Peter Burke (Longford-Westmeath, Fine Gael) | Oireachtas source

I welcome this opportunity to address the House on recent measures the Government has taken to reduce costs for small- and medium-sized businesses. SMEs are the backbone of our rural and regional communities and are central to Ireland's ability to build a broad-based and successful economy. Of a total of approximately 350,000 small- and medium-sized companies in Ireland, 325,000 employ fewer than ten people.

SMEs have faced a number of economic shocks in recent years, which have resulted in cost increases. The Covid-19 pandemic and the quicker-than-expected bounce back in global economic activity significantly strained global supply chains. The Russian war in Ukraine has significantly impacted energy costs, which have escalated for both businesses and consumers. While wholesale energy prices have eased somewhat over the past year, prices remain elevated compared with historical averages. These shocks have been international in nature. However, there have also been costs associated with domestic measures.

In line with a recommendation by the National Competitiveness and Productivity Council in its report, Ireland's Competitiveness Challenge 2022, an assessment was published by the Department of Enterprise, Trade and Employment and the Department of Social Protection examining the cumulative impact of associated measures, including auto-enrolment, parent’s leave and benefit, statutory sick pay, an additional public holiday, the transition to a living wage and the right to request remote working. These improvements will bring wider societal benefits and will serve to bring Ireland in line with other advanced economies.

The various changes have been signalled in advance, were typically subject to public consultation processes prior to being adopted as public policy and are to be implemented on an incremental basis over a number of years. However, the report indicated that there will be a cost and impact on firms as a result of these measures and these costs are expected to vary significantly by sector. The implementation of the living wage is assessed to have the most significant impact on costs, with those operating in the hospitality and retail sectors expected to experience a sharper increase in costs compared with others. These two sectors account for almost two out of every three workers on the national minimum wage. Overall, the analysis suggests that while there is a cost associated with the introduction of these measures, there is only a moderate effect on wage costs on a wider economic basis. However, it is clear that certain sectors will feel the impact to a greater degree.

In response, a number of measures were agreed by the Government in March. These included asking the Low Pay Commission to have due regard to the findings of the report during the course of its current and future deliberations when forming recommendations. They also included the preparation of an options paper on the application of the lower rate of employer PRSI contribution, making available up to €15 million to local enterprise offices to enable a top-up payment of up to €3,000 in energy efficiency grants for businesses in the hospitality and retail sectors, and accelerating the roll-out of a fully functioning national enterprise hub.

With further time to consider the appropriate intervention, I, along with the Minister for Social Protection and the Minister for further and higher education, brought forward a more substantial range of measures to reduce costs for small- and medium-sized enterprises. These measures were announced last week and include ensuring that the employer PRSI threshold is explicitly considered as part of the Low Pay Commission deliberations and is reviewed on each occasion that the minimum wage is increased, and increasing the employer PRSI threshold from €441 to €496 with effect from 1 October 2024, which will ensure that employers with employees earning the weekly equivalent of the national minimum wage will pay the lower rate of employer PRSI, at 8.8%. The increased cost of business scheme will be reopened for another 14 days and a second phase of the scheme will be launched and targeted at businesses in the retail and hospitality sectors. The innovation grant scheme will be doubled from €5,000 to €10,000 and the maximum amount available under the energy efficiency grant scheme will be increased to €10,000, while the business contribution rate will be reduced from 50% to 25%. Eligibility for the trading online voucher will be widened, extending it to all sectors with up to 50 employees; modernising eligible expenditure and doubling the grant to €5,000. The lending limit for Microfinance Ireland loans will be increased to €50,000 from €25,000. Eligibility for a digital for business consultancy scheme will be widened, extending it to all sectors with up to 50 employees. A new Ireland's best entrepreneur programme will be launched to encourage entrepreneurship and startups, which are under-represented groups.

In addition, the measures include launching a new online national enterprise hub for SMEs to access information on the wide range of Government business supports. We are implementing an enhanced SME test by the Department of Enterprise, Trade and Employment in conjunction with the Department of the Taoiseach. We are also reviewing ESRI research on the impact of statutory sick leave before deciding on any further increases and reviewing the roadmap for increasing minimum annual remuneration thresholds for employment permits.

I note the engagement of Government colleagues on this package of measures and thank them for this engagement. Other actions which will emerge from this package include the following. The Minister for Social Protection will continue efforts to streamline and improve access by employers to her Department’s JobsPlus programme, the work placement experience programme and the wage subsidy scheme. In light of the commitment in the Estimates 2024, the Minister for Further and Higher Education, Research, Innovation and Science will develop proposals for consideration in Estimates 2025 for the effective and sustainable use of the €1.5 billion surplus in the national training fund to future-proof workforce skills in SMEs and ensure workers in SMEs can readily access lifelong learning opportunities. The Minister for Housing, Local Government and Heritage will shortly issue a circular letter to local authorities informing them that no fees shall be charged or levied for tables and chairs for the purpose of outdoor dining up to 31 December 2024. Furthermore, the Minister for Further and Higher Education, Research, Innovation and Science will consider progressing proposals for SME incentivisation and increasing supports for consortia-led apprenticeships following further engagement with the Minister for Public Expenditure, NDP Delivery and Reform.

The implementation of these measures will improve the cost competitiveness of small and medium-sized businesses and, in particular, the proposed annual review of the employer PRSI threshold will ensure that firms do not fall liable to the higher rate of employer PRSI due to the increase in the minimum wage, while the application of an enhanced SME test will ensure there is increased consideration of the business cost implications of future Government decisions. Working with the Department of the Taoiseach, my officials are developing proposals for improving the impact and application of the SME test as it applies to legislation and they are working to extend it to key non-legislative policy changes that impact the competitiveness of small businesses.

The increased cost of business scheme has seen a broad take-up, with 74,000 businesses having registered to date, or almost 62% of the total number of eligible businesses. By comparison with a number of previous schemes, this take-up is positive. The number will increase as we have reopened the scheme for a limited time for those businesses that have not registered yet. It is currently open with a new closing date of 29 May. Given the greater impact that increased costs are having on the hospitality and retail sector, as noted in An Assessment of the Cumulative Impact of Proposed Measures to Improve Working Conditions in Ireland, it has been agreed that businesses operating in these sectors should receive a double payment under this scheme. However, these measures go beyond seeking to support firms to solely help to ensure their viability. We are taking action to ensure our business community can compete, grow and scale up as part of a vibrant enterprise sector which is driving productivity growth and providing high-quality sustainable employment. As such, there is a range of increases in innovation grants, green supports and entrepreneurial supports which look to foster innovative activity among firms, while also improving access to finance by increasing the maximum loan size available through Microfinance Ireland. This will ensure that should firms be seeking to secure growth, they can access the funding to achieve this.

As set out earlier, the Government has introduced a number of measures aimed at improving working conditions in Ireland across measures such as the introduction of statutory sick leave, the transition to the living wage and the expansion of parent’s leave and parent’s benefit, among others. These are important measures for society. The work of the Low Pay Commission ensures that a fair and sustainable minimum wage is recommended to Government. In making its recommendation, the commission considers a wide range of criteria, including employment, productivity, competitiveness and the cost of living. However, the implementation of these measures, specifically the introduction of additional days of statutory sick leave and the transition to the living wage, has always been subject to prevailing economic conditions. The Government will continue to have regard to these conditions in the implementation of these measures.

In terms of business closures, it is important to point out that there is no clear evidence to support the proposition that we are facing a wave of business closures. In fact, data from the Companies Registration Office clearly demonstrates that there are more businesses incorporating than entering into liquidation. The most recent data available from the CRO shows that, as of 20 May 2024, there were 9,483 new companies incorporated in 2024 compared with 800 liquidations. As of 20 May, there were 273 new restaurants incorporated in 2024 compared with 36 liquidations in that sector in 2024. There has been a rise in business closures in the last number of months. However, the level of business closure in the past number of years has been at a historic low and reflects the support of the Government for firms, including the warehousing of debt, for which the deadline passed on 1 May for making an arrangement with the Revenue Commissioners. The measures announced last week will reduce costs for businesses and improve viability.

There has been a significant level of inflation for both businesses and consumers in recent years and this has led to cost-of-living pressures for citizens, along with business concerns regarding cost increases and viability. Understandably, this inflation led to increasing wage levels and wage demands, which itself has follow-on implications for measures such as the calculation of the living wage. Ultimately, the Government must ensure balance across necessary improvements for workers and ensuring that minimum rates of pay are fair, while also having regard to developments in business costs and the broader economic climate. Businesses must be viable. Improvements in pay and conditions are no longer an asset when people find themselves without a job.

That inflation is now easing is positive. The Government has adopted an active approach to supporting firms across this inflationary period. Over the two-year period prior to budget 2024, a total of €12 billion was provided in cost of living and business supports, comprising a mix of permanent and one-off measures, most significantly in the form of the temporary business energy support scheme. Budget 2024 also contained several measures which supported businesses facing increased costs, including the following: the 9% VAT reduction for gas and electricity was extended for an additional 12 months, until 31 October 2024; the temporary excise rate reductions applying to auto diesel, petrol and marked gas oil were extended until 31 March 2024; and there was an increase in VAT registration thresholds for SMEs to €40,000 for services and €80,000 for goods.

The measures announced last week continue to demonstrate that the Government is ready to support firms should there be a need. Ultimately, however, we should move to a position where the Government need not intervene to directly support firms for viability reasons but focus on measures directed at areas such as improving productivity performance, helping firms to scale up, securing the green and digital transition across businesses and stepping up enterprise innovation, all areas which are set out in the White Paper on Enterprise 2022-2030. Indeed, this remains the core focus of my Department and its agencies. I also emphasise the ongoing support provided for enterprise more broadly across Ireland, with a full range of programmes aimed at aiding firms to develop and grow. As set out in the White Paper on Enterprise 2022-2030, our vision is for Irish-based enterprises to succeed through competitive advantage founded on sustainability, innovation and productivity, delivering rewarding jobs and livelihoods. The Government is committed to backing business and will continue to work closely with small businesses to support their growth into the future.

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