts. As such, that person may not benefit from the same level of immunity from legal proceedings as a witness who is physically present does. The witness in question may consider it appropriate to take legal advice on this matter.
I remind members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit members to participate if they are not adhering to this constitutional requirement. Therefore, a member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any member partaking via Microsoft Teams that prior to making their contribution to the meeting, they confirm that they are on the grounds of the Leinster House complex.
Members and witnesses are reminded of the long-standing parliamentary practice to the effect that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if a statement is potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that any such direction is complied with. I propose that we publish the opening statements and submissions provided by the witnesses on the committee's website. Is that agreed? Agreed.
We will now invite our witnesses to speak for approximately five to ten minutes. Members will then be allowed to ask questions or make comments for five minutes. Members will be called in the order in which they appear on the speaking rota. Members may be speak more than once if they wish to do so. Is that agreed? Agreed.
The committee has decided that its priority policy area will be competitiveness and the cost of doing business in Ireland.
This is our third meeting on this topic and we look forward to hearing from many stakeholders from various sectors of our economy.
I am delighted to welcome the representatives here today. We welcome Siobhán Finn, chief executive officer of Community Enterprise Association Ireland; Gary O'Meara, CEO of Meath Enterprise; Emeir O'Connell, general manager of Wicklow Enterprise Centre; Niamh Costello, CEO of CREW Digital in Galway; and from my home town, John O'Connor, CEO of Enniscorthy Enterprise and Technology Centre and the Hatch Lab in Gorey. The Irish Small and Medium Enterprises Association will be represented by Neil McDonnell, chief executive officer, and Finbarr Filan, chairperson.
We will now move to opening statements. I invite Siobhán Finn, CEO of Community Enterprise Association Ireland, to make her opening statement.
Ms Siobhán Finn:
Today, I will address the challenges facing Ireland's community enterprise centres and hubs, which support over 3,500 micro and SME businesses nationwide. For the purpose of clarity, we define the community enterprise sector as the broader enterprise development support ecosystem that arises from the collective efforts and activities of enterprise centres and innovation hubs across Ireland. These efforts span multiple sectors, providing vital shared infrastructure and enterprise supports, reducing costs for start-ups and SMEs, fostering collaboration and innovation, and driving balanced regional economic growth and social development within communities.
Competitiveness and the escalating cost of doing business in Ireland are central to the performance delivery of centres and hubs. By offering shared infrastructure, affordable space and wraparound enterprise supports, these centres help reduce overheads for businesses while strengthening local competitiveness, attracting and retaining talent and driving balanced regional economic growth and development.
The Department's data indicates that Enterprise Ireland, on behalf of the Department, has provided funding of well over €150 million for the establishment of some 140 centres and hubs, comprising 250 enterprise-driven investments, through a range of enterprise-funding schemes into this sector since the early nineties. The result is a sector that supports thousands of businesses and sustains approximately 18,000 full-time jobs in local communities. Independent research in 2023 confirmed the sector contributes approximately €1.8 billion in gross value add annually, thus achieving a ninefold return on public investment.
We are here to discuss the major challenges and barriers to the sector's continued growth. Ireland’s national development plan calls out enterprise centres and hubs as important tools for regional employment, yet despite the sector’s significant contribution and the potential it offers, the sector faces ongoing critical challenges that constrain its potential. Since 2023, we have been attempting to engage constructively with the Department concerning these challenges. Financial instability is pervasive, notably among hubs funded under the regional enterprise development fund, REDF, and border enterprise development fund, BEDF, schemes, where over 60% continually operate within six months of financial insolvency and struggle to meet basic operational costs including salaries. Innovation management expertise and leadership capacities remain limited in many centres, compounded by under-resourced operational models. The long-awaited solution presented to the sector by the Government in 2023, as the smart regions enterprise innovation scheme, is now its greatest challenge. This fund, to the tune of €145 million, was launched in November 2023, with the first call for applications expected to be completed by 31 March 2024. The sector is, in fact, still attempting to navigate the challenges of that first call, 18 months after it was expected to close. Detail shared during a Dáil Éireann debate on 19 June this year indicated that only €10 million worth of grants had been awarded; in other words, less than 7% of the available funding has been awarded to date. While no comprehensive list of successful applicants is publicly available, we understand that only one capital project has been funded under stream 1 and that in the region of 17 cluster-based or programmatic-focused projects have been awarded funding under streams 2 and 3, with the balance, an unconfirmed number, having been awarded under stream 4 for feasibility or priming. The limited progress of the smart regions scheme is greatly undermining Ireland’s broader goal of enhancing regional competitiveness and innovation.
The recent Action Plan on Competitiveness and Productivity emphasises boosting regional development as one of its main themes, with enhanced regional balance driven by investment in infrastructure, innovation and skill support targeted across regions. The smart regions scheme will not contribute in any significant way to this ambition in its current guise. The 2025 European innovation scoreboard highlights Ireland’s persistent challenges in scaling innovation due to comparatively low public sector support and investment vis-à-vis EU scoreboard leaders. The centres and hubs are crucial regional innovation enablers; however, they require practical and expert-led engagement rather than a top-down approach to ensure long-term sustainability and impact.
The sector’s vital role remains under-recognised, with significant challenges unaddressed and detrimentally impacting its growth and sustainability. Immediate, evidence-based, outcome-driven and partnership-focused interventions are essential to safeguard these important regional assets. Go raibh míle maith agaibh go léir.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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I thank Ms Finn. I now call on Mr. Neil McDonnell, CEO of the Irish Small and Medium Enterprise Association.
Mr. Neil McDonnell:
ISME thanks the members of the Joint Committee on Enterprise, Tourism and Employment for its invitation to make a written submission today.
A small open economy can endure some cost sectors that are higher than others. Ireland’s difficulty, however, as a peripheral nation in Europe’s Atlantic north west, is that all our major business cost groups are significantly ahead of EU averages, among competitor small advanced economies in particular. Our energy prices are consistently the highest in the EU. Our median gross hourly earnings are consistently in the top four in the EU. Our statutory minimum wage is consistently the second highest in the EU, after Luxembourg. Our standard 23% VAT rate is the fifth highest in the EU and our reduced VAT rate of 13.5% is the second highest in the EU. Our rate of rental price growth is the fifth highest in the EU from a very high rental cost base, and Insurance Information Institute data show Ireland with the second highest insurance cost per capita in the EU, with a high growth rate in non-life costs to 2022.
Countries with high levels of productivity can tolerate and accommodate a high cost base. Unfortunately for Ireland, the most productive sectors in our economy are inhabited mostly by foreign multinationals employing large numbers of workers. The indigenous areas of the economy need to increase their productivity, yet crowding effects from multinationals with high salaries and large non-salary benefits, also known as Dutch disease, affect indigenous SMEs in particular.
Productivity is a direct analogue for profitability. Despite a consistent media narrative that SMEs are making a lot of money, Revenue data, in particular, point to a lack of profitability among SMEs, especially among micro-businesses. It does not follow from the above that ISME is against the setting of a national minimum wage. We favour doing so, as it introduces a wage floor, provides transparency as to minimum costs of service provision and prevents wage dumping and a race to the bottom in the economy. However, we note that minimum wages are not the driver of wages in an economy. The country with the highest median wages in the EU is Denmark and it does not have a statutory minimum wage. Furthermore, European Free Trade Association members Switzerland, Norway and Iceland all have higher wages than Ireland, yet do not have a statutory minimum wage. Productivity in our indigenous enterprise sector can only be raised by upskilling our indigenous SME workforce, yet at the very time we need to it most, the Government plans to expropriate funds from the National Training Fund in order to expand veterinary, medical and dental training facilities in our third level colleges.
While the objective is laudable, the method is not. The NTF is funded by a levy on employers and is intended, by law, to be spent on adult and in-work training for our workforce, where the need is greatest. We ask you not to permit the amendment of the National Training Fund Act to allow this.
Despite it being published five years ago next month, nothing has been done to deliver reforms suggested by the Kelly report on civil justice. Our inefficient, ineffective and highly expensive legal system lies at ground zero in our lack of accommodation, infrastructure and affordable insurance, yet nothing is being done to tackle a legal lobby that refuses to countenance anything beyond their own financial interest. Today, the Seanad is voting on a travesty of a defamation reform Bill, one that falls far short of what is required to ensure a just and equitable society where citizens can express opinions and retailers can protect their shops and stock. Yet the interests of abusive and vexatious defamation litigants are being protected in order to preserve fee income.
Members will have our full written submission and we are happy to take questions on it.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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We will now have questions and comments from our members. Slots of five minutes will include the answers. We hope to get to a second round. We will see how it is going. I call Senator Nelson Murray.
Linda Nelson Murray (Fine Gael)
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I thank the Chair. I thank everyone for coming here today. The committee is doing a good bit on the increased cost of doing business. We are all looking for someone to come up with the million-dollar answer that will help businesses out in Ireland and help enterprise centres.
For transparency, I was on the national council of ISME and I worked with Gary O’Meara in Meath Enterprise too. That is to say that on my past. What I know about enterprise centres, having been there, is that they are vital in our community. Navan has the Meath Enterprise Centre. Navan was the home of furniture in Ireland. We had our furniture trade fairs there when I was seven, eight or nine years old and it evolved into the great enterprise centre that it is now. There is a digital hub, a food hub and food spaces. We do not want to see anything happening to enterprise centres in Ireland.
Will Ms Finn give an example of what one or two of her counterparts in Europe might have received in funding to ensure they performed better on the EU scoreboard she mentioned? Does she understand why it has taken so long here if we have only taken €10 million out of the €145 million? She is saying that is the most critical part of it.
Ms Siobhán Finn:
We have taken time to speak to many of our enterprise managers and CEOs around the country like Ms O’Connell, Mr. O’Meara, Mr. O’Connor, who is on screen, and their counterparts. A number of consistent messages are coming back to us. I submitted a letter to the regions unit in the Department last February setting out very clearly what that feedback was. Simply put, the scheme is incredibly unwieldy. It is not fit for purpose. The application process is tedious and demanding. It demands extreme resource as well as investment in reports to back up applications. The centres themselves are under-resourced with staffing. They do not necessarily have the expertise within their own team to fill out these very unwieldy applications. There is a requirement for match funding. There is some ambiguity about what that match funding should or could look like. We have spoken to a number of organisations outside Ireland which have drawn down similar moneys. There is greater clarity for the mechanisms for match funding and they are far less onerous. In the case of Malta, for example, the development of the Valletta design centre was capital investment with 70% coming from Europe and the balance of the 25% came from the Maltese Government.
Linda Nelson Murray (Fine Gael)
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Therefore there is less red tape.
Linda Nelson Murray (Fine Gael)
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We go back to the red tape again. It is not that we are withholding.
Ms Siobhán Finn:
No. It is the red tape and the unnecessary red tape. We took legal advice on the structure of the scheme in early-to-mid-2024 from a legal firm based in Dublin which is an expert in this area. It was very clear on the layering on of additional expectations and reporting requirements vis-à-vis other schemes.
Linda Nelson Murray (Fine Gael)
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I thank Ms Finn. I am sorry we have time constraints. I would love to go back to Ms Finn but I will go back to ISME to talk about defamation. I know it is very important to ISME as well. We are going through amendments in the Seanad on the Bill today.
When I read ISME’s opening statement yesterday, I had a quick look at my own business. I know my costs are going up but my wages have gone up by €40,000 so far, my energy has gone up and my rent has gone up by €100,000. This is all in a year. I pay €20,000 in rates and €20,000 in insurance. That is without auto-enrolment and wages going up any further, so I hear what ISME is saying.
My question is for Mr. Filan and Mr. McDonnell. I am thinking about what happens if we do not tackle energy and the minimum wage increases. As I said last week, none of us are against increasing wages to our staff who are so valuable to us. It is about having supports for businesses to be able to do so. What if VAT remains at 23%? If the 13.5% rate goes down that helps the hospitality sector but not the rest. If all this happens and our rents continue to increase and we do not manage to tackle insurance what will happen? What does ISME see happening in the next year?
Mr. Finbarr Filan:
It will be devastating. I am not an alarmist but that is what will happen. It is very important that people get to put a face on what a small business is like. If the Senator bears with me I will run through mine. I employ 33 people in a convenience-store business across a variety of shifts and formats from full-time staff to students who might work one shift of ten hours a week, perhaps. We open from 7 a.m. to 11 p.m., seven days a week. My target on my business is about 110 labour hours per week and I typically have 20 to 30 hours of holidays on top of that. To look at the movement in costs, I will give some of the main items in my business since January 2023. My wage bill has increased by over €100,000 per annum. My energy bill has increased by €32,000. My insurance costs have increased by €4,000. My packaging costs have increased by €12,000. That is €150,000 without even talking about the costs from my main suppliers. For all of us, it is relative. That is my business but if you go to a hairdresser, locksmith or pub it will all be relative in their business too. We have faced an onslaught of costs over the last two to three years but the biggest driver is the minimum wage costs, which have gone up by 35% in four years. It is really hard for any business to be able to sustain those costs on an ongoing basis. I am glad to see a sort of tapering down. Two years ago it went up by €1.20. Do the sums on that - that is €40,000 on the bottom of my business. Businesses cannot keep facing these increases.
Linda Nelson Murray (Fine Gael)
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You cannot keep increasing the price of a cup of coffee either or a can of coke which is what I keep saying. I cannot charge any more than €3.50 for a coffee.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Thank you Senator.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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I gave you a little extra time there because it was a very relevant answer. That is why I let it go over but I will move on to Deputy Conway-Walsh.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I am keeping my eye on the screen for Questions on Promised Legislation. My first question is for Ms Finn. It is very alarming that after two years, only 7% of the smart regions enterprise innovation scheme fund has been drawn down. We all agree that more needs to be done to support small and medium-sized businesses yet we have a scheme here with only 7% drawdown. Why is that?
Ms Siobhán Finn:
There are a number of reasons. Take the structure of the four streams that exist under the scheme. The scheme was designed by individuals who are not engaged with centres and hubs on a day-to-day basis. The Deputy will be familiar with some really successful hubs across Galway and the wider west.
The reality of what is expected of these individuals is that success is measured by the number of companies they turn out and their success. However, little attention is paid to the model that sits behind this ambition, which involves running a successful enterprise centre and hub; meeting the overheads, salaries and operational costs and doing so with a very lean team; and continuing to deliver on the Government's ambition to create HPSUs and successful small and medium-sized indigenous businesses in regions across Ireland. There was a gap of well over two years, if not longer, between the last regional enterprise development fund and this new smart regions enterprise innovation fund. During that time we lost 15 to 20 of our very experienced staff from across the sector. That may seem like a small number but we only have 500 people employed as staff running enterprise centres and hubs around the country. Those 500 people support companies that employ 18,000 full-time individuals, so there is a complete disconnect between the reality of what is required on the ground and the structure of the decisions and the funding streams to meet Government ambition. There is no understanding of what is practical, doable and feasible on the ground. That ranges from the structures of match funding and the clawback required under stream 1 for capital investments. Within stream 2 we are looking at match funding clustering consortiums of 50% that comes from industry, but there is no clear definition of what industry looks like in the context of making an application for this fund. I could sit here all day and talk about the challenges.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I apologise if I seem rude because I have one eye on the screen. Were the enterprise hubs involved in the design of the scheme?
Rose Conway-Walsh (Mayo, Sinn Fein)
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Surely that is the fault. This is the fault over and over again. The weakness in these schemes is that the people or entities these schemes set out to target and to help are not involved in setting them up. It is very obvious that people who are one step or several steps removed are designing something that just does not work.
Mr. Gary O'Meara:
During Covid, Enterprise Ireland introduced a support scheme. Along with senior officials in Enterprise Ireland and the Department I helped to design this scheme, so that we could get the supports to the members and we could support the centres and the companies within those centres to make sure they did not have to close down. It worked very well. Some €8.9 million was distributed within a matter of months in 2020 to all of those centres. We need more of this kind of joined-up thinking where CEAI and ourselves, the members, can collaborate and support Enterprise Ireland in getting this funding out.
Rose Conway-Walsh (Mayo, Sinn Fein)
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That is it, exactly. It is not rocket science.
Rose Conway-Walsh (Mayo, Sinn Fein)
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It is a question of involving the people we are trying to target to help in the design of the scheme. It would save so much money on nonsense and administration. I will save my question for ISME until the second round if that is okay. As a committee, we need to address what the witnesses have brought before us today.
Ollie Crowe (Fianna Fail)
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I thank the witnesses for coming before the committee this afternoon. ISME noted the limitations of consultations in its opening statements and questioned their necessity. I ask Mr. McDonnell to expand on this point. What would be a more effective way for the Government to engage with SMEs on policy making?
Mr. Neil McDonnell:
The consultations themselves are good; the issue is that we gather the information and then we do nothing with it. Consultation is not the problem, with one exception I would say. The one significant area of consultation on the issue of the national minimum wage where SMEs are not represented is the Labour Employer Engagement Forum. Ironically, the employers that are represented within this forum have very few workers on the national minimum wage. That is why they did not see this problem coming last year. That is why there was a large kerfuffle over the minimum wage last year when there was a very big movement in it. More generally, the issue is that we have consultations where we get people into a room and we ascertain what the problem is, but then we do not do anything about the problem afterwards. Execution is our failure always. We are great at talking, but our performance in terms of execution is poor.
Mr. Finbarr Filan:
When we consult businesses, it is really important that we listen because the most effective and vibrant businesses in the country are small businesses which have no choice but to be effective and vibrant, or they are gone. ISME has always supported a minimum wage, and we all want our workers to be well paid, but it has to be at a level that is sustainable. Three years ago at the retail forum, I highlighted that if wages went up by the percentages that were targeted, there was going to be carnage, and there was. If we look at the data from Revenue for corporation tax paid by small businesses, we see that 88% of them pay less than €5,000 a year in corporation tax and 50% pay none. That means they are breaking even or making a loss. This is all being driven by increased costs.
Ollie Crowe (Fianna Fail)
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Okay. ISME also noted the challenge for SMEs when multinational companies raise wage expectations and make it harder for local businesses to compete for staff. Are there any measures that could be taken to support SMEs without discouraging foreign investment?
Mr. Neil McDonnell:
I talk to recruiters, for example in Dublin. Not too far from here we have Silicon Docks where young people under 30 years of age have average earnings of €150,000. Realistically, we are not going to be competing in that space. Not a lot of people necessarily want to keep up with the pace that is required to deliver those sorts of earnings over a lifetime. What small businesses like this have to offer is locality. If a person is not working on a farm, in a small business or in local government down the country, they are unemployed. What we have is location. We have employment close to where people live. Small businesses are what keep people in towns. The difficulty comes when a business is trying to go up the wage chain. It is difficult a lot of the time to attract talent such as managers and people with professional skills. That is where it becomes difficult. The toughest competitor for an awful lot of businesses, believe it or not, is actually the public sector. When there are two jobs available, someone is much more likely to take a job in the local authority or the Civil Service because the wage packet and the pension are extremely attractive, compared to what is available in the private sector. It is very difficult to square that circle and give equality between them without raising productivity. Productivity is the way to go.
Ollie Crowe (Fianna Fail)
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Okay, I will leave it at that, Chair.
Albert Dolan (Galway East, Fianna Fail)
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My first question is about cost pressures. The witnesses went into detail about the labour costs. Is it the labour cost, the energy cost, the insurance cost or a mixture of everything that poses the biggest threat to the ability of SMEs to remain competitive now? What practical steps should the Government be taking to alleviate those costs?
Albert Dolan (Galway East, Fianna Fail)
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That is an increase of €100,000 on last year.
Mr. Finbarr Filan:
Over two years. It is actually probably going to be close to €550,000 this year. My energy bill has gone from €3,200 a month to €5,700 a month, so now my energy bill in my store is touching €60,000 when it used to be €30,000. My insurance has gone up slightly, but they are the big two that really hit us. The increase in the minimum wage affects everything back down the food chain before that. The delivery driver is facing the same thing, my main supplier is saying the same thing, the factory that builds the product is finding the same thing and the farmer is finding the same thing. It goes the whole way back down.
Albert Dolan (Galway East, Fianna Fail)
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Inflation is like a spiral across the economy. I understand what Mr. Filan is saying.
The business energy support grant will cover 75% of costs up to €10,000. Is ISME seeing a lot of businesses availing of this grant, are businesses aware of it to help with the energy-cost side of things, and does ISME feel there is a good uptake for it?
Albert Dolan (Galway East, Fianna Fail)
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If I go into my local enterprise office, it will essentially fund energy upgrades in my store or shop or any business - an accounting firm, solicitor's practice or whatever - up to €10,000 to cover 75% of the cost.
Mr. Finbarr Filan:
There are two issues with that. First, most of us did that ten years ago because we were always trying to drive down costs. It is not a new thing. Second, if a business wants to do it now, it still has to come up with the money to do the change. If I wanted to change one fridge in my store, it is €25,000. So, it is pointless. That grant only really deals with lights, which are the smallest energy users in the store because we have all changed them to LEDs already.
Albert Dolan (Galway East, Fianna Fail)
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Okay. That is good. I appreciate that. Regarding productivity and scale, obviously Ireland has a huge number of small firms and micro firms. What specific barriers does ISME see preventing them from scaling up and improving productivity compared with others across the EU?
Mr. Neil McDonnell:
It is access to training and upskilling opportunities. We are not alone. I am not just speaking to the ISME Skillnet. We had an internal conference a number of weeks ago. Our Skillnet cohort has spent all their allocations, in some cases by midyear. We are spent already, and we are in quarter 3, we have just gone into quarter 4 today.
Albert Dolan (Galway East, Fianna Fail)
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Does Skillnet not have that National Training Fund unlocked?
Mr. Neil McDonnell:
No, it does not. Our big reservation about that National Training Fund is that it is employers' money. It is 1%. It is taken on payroll, and we are now being told we are going to be putting solar photovoltaic panels on the roofs of universities. We have nothing against that but the money for it should be found somewhere else; it is our money. All that comes through Skillnet is €60 million a year out of €1 billion collected for employers. It is only 6%. We are suggesting doubling that for next year.
Mr. Finbarr Filan:
I am a manufacturing engineer by profession. I worked with large multinationals where we dealt with productivity all the time. In my store, we have cut our labour hours from 550 to 500, but that is it. My next option is to shut earlier and cut hours. There is an opinion out there that we have to become more productive. That is fine if you are a manufacturing industry where there is the opportunity, but if you are a barber, barman, storekeeper or bookseller, there is only a certain limit you can come to. Most of us are at that limit already because we have been fighting the cost battle for years. We have now come to the point, which goes back to Senator Murray's question, of asking what the next thing will be. We have done all we can.
Albert Dolan (Galway East, Fianna Fail)
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I appreciate all the contributions.
Mr. Neil McDonnell:
I will mention, because we are multi-sector, that there are areas of business constrained by law. For childcare, you cannot simply put more people in the room. The Deputy has seen the recent scandals around nursing homes. There are areas in which services operate on the basis of a ratio where Tusla and HIQA decide what the maximum productivity is going to be. It is simply just going to cost more money if you increase the cost of those services.
Albert Dolan (Galway East, Fianna Fail)
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I thank the witnesses.
Tony McCormack (Offaly, Fianna Fail)
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I thank Ms Siobhán Finn and Mr. Neil McDonnell for their opening statements. I will concentrate on ISME, but in my next round I will have some questions for the other witnesses.
The ISME opening statement does not read well. We are the dearest in some categories. We are second or third in the table for others. Ireland is not at the bottom of any tables in any way, shape, or form for anybody. It seems the cost of doing business in Ireland is very expensive. The only natural resource we have as a country or a people is agriculture. We used to have fishing as a big industry, but it is not so big anymore. We look at wind energy, but it is not there yet. After that, we have FDI. FDI firms come into the country and provide a huge amount of work here, which has a multiplier effect according to the IDA. For every job created in the FDI sector, there are probably five or six jobs created in indigenous businesses and small and medium size enterprises, which are the backbone of the country. Without those FDIs we are in trouble. We are making the playing field more uncompetitive. We met with IBEC representatives last week, and they told us the same story as the witnesses are telling us today - that we need to reign in our costs. IBEC representatives spoke about costs such as insurance, but their number one cost is the minimum wage. When we raise the minimum wage it has a knock-on effect because everyone above it wants a similar percentage raise in their wages. What happens is somebody on €10 per hour four years ago is probably getting less value for the €14 per hour he or she gets now. We are pushing this living wage way above what we can attain in the future because it seems to be a moveable feast. We, as a Government, need to take control. We need to link the minimum wage to inflation. It is the only way we are going to get a hold on this, because all the other costs are related.
The ISME opening statement highlighted that Ireland has the highest pre-tax energy prices in the EU. From ISMEs perspective, what specific interventions could the State realistically take? I am thinking about the subsidies being given to businesses in Germany to reduce the cost of energy.
Mr. Neil McDonnell:
The Department of enterprise is running the cost-of-business forum on this. The energy one is extremely technical. We in Ireland used to have some of the lowest energy prices but when the Single Market was established we started benchmarking off gas. There are technical reasons why this should be, but they are not market-related reasons. Gas and electricity cost roughly the same at wholesale level across Europe, yet in Ireland we pay a massive premium.
A Deputy asked Mr. Filan what the single worst cost is. If you talk to someone in childcare, their ratio of labour cost is going to be different from that in retail, nursing homes or manufacturing. Everyone's cost base is unique. Retail and hospitality obviously have a labour-cost problem but they are also intensive energy users. They have massive gas and electricity bills every month. I know Deputies and Senators want to be told one thing, but we cannot do so. It is different in each business sector. We have to be competitive in all sectors. I told a story earlier about the €9 coffee in Switzerland. If we do not get control of that cost base, we are going to have to tell our citizens what is coming down the tracks in terms of cost because it will eventually have to be passed on.
Mr. Finbarr Filan:
If there is a decision to provide energy subsidies, they need to be targeted. I have a Centra store and I have a post office. In the last round of supports I got €4,000 for each business, which was really welcome. However, the electricity bill for my post office is €130 a month while the bill for the store is €5,700. We need to target supports.
Tony McCormack (Offaly, Fianna Fail)
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It is not all doom and gloom out there. I know the Government, the Minister, Deputy Jack Chambers, and the Minister for enterprise have been instrumental in looking under the bonnet to find out what is happening and to cut out the bottle necks and the red tape holding up business.
John Clendennen (Offaly, Fine Gael)
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I thank the witnesses for coming in and joining us today.
My first question is for ISME and relates to where we are at and the sentiment of businesses today. Regarding local enterprise grants, I appreciate Mr. Filan said people drew them down ten years ago, but the vast majority have never drawn it down and have never engaged with their local enterprise office.
There are an estimated 400,000 small businesses. Does Mr. Filan know how many have engaged with the National Enterprise Hub since it was introduced? It is 6,500 to 7,000. Why are small businesses not coming forward if they have these challenges?
Mr. Finbarr Filan:
It is because the enterprise offices cannot talk to retail businesses. They do not deal with retail. The system is not there. An entity for small businesses is needed. We have one for FDI. IDA Ireland does a fantastic job. If we did not have IDA Ireland and FDI we would be having a totally different discussion about this country. Enterprise Ireland does a brilliant job with exporters and LEOs talk to small exporters or people who want to become exporters. I will go back to my previous answer to the other Deputy. The vast majority of SMEs are not exporters so LEOs cannot talk to them. We have no one to talk to. There are 150,000 businesses out there that have no one to talk to.
John Clendennen (Offaly, Fine Gael)
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Does Mr. Filan think that by a stoke of a Minister's pen the LEOs could speak to retail businesses and that would make a difference?
Mr. Finbarr Filan:
I do not think so because I do not see what they will bring to us. They are there to drive on small businesses that want to grow exports. There are many small businesses that do not want to grow. They just want to survive and perhaps pass the business on to the next generation. Many businesses are at survival now, not at growth. It is just not on the radar for many small businesses.
John Clendennen (Offaly, Fine Gael)
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Mr. Filan mentioned the possibility of closure. The irony of having to close during quieter periods to remain open is quite a contradiction. Does Mr. Filan see any merit in community CEAI schemes, a business community scheme where businesses come together to achieve economies of scale? I am conscious that smaller businesses do not benefit from economies of scale. If a business has a weekly turnover of €5,000 or €10,000 it is difficult to survive. Should we be looking at this on a collective basis?
Mr. Finbarr Filan:
A collective basis can only be looked at if the business owner does not have to do anything because in most of those small businesses, the business owners open the door, clean the floors, stack the shelves, shut the door and go home after 14 or 15 hours. They do not have time to go to talk to other people. That is part of the problem. Many of those small businesses cannot take on any other work.
However, businesses coming together does work. We have a business improvement district in Sligo where all the businesses work together to put in projects that make Sligo better and making Sligo better ultimately makes our businesses better. There are ways to do it, but I do not see us ending up with a buying group to sort out insurance for small businesses. I do not think it would be viable.
John Clendennen (Offaly, Fine Gael)
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I appreciate that. I come from a small business background.
These figures were shared with us. From a CEAI perspective, did we essentially get the strategy wrong? Has it failed?
John Clendennen (Offaly, Fine Gael)
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Okay. In a nutshell. How do the witnesses think we got it so wrong?
Ms Siobhán Finn:
The fundamental design of the smart regions enterprise innovation scheme is wrong. It is not fit for purpose. It does not meet the needs of the centres and hubs sitting in communities in regions around the country. The design took a top-down approach and did not understand the demands of the sector on a day-to-day basis and the critical challenges facing it. It is interesting to hear what ISME had to say today. There is a lot of repetition. A lot of what I heard is exactly what we are experiencing in the sector. Our biggest challenge is operational costs. There are two key priorities within the operational costs of enterprise centres and hubs. They are salaries and energy. We faced significant challenges a few years ago when it came to the particular scheme that ran at the time to support businesses during the winter of 2023-24. We could not apply for it because the scheme was designed by individuals who assumed all businesses have an MPRN. They do not. We could have a centre with 20 or 25 businesses that has one MPRN so those businesses could not avail of it.
John Clendennen (Offaly, Fine Gael)
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I am watching the clock and I have one more question. Do we need to look at this from a broader perspective and try to accommodate the likes of manufacturing, food development and the manufacture of produce? Should we be looking beyond the desks and chairs to how we can provide, as we have in Offaly, Ferbane Business and Technology Park and commercial kitchens? Should we be using some of the funding for that kind of model?
Ms Emeir O'Connell:
I am from Wicklow town and I am the manager of the enterprise centre there. I manage a centre of just over 70,000 sq. ft. I also managed a tourist attraction that just closed yesterday. I am a busy lady. I am managing two discrete businesses. In conjunction with that, I have a board and we currently have full planning permission for a site we own to develop a 20,000 sq. ft building that will meet the needs of the green and blue industry and develop the next generation of visionary entrepreneurs in that space.
To achieve that goal, my board is looking for a chunk of money. I am pursuing the €10 million stream from Enterprise Ireland. Due to lots of things that were discussed here, including hyperinflation, costs and so on, that €10 million will not cut it. However, we have a unique opportunity, a strategic site that is uniquely proposed for the Codling wind park development that is planned 20 km off the coast of Wicklow. In a way, I have heard the messaging from Enterprise Ireland and the community enterprise centre about the need to be commercial, stand on one's own two feet and be independent and I have worked in my role to be that centre. We are in a good position.
My exposure to the smart regions scheme is new. If I were to say anything, the lack of precision around communication is a little challenging and can cause constraints in moving things on. I am leanly resourced, beyond lean, and it takes time to understand the requirements of the application form. It is a chunky document. It is not easily filled out. It is costly. There is a lack of precision in communication and it takes time to achieve clarity. I am trying to meet the needs. I want the money.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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I am sorry to interrupt. I let that go on because it was hugely important, especially as Ms O'Connell is on the coalface. That is why I let her go over time. She might get to contribute again.
I give a warm welcome to Deputy Gibney.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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I thank everyone for being here. I have enjoyed the discussion so far. I am learning a lot about the challenges the witnesses' members face.
I have a few broad questions I will put to everyone, but I will go to ISME first with a specific question on dual-use goods. It is keen to help SMEs to sell dual-use goods and tap into potential funding streams that are available. Does ISME have concerns about the ability of the Department of enterprise to assess and complete due diligence in a timely fashion on dual-use licences, given how dramatically dual-use exports are growing without the corresponding growth in resourcing in the licensing system?
Mr. Neil McDonnell:
It is not a sector we have a huge amount of exposure to. We believe it is a sector we should have increased exposure to. Enterprise Ireland is trying to do something in that area. We mentioned in a number of pre-budget submissions that the lack of a national security clearance system is interfering with our ability to do that. We have not had an educated debate on this topic in Ireland.
I was at a plain HR conference last week in Brussels where we talked about such things as wage adequacy and union representation. We spent three hours at that kind of stuff, God help us, and the lady from Stockholm stood up at 4.30 p.m. and thanked the chair for finishing on time. She was wearing combat fatigues and was going on exercise until Monday morning. These are the realities that are not being discussed in Ireland at all. The security environment has changed in Europe and we need to be having an educated discussion about that.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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I do want to move to those broader questions, but is Mr. McDonnell saying he does not believe the Department has adequate measures in place yet to improve the licensing?
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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What about the Department?
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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The Department has responsibility for the licensing.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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Mr. McDonnell moved into that area of broader workers' rights. I would argue that our competitiveness in terms of attracting and retaining talent across Europe is problematic because we are an outlier in terms of collective bargaining, adequate wages and broader workers' rights. How do we make Ireland a more attractive place to work in, particularly around workers' rights?
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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We do not recognise the right to collective bargaining for a start.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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Exactly so employers have no obligation to engage in collective bargaining.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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That does make Ireland an outlier. Employers are not obliged to do that. That is unusual across Europe.
Mr. Neil McDonnell:
I have sat with European trade unions in a European context with the European Trade Union Confederation, which does not happen here. Government does not recognise the small enterprise sector in terms of collective bargaining. There is a much more developed and mature trade union-employer network and interaction in European countries, which we would love to see here because, traditionally, we have not seen unionised businesses scale in Ireland. We have to come up with an answer to how that will happen. We want to participate in that. We are knocking on the door with the Department and the Department of the Taoiseach all the time looking for recognition for SMEs but that has not yet come.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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Would anyone else like to answer on broader workers' rights issues and how we can make Ireland a more attractive place to work?
Ms Siobhán Finn:
We see in our enterprise centres that the key issue is the lack of housing. We have several dozen enterprise centres that sit in rural and regional communities. They accommodate companies that are looking for staff, are working very hard to attract talent to these local communities and are putting an awful lot of effort into retaining the skills that do exist in those local communities but housing is the biggest obstacle. We have an enterprise centre in Sneem in County Kerry, which has quite a significant community that has come from South Africa with quite a number of additional families wanting to come but there is no accommodation available for them. That is one example. The other issue is the cost of living, which has been addressed.
Sinéad Gibney (Dublin Rathdown, Social Democrats)
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What is the biggest thing the State can do to re-balance away from our over-reliance on FDI? This is something we talk about all the time to try to understand how we have got to the point where we are so reliant on FDI. With a view to growing the indigenous SME sector, what is the key measure the Government needs to take?
Mr. Neil McDonnell:
Get out of the way. Stop over-regulating. Family businesses are respected in European countries and they are the businesses that grow biggest. They scale. We see that in South Korea. We see it with the likes of Lego in Denmark. They are family businesses that scale. Family businesses do not scale in Ireland because, unfortunately, there is a view in the Department of Finance quite literally that they are expense-fiddling tax-dodging wasters. We need to develop a respect for our family businesses that can scale. If we think about the household big business names such as Ryanair, CRH, DCC, Kerry or Paddy Power, only Ryanair and Kerry to a lesser extent remain listed here. The rest have just left and they are not the sorts of businesses we would have viewed as scaling yet they are enormous employers and great businesses.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Before my political career, which only started a few months ago, I was in hospitality with over 600 people working for me. When I was reading the opening statements, it was a case of déjà vu - here we go again for both SME and enterprise. I will focus on enterprise first. I am keen to bring in Mr. O'Connor as well. It involves the bureaucracy be it in farming or enterprise, the cost and stress of it and whether there is a need for it. I am speaking as a businessperson rather than as a politician; I totally understand that. How was a scheme put in place without the input of people at the coal face - the Emeirs, Johns and Garys? Why was the scheme changed if it worked so well in Covid? There is little to no drawdown on the current scheme.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Undervalued by who?
Brian Brennan (Wicklow-Wexford, Fine Gael)
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I would argue with that. Our national crisis is housing but the biggest thing relating to enterprise is jobs - good-quality jobs - and this has to come through the system. We will agree to differ on that. I want to be bring Mr. O'Connor in on that regarding the coalface. I also want to bring in Emeir to conclude her points on Wicklow and a specific case, as I interrupted her.
Mr. John O'Connor:
I have been a centre manager for 23 years and have applied for different funding over the years. As Mr. O'Meara said, these ones were easier. One got one's capital grant plus an employment grant to help in operations. I did not go near the grant referred to by Ms Finn because it did not make sense to me. It was not worth the effort one would put into it. We in enterprise centres provide a lot more than just space. If a retailer wanted advice, they ring me in Gorey or Enniscorthy and we provide that support because the LEOs cannot do it, Enterprise Ireland cannot do it and IDA Ireland will not do it. Our only source of income is rent. If we were to rent the whole of the Hatch Lab, it would be 100 years before we would reclaim the price of the building. Our rent roll is only a percentage of what we need to survive. We have to go hunting grants and other facilities to keep the door open. For a lot of enterprise centres, this grant was not worth looking at. I am guessing that the ones that did apply are the new centres, which are being set up to fail because of 15 centre managers, one applied for the REDF fund. I have been in the sector a long time and have seen these people come and go. I feel sorry for them sometimes because the economies of scale are not in place when they apply for these funds.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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There seem to be two issues here. One is how the smart regions fund is rolled out and the other is the operational costs of the centres. Are they being fully funded? There seems to be a gap between the Government and enterprise. How can we lessen that gap?
Ms Siobhán Finn:
Individuals who are responsible for managing and leading these enterprise centres are under significant pressure to keep the doors open on one hand and on the other, they are sometimes trying to find enough money to pay themselves at the end of the month because the cash flow is not there.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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On SMEs, how are small businesses surviving? It is one layer after another. Tariffs are another cost for business and have not been mentioned. How much are they affecting things? I would love to hear solutions the witnesses have. I know wage costs and energy costs are huge. What more can we in government do to help curtail these costs?
Mr. Neil McDonnell:
A lot of the time, there is an expectation on members' side that we are looking for free money. Businesses are not looking for grants. I am talking about grants to meet energy costs, for example. At the point where one cannot afford one's energy bill, one is on a slippery slope to insolvency. Businesses are looking for competitiveness and for prices to be lowered.
The biggest driver of wage demand, and why workers are knocking on the door all the time, completely understandably, is the cost of accommodation. We have set up the economy such that the provision of rental accommodation has fallen off a cliff over the past ten years because of regulation and a change in tax treatment. We now have the position whereby employers have become accidental landlords. Retailers such as Mr. Filan are constantly asking how we can energise the living over the shop scheme. There is now an expectation that employees of small employers will be given free or subsidised accommodation.
On the slightly deeper point raised by the Leas-Chathaoirleach, there is Department of Finance analysis on page 6. We have been patting ourselves on the back about the workforce getting to 2.8 million but at the micro end it is not productive. We are basically setting up subsistence businesses. I know a lot of them are potentially start-ups, and we would not expect them to be making money in year one or year two, but the Revenue figures on page 4 were alluded to by Mr. Filan. There are 122,000 businesses that made a negative tax return. Averages can be deceiving but on average these businesses have lost €13,000 trading during the year. The only way out of this is to get these businesses productive. If they are productive they can expand. This means there has to be a return on the business. The sales have to be bigger than the cost of sales. If they are not, that business is not productive. This can be sustained for a year or two but it cannot be sustained for years three, four or five. Otherwise, the two people the business will be having an uncomfortable conversation with are Revenue and the bank manager, and at that point they have run out of road.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Whether you are selling a cow, a pint of Guinness or a bedroom in a hotel, if you are not making a margin you are at nothing.
I will bring in members again and they will have three minutes each.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I have a lot to say in three minutes. I will confine my comments to ISME this time. I want to make it absolutely clear that since prior to 2020 we have advocated for an agency that is dedicated to small and medium businesses. Sometimes this is ignored and we speak about parties that are pro-business and parties that are not. It is absolutely vital that we have a dedicated enterprise agency to address some of these issues. I am not one for setting up more agencies. I would see it as an expanded role for the LEOs but they are not at the table at present. We keep speaking about the overall reliance on FDI, saying we must do something about it and support our SMEs but we are not doing so. We are announcing things for the sake of announcing them but they never come to anything and we are left in the situation we are in. I want to make absolutely clear our policy on this and how imperative it is that it is done.
I do not share the views expressed on the minimum wage. Workers need to be treated fairly and need to be paid a decent wage. I am concerned about the lack of productivity or reduced productivity. More so, should I say, I see opportunities for us to increase productivity using the National Training Fund and other Government incentives. How many times have we gone into shops and walked out again without somebody coming to ask us what we want? It is very obvious the training to sell things is not there. There has to be a focus on increasing productivity, looking after our workforce and seeing it as the main asset we have.
How important is the reduction of the VAT rate to 9% and what will it mean? Next week we will have the budget, and this is a measure that has been put forward.
Rose Conway-Walsh (Mayo, Sinn Fein)
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We have been advocating it for years.
Mr. Finbarr Filan:
We do recognise this. The 9% VAT rate is crucial. When the rate went from 9% back up to 13.5% the vast majority of businesses absorbed it. It was at the height of the cost-of-living crisis and with any good faith they could not push it back onto consumers so they absorbed it. We have now got to the stage where we have to take it back because we can no longer carry those costs. This is across the entire hospitality sector. My business will benefit because I have a deli. Cinemas will benefit. There is a plethora of people who will benefit from it but it is crucial. We can all see the number of high profile, well-known and well-established restaurants that are closing because of the costs. The 9% rate may not fix all of the problems but it will be a help and it is crucial that it happens.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I know my time is up but I wanted to ask about a PRSI rebate.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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If it is important, I will give Deputy Conway-Walsh another minute.
Rose Conway-Walsh (Mayo, Sinn Fein)
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We see this very much in terms of paying workers a decent wage and making up the gap. One way we see of doing this is through a PRSI rebate. We included this in our alternative budget last week. This would be to make the books balance. How would this work for Mr. Filan's business or other businesses?
Mr. Finbarr Filan:
We all want our workers to have a decent wage. As Deputy Conway-Walsh said, my business would not exist without the workers. It is plain and simple. They are my team. I am out fighting for them every day because I want them to stay and be on my team. I am blessed that I have staff who have been with me for over 15 years. But we have to annualise the minimum wage. When we say the minimum wage is going from €13.50 to €14 something, it does not seem like a lot. It is not even a cup of coffee. However, the current annual minimum wage is €27,300. I must add on my employer's PRSI and I must also add on holidays because most businesses employing people at the minimum wage always have to have someone there. Someone has to be on the shop floor. This raises it to €32,000. Next year, it will increase to €28,500 and with the additional costs it will be €34,000. This is a good standard of living. It is not that long ago when the big four were hiring trainee accountants at €24,000 and they thought they were doing really well. It was mentioned earlier that the minimum wage is an issue for IBEC. IBEC came late to the minimum wage discussion because nobody annualised it. The minimum wage report from the Low Pay Commission does not state the minimum wage is €27,000 a year, it always says how much it is per hour. We have to deal with this first of all.
On the PRSI issue, my total employer's PRSI is about €800 a week. If I got something back of course it would help and it would be a way of balancing the books. How much will I get back and by how much will it offset the minimum wage increase? If I get back 3% I will get €250 back but the increase will be €700. It is about balance. Anything would be welcome and I will not say "no".
Rose Conway-Walsh (Mayo, Sinn Fein)
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Mr. Filan is right and there is a combination of issues, including energy. Mr. Filan comes from the west of Ireland and he sees all of the wind turbines everywhere. Why is his small business not benefiting from this renewable energy and a reduction in energy prices?
Rose Conway-Walsh (Mayo, Sinn Fein)
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We need transparency. I thank the Leas-Chathaoirleach for allowing me to ask the question.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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The points the Deputy is making are very important.
Tony McCormack (Offaly, Fianna Fail)
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I want to come back to what was said earlier. The Leas-Chathaoirleach spoke about déjà vu and Mr. McDonnell spoke about doing research and having all the answers but not doing anything with them. This is where we come into play. We must make sure the Government starts listening. We speak about the minimum wage as being the biggest problem we have at present and this is because of the rise over the past four years, with possibly another rise in the budget next week. The bottom line is we need the FDI companies. I know we want to get away from a reliance on FDI and encourage indigenous businesses to scale up, get bigger and be our stars but we are where we are at present, unfortunately, and we have to look after FDI. We cannot have a situation where we fall off a cliff and everybody is in recession and the country goes back years.
We have to look after them. The Government must sit up and listen and make sure that happens. Other countries are becoming more competitive. Years ago we had advantages like an educated workforce but other countries in Europe and further afield now also have an educated workforce. Other countries can speak English now, perhaps not as good as us but they can. We are now bringing in talent from European countries where English is the second language. Our location as the first country on the way to Europe does not come into play any more. All of the benefits we had - there were probably about ten of them - are no longer unique to us. They can also be obtained from other countries. We need to sit up, look after this and listen to the business people, whether it is ISME for small and medium enterprises, IBEC or whatever other business organisation.
In response to Ms Finn, while it is not an enterprise centre, I was the chairperson of the Offaly Innovation and Design Centre. We have an innovation centre there that looks after about 20 to 25 different businesses. Some of them are new and others are not so new. It is similar to an enterprise centre. I feel her pain. We went through the same situation. We currently have no manager in the innovation centre because we have no income from any of the Departments. We are lucky that we have a local enterprise office and some of its staff are standing in to run the centre. I feel Ms Finn's pain and understand where she is coming from in that regard, but it is up to us as members of the Government to put her case to the right Department to make sure that changes.
Ms Finn mentioned that many centres lack innovation management expertise and leadership capacity. How does she propose these gaps be filled? Should it come from increased Government funding, which we already mentioned, or private sector partnerships for alternative models?
Ms Siobhán Finn:
I would say a combination of both, very specifically to address the gaps in innovation management and leadership. We as an organisation, CEAI, were funded by Enterprise Ireland under REDF 3 to develop the QHubs programme, which is a world first. It focuses very specifically on quality and innovation management performance of centres and hubs right around the country. We have not rolled it out because we do not have the funding for it. When we did go looking for funding, we were pointed to the smart regions scheme.
Tony McCormack (Offaly, Fianna Fail)
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I know I am just over time but I will go really quickly. This question is more for me than anything else. The research shows €1.8 billion in gross added value and 18,000 jobs. Where are those figures pulled from? That question is more personal rather than anything else.
Ms Siobhán Finn:
We were funded in 2023 under the REISS fund, which was an Enterprise Ireland fund, to look at feasibility for the sector. When I say "we", it was an independent analysis. We took on a team of independent researchers, who spent six months working very closely with the sector, looking at primary and secondary data and there were a lot of one-to-one interviews with the sector itself and with stakeholders. From that, we developed a really strong business case on shared services and a centre of excellence for the sector. We have done the figures on shared services and they all stack up, but that piece aside, in collecting the data, something that we had been asked repeatedly over the years was the value of the sector and to understand what the picture of the sector looked like in the context of the Irish economy. That had not been done by the Government or by Enterprise Ireland, so we funded it ourselves. We have copies of the report here with us today. That is where the data comes from. It was independently evaluated once we had done the research and it was shared with the Department probably about 12 months ago. We launched it at the national hub summit last year.
Tony McCormack (Offaly, Fianna Fail)
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I again thank Ms Finn for her contributions, and to all the other witnesses today.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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If Senator McCarthy would like to come in in a couple of minutes, I will ask a couple of questions. It will give him a chance to get his bearings. Would he like to come in then?
Brian Brennan (Wicklow-Wexford, Fine Gael)
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I knew there were concerns but I will leave today hugely concerned, especially about enterprise. There are two specific issues; funding is number one, and number two is what has been hammered home to us, that the current major scheme is not fit for purpose. If something was not fit for purpose in a business that we were all involved in, it would not be there, so why is the Government trying to lead something that is not fit for purpose? I know the witnesses have given presentations before, but they are at the coalface and I ask them to give us a document today. What does Mr. O'Connor recommend? As Mr. O'Meara said, there is a solution. We need a strong enterprise sector now more than ever. The geopolitical situation is changing by the hour, not by the day, and we need to have a strong sector. The impression I get is that the witnesses feel they are being let down by the Government. That is frightening. It is up to me to take that on board and to leave the meeting with a document stating what is needed so I can sit down with the relevant Ministers and discuss it with them. I will do that, and I know the committee will too.
Since I have come on board, out of all the presentations we have had, this has been very relevant, especially in the current climate. The vital part these industries are playing sometimes goes unnoticed. The message that comes across is that the witnesses feel they do not have a strong enough voice. Am I right in saying that? How can we resolve that? I walk the streets of Gorey and Arklow. We know all these people and they are telling me exactly what the witnesses have now told me – costs, costs, costs - and asking where it will all end. They say they might not be in business. How can there be succession? How can they hand on a business to somebody? What is the point if there is no margin in it? A lot of businesses in the south east are working on pride in keeping the doors open because the business has been passed down for 100 years. We have to analyse the situation that is happening in the world now and how many people are shopping online. We have to adjust. Some people are trying but others cannot adjust. Some people are losing all their earnings because they are leaving the front door open. That is what we have to try to protect and that is what the witnesses are trying to protect, but they are coming here today and saying their voice is not strong enough. What I am asking is how we can help with that. I want answers. I am taking on board everything the witnesses say. I will let them reply to that if they would not mind.
Mr. Finbarr Filan:
We need to have a voice and that voice needs to be listened to and heard. We have to start at the top. Small businesses do not have a voice on LEEF. It is as simple as that. Whether we like it or not, that is where the decisions are made, so we need a voice on LEEF. That would be a start.
Then we have to tumble that down the whole way through. We need to have a real SME test for all legislation going through the Houses. It is not just a tick-the-box SME test; it has to be a real SME test. It should be tested by SMEs, not by civil servants. It is like the issue described - the system does not work. We have plenty of systems. We are bringing in a vape and cigarette tax for small businesses. It will cost me €1,900 to put a piece of paper on the wall that says I can sell cigarettes and vapes. We have been selling them for 100 years, so why do we need a tax? It is not going to fix the problem of too many people smoking.
We have to get rid of the silos in all our public bodies. A saying we use in Sligo is that it is the horizontal integration of the vertical silos. We have to knock down the walls because one Department can say it is putting an extra cost on business and that it is only 2%, but when ten of them do it, that is 20%. That is what has happened with the minimum wage and all the other costs. ISME lobbied for a minimum wage and auto-enrolment for pensions for over 30 years, but when we bring in auto-enrolment and the minimum wage has gone up by 35%, the sums just do not add up. That is why we must have a real SME test, knock down the silos and have a voice at the top table and then a voice at every table down from that.
The only places in which we get to talk openly are the retail forum and the competitiveness council. That is it. We make valuable contributions to both those bodies and would do the same at every table.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Very interesting. We will take it on board. That is what we are here to do - take it on board, pass it along the line and follow up on it. That is all we can do on that.
Aubrey McCarthy (Independent)
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I thank everybody for being here today. I could not agree more with the Leas-Chathaoirleach about the pressures on small businesses in Ireland. I have a small business and realise the SME test does not come into play in quite a lot of legislation. I am a fairly new Senator but I have spoken about the SME test at various levels, including in the defamation area at the moment.
I note from the Community Enterprise Association Ireland's statement that less than 7% of the €145 million smart regions fund has been drawn down since 2023. What are the flaws? What is blocking that? Why is that happening and how could we quickly change it?
Ms Siobhán Finn:
To sum up what we have been talking about today, it goes back to what the Leas-Chathaoirleach said. The scheme has been designed to take a top-down approach. The individuals at the coalface of the sector and those, like some of my colleagues here, who are potential applicants to the scheme need to be involved in the design, not dissimilar to what has been said about the SME test. It is exactly the same issue. The application process for the smart regions scheme is laborious and administratively heavy and it has significant issues around match funding requirements, de minimis pass-through and inconsistent language. The lack of clarity is a huge challenge for applicants. From start to finish, it is an extremely cumbersome, unwieldy and unfit-for-purpose scheme.
Aubrey McCarthy (Independent)
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As the Leas-Chathaoirleach said, when running an SME in Ireland, pride may be one of the reasons you keep open. Your family may have done it for generations. I run a restaurant in Naas. We are full every day so everybody thinks we are coining it. Staff wages are going up, and we have amazing staff and want to appreciate them. VAT, wages, rent, insurance and other costs of running a business are among the highest in Europe. What single policy change could help SMEs? Many have six months of a window before they go under. In the Seanad, I hear regularly about multinationals, the Apple money and all these big fellas but I know the backbone of the economy is small and medium businesses. How can they be supported by a single policy change?
Ms Siobhán Finn:
For our sector, there are two specific areas. One is addressing the operational costs of running the enterprise centres, salaries being key to that. The second is unlocking the National Training Fund. We have significant learning and development needs in the sector and there is huge ambition among staff in the sector to avail of training, but we do not have the funding to do it and it is incredibly difficult to access it.
Aubrey McCarthy (Independent)
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My business applied for LEO funding recently and was accepted. When we went to draw down the grant, the money was not there. We qualified and got the ticket, but there was nothing behind it. They said maybe it would be in next year's budget. It is very difficult for an SME doing everything possible to keep everything going but it is not working on the ground.
Mention was made of doubling Skillnet expenditure and targeting literacy and numeracy among adults. How would that translate into helping SMEs and their productivity?
Mr. Neil McDonnell:
We rightly pat ourselves on the back for the quality of our school- and university-leavers. The PISA score is another objective scoring of performance globally and we are really high in that but the OECD also tests adults. There is a comparison of Irish adults at the end of our paper. I am talking about adults as they start to grey. Our adult performance in literacy, numeracy and problem-solving starts to fall and we go below OECD averages. That outcome is not consistent with increasing productivity. The point we are making is not that we should not be spending more money on our universities but that we should not be spending the National Training Fund on our universities. That is a different thing.
Training spend through Skillnet is highly efficient and effective because-----
Mr. Neil McDonnell:
It is based on money. If you run a Skillnet-funded course in your business that costs €1,000 for the day, you will get €300 from us but the employer is spending €700. For every euro the State puts in - which, do not forget, is taken from PRSI, which the employer funds - the employer also puts in twice as much of their own spend when a course is run. Given the funding model whereby the employer has to spend more money on the course than it gets from Skillnet, it is highly efficient and effective, and it is targeted - that is the most important thing.
Our concern is around certain other training funded from the National Training Fund. I saw that an ETB is running a course in Dublin on how to use a smartphone. We do not think that is a good use of taxpayers' money. I spent 12 years in the logistics business. I saw an ETB that does a huge amount of training of mostly young men to drive articulated trucks. Nobody gets a driver's card and drives an articulated truck afterwards. That is a massive waste of taxpayers' money.
When we spend money that within the Skillnet system, the employer is identifying the need and the employee knows they will be bettered if they do that. I have two peoplein my office doing a course on bookkeeping and social media training. It is targeted and useful and the employer pays twice as much as the State, so that is where the payback is.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I ask Mr. McDonnell to speak to point 7 in his written submission: "Revenue to produce a cost-benefit analysis of enhanced reporting, and abandon it if not materially justified."
Mr. Neil McDonnell:
We have absolutely no idea how, David Copperfield-like, this thing rose up out of nowhere last year. Funnily enough, it is only in the private sector and does not exist in the public sector, to my knowledge, although I am open to correction. It is where if you pay someone mileage to go from A to B, you do not necessarily have to pay it through payroll but the Revenue has to be apprised of it. If you give them a small benefit exemption or if they are five hours away from station and you pay them the five-hour subsistence, that has to run through payroll.
I go back to an earlier comment members may have thought was facetious but it certainly was not. There appears to be a view among a cohort in the Department of Finance and Revenue that all businesses do is spend time tax-dodging and expense-fiddling, and we saw that written into Revenue's enhanced reporting last year. It is really burdensome for businesses and payroll providers. We are saying it has been run for the years 2024 and 2025. If it cannot show it has recovered something from it, we are back to the red-tape agenda - get rid of it. The fun and games will start, I presume, if we ask civil servants to start putting theirs through payroll as well, which I doubt will happen. If there is not a benefit from it, then the cost should not be imposed on business.
Rose Conway-Walsh (Mayo, Sinn Fein)
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Absolutely. That is a very good example of red tape. I do not believe in deregulation. We need to be careful about the space being used for deregulation. We only have to look at the billions we are paying for defective concrete blocks because there was no regulation of the quarries, but Mr. McDonnell has given a perfect example of what needs to be done to get rid of the unnecessary administrative burden on small businesses. I thank him very much for that.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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Before we wrap up, I will give three minutes to Ms Finn and Mr. McDonnell to give their final comments.
Ms Siobhán Finn:
I thank the Leas-Chathaoirleach and the committee for giving us this opportunity. Having the opportunity to come here and speak about our sector has been a first for us. It is a sector that is critical for communities and regions right around Ireland. For us and people like Mr. O'Connor, Mr. O'Meara Ms O'Connell and so many more who are employed around the country, to support businesses at a local level it is critical that the sector be given a stronger voice and be actively engaged with when it comes to designing policies, funding schemes or any kind of interventions for the sector. Without direct involvement from the sector, the challenges and opportunities that exist will never be recognised.
I spoke to the head of an economic development team in a local authority in the last week. In that local authority and region, they are particularly keen to submit an application under stream 1. They will not do it, however, because they are too concerned, understandably, about the burden it will put on top of them as the local authority. It comes back to the silo effect we are all suffering from and the absolute necessity that organisations and entities that engage with the Government would start to talk to each other. Equally, as a united voice, we must engage with the Government to deliver the value, benefit, recognition and potential that exist within the sector.
Mr. Neil McDonnell:
To answer some of the questions that have come up, first, it is not just about us when we make the pleas for small businesses. The caution we are giving the committee is that we have had a number of soft budgets because corporation tax has ballooned over the last number of years, but in nine months this year we have seen how potentially under threat that corporation tax golden goose is. A US drug company located within the Deputy’s constituency has changed its jurisdiction back to the United States to avoid whatever consequences might come its way. Straight away, that is going to be a direct and immediate loss of corporation tax. We cannot rely on it. We do not knock FDI, and the only customers of some of our members are FDI businesses, but putting all our eggs in that basket is not going to work.
On the minimum wage, going back to what Mr. Filan said, we do try to pay our employees as best we can, but cost is not just a business killer but also an employee killer. Our minimum wage is the second highest in Europe in absolute terms. Once we start measuring it on a purchasing power parity basis, it falls right down because our costs are too high. As the representatives of ICTU said last week, once you start measuring it on the basis of 60% of the median income, it also falls, but the reason it falls is that 15% of employees in the country are working for the State and they are on the highest wages in the State. They are actually paid 4% more than FDI workers. We then have 40% of workers in FDI making more than €1,000 a week. It always depends on how we measure things, but unless the SMEs get more productive, the money is not in the till to pay people any more money. The total annualised income of the minimum wage is €27,000. As Mr. Filan said, it is much better to annualise it. That is €2,200 a month. The average rent across the country now is in excess of €1,800. The minimum wage is never going to be able to pay people to meet the rent demands out there. The only way we will deal with that is by decreasing the cost of rent, not increasing the minimum wage.
I absolutely agree with the Deputy on regulation. We are not seeking to remove all regulation. I have described it in here many times as being like an anaesthetic. We want enough anaesthetic to take the pain away but not enough to kill the patient. What we want out of regulation is fair and affordable regulation. As Mr. Filan says, if the SMEs are not in the room, then we are going to get regulation that suits big businesses. They always cry about regulation, but in business terms, highly regulated businesses are what Warren Buffett would call big moat stocks. They have big moats around them, such as Airbus. It is not possible to make a cheap plane, and such a company makes massive profits because others cannot compete against it. We just need sensible regulation.
Brian Brennan (Wicklow-Wexford, Fine Gael)
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I thank Mr. McDonnell and everybody here today for their contributions. It has been very useful and interesting. When we come to consider our draft report, we will make sure as much as possible of this is included. I emphasise again that we would like the witnesses' organisations to send us a bit of back-up and solutions. Based on what Mr. O'Meara was saying, I think the solution is there.