Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I very much welcome the opportunity to make a contribution to this debate, and I commend my colleague Deputy Calleary on his introduction of this motion on behalf of the Fianna Fáil Party. The motion is a continuation of a theme that my party has been pursuing over quite a long period. It is quite practical in nature. In my view, it is the type of motion that Opposition parties should be putting forward. It deals with many of the key issues that are affecting the self-employed and small business owners in this country every day. It deals with taxation, PRSI and access to social protection benefits, lending, and the tax environment for entrepreneurs in terms of capital gains tax relief. I will refer to some of those in more detail in a moment.

This motion from Fianna Fáil is designed to support those who are currently self-employed and those who currently own small businesses, and, equally importantly for the future of the country and for our economic development, those who wish to become entrepreneurs and small business owners. Not enough time is spent in this House debating these fundamental issues.

When it comes to foreign direct investment, as Deputy Calleary stated, Ireland is a strong performer indeed. No country can match our track record in attracting and retaining foreign direct investment, FDI. We are the envy of our European partners in this regard. Successive Governments have played their role in ensuring that the FDI environment in Ireland is strong, not least with the commitment to the 12.5% corporation tax rate. We have a critical advantage in being the only English-speaking country in the eurozone while providing access to a large European market. Of course, our historic relations with the United States do not do us any harm either. However, there is a paradox at the heart of economic policy in the State. While we make every effort to support the endeavours of multinationals to establish themselves and thrive in Ireland, it would seem we are far less concerned as a nation about supporting the self-employed and domestic SMEs, which, after all, employ the majority of those working in this country. They should be given far more practical support in terms of the day-to-day challenges that they face.

There is no shortage of Irish people with good ideas for products and services that consumers would be willing to buy, but too often the obstacles in their way prove too great. Setting up a business in Ireland is a daunting undertaking as it involves having to negotiate a minefield of regulatory and financial hurdles. As a nation, we need to change our attitude towards those in business and take radical steps to encourage and support new startups.

In the motion, my party outlines a number of practical measures which we believe would make a real difference to the self-employed and the SME sector in terms of the economic life of this country. By contrast, the amendment that has been put forward by the Government is deeply disappointing and self-congratulatory in tone, and contains no specifics whatsoever.

The Government has been leaking furiously in respect of changes to the taxation regime for the self-employed. Yet, when the matter was put to the Government by way of a motion in the Dáil tonight, it did not even acknowledged the issue. The Government is not acknowledging the fact that self-employed people are being treated in a fundamentally different way in terms of their income tax arrangements. This is disappointing to say the least. It is easy to leak a line to a national newspaper, which will take it gladly and publish it, but there is an opportunity on the floor of the Parliament tonight to show that this is a priority for the Government. Certainly, that has not been shown in the amendment, although perhaps the Minister of State will illustrate it in his speech later tonight.

As we know, the PAYE tax credit of €1,650 per annum is available to all employees but not to the self-employed or proprietary directors. The primary reason the PAYE tax credit was introduced and limited to employees was to take account of the fact that, at the time, the self-employed generally had the advantage of paying tax on a prior year basis. This meant they had a significant timing advantage, particularly in times of high inflation. However, this logic is no longer relevant because payment dates have changed significantly since the credit was first introduced. Now preliminary tax, which is typically 90% of the final tax liability, is paid in the current year. This eliminates the timing advantage and requires some tax to be paid in part on profits that have not yet been earned.

It is our strong view that in so far as possible the tax system should treat people in an equitable manner. Self-employed people lose under the current regime because while they receive the personal tax credit they cannot claim an equivalent of the PAYE tax credit, which is €1,650. This has a particularly stark impact at lower levels of income. As noted on publicpolicy.ie, budget 2015 worsened the relative position of low-income self-employed persons. The website has stated that a self-employed single person on an income of €15,000 now pays almost eight times more tax and PRSI than an employee on the same income and has a lower entitlement to social welfare benefits.

Let us consider the signal we, as a country, are sending out to the self-employed and to young people who may be looking at the option of becoming self-employed or starting up their own businesses. The fact is the taxation system discriminates negatively against them. I acknowledge this has been the case over a period of successive Governments. Now is the time to say that it is not fair, that it must change and that it should be addressed as a priority. Fianna Fáil has outlined firm proposals in this regard today. We believe an equivalent tax credit should be made available to people who are self-employed on a phased basis. The overall cost of that would be €450 million per annum. We believe a reasonable start would be to provide a tax credit of €500 for the self-employed in year one. This would cost in the region of €140 million. Given that in last October's budget the Government gave an income tax package of well over €600 million, this is not unrealistic in any sense. A significant and tangible move could be made to extend that tax credit to the self-employed.

I realise this will take time but we believe over the longer term the 3% surcharge on high-income self-employed persons should be phased out and ended. Ultimately, this would serve to equalise the application of the universal social charge to PAYE and self-employed persons. Again, I believe this is a question of the environment we create. There is nothing wrong with earning more than €100,000 in this country. Without doubt, when major austerity had to be introduced and tax had to be increased, people at the higher end had to shoulder more of the burden because they were earning the highest amount of income. That was only proper and fair. However, our objective as a country should be to treat the self-employed and PAYE workers on an equal basis. We should be working towards implementing that aim.

I am keen to highlight the issue of capital gains tax and the treatment we apply to entrepreneurs who start up their own businesses. There is a limited convoluted and cumbersome relief on the Statute Book at the moment. Let us compare it to the simple system that operates in the United Kingdom, where a 10% capital gains tax rate applies to qualifying entrepreneurs. By comparison, Ireland is only in the halfpenny place in terms of attracting young people who want to start up a business. We should bear in mind that much of this type of investment in financial services, information technology and in the technology sector is highly mobile in nature. Ireland is no longer the destination of choice for someone who has an idea that develops into a high potential start-up company because of the punitive taxation system we have in place. The 33% rate for entrepreneurs is now a deterrent and a disincentive to people starting up their own business in Ireland. We believe this needs to be addressed. We have proposed for a long period and in several budget submissions made to the Department of Finance that a special 15% rate should apply to qualifying entrepreneurs who start up a business, develop it successfully and eventually sell it on. Many of them will reinvest in the economy.

I am keen to highlight important legislation that our colleague, Senator Darragh O'Brien, is bringing to the Seanad tomorrow to ensure that Irish small and medium-sized enterprises compete on a level playing field with their European counterparts in successfully bidding for public procurement contracts that provide significant social benefits. Every year the State tenders for more than €8.5 billion worth of goods and services. However, Ireland, unlike many other European Union countries, focuses on the lowest tender price offered with no consideration for the social impact of certain tenders with a higher cost. In essence, there should be a system whereby the wider economic benefits of supporting Irish SMEs through the procurement system should be measured and dealt with by way of the procurement process in place.

I could go on about several other issues but I know my colleagues have a number of important points to make as well. I commend Deputy Calleary on putting forward this motion. It is practical and solution-driven. I hope the Government takes note of this and, as it appears to be doing in respect of mortgages and other areas, elects to adopt ideas that Fianna Fáil is coming up with to solve key problems in the economy.

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