Máire Hoctor (Tipperary North, Fianna Fail)

I am pleased to take this Adjournment matter on behalf of my colleague, the Minister for Finance, Deputy Brian Lenihan. I thank Senator Ross for the opportunity to discuss this important matter.

When the Government introduced the Credit Institutions (Financial Support) Scheme its objectives were to maintain the stability of the financial system in its contribution to the normal functioning of the economy and safeguard the interest of the taxpayer. The prompt and decisive action on the part of this Government has been very successful. Irish banks have continued to do business and people and businesses have been able to deposit with financial institutions with confidence.

The Government recently decided on an approach to the recapitalisation of banks. The objective is to ensure the long-term sustainability of the banking sector. Increased capital will provide a buffer against losses if they occur and will underpin its contribution through the availability of credit to individuals and businesses in the real economy. While there is likely to be some tightening of credit standards on the part of banks owing to the uncertain international and domestic outlook, the Government's actions should help to encourage the flow of funds to the economy and limit the impact of financial market difficulties on businesses and individuals. The availability of finance is a critical element of Ireland's overall competitiveness and a key part of our national economic infrastructure.

The Minister for Finance and the Tánaiste have been in regular contact with banks regarding the flow of lending to small business. Institutions covered by the guarantee have been asked to consider the contribution they could make to the economy through credit initiatives for SMEs. Following that, several institutions recently announced significant financial lending packages to assist SMEs. In addition, the European Investment Bank is in discussions with four Irish banks about its recently announced €30 billion loan facility to provide loans to SMEs through commercial banks. These important developments are to be welcomed.

The Government is aware of the importance of the SME sector, which employs approximately 800,000 people, to our economic prosperity. Our indigenous sector will be critical if we are to return to the levels of prosperity achieved in recent years. We will need to foster the emergence of significant numbers of new indigenous businesses that are export driven and sustainable. We will only be able to foster the emergence of such enterprises if the operating environment for business, particularly small businesses, is supportive. This has been, and will continue to be, a key focus of Government policy.

The Government will also use whatever other instruments are available to support business. Access to finance has traditionally been a difficulty for SMEs at start up and development phases. All financing options for viable businesses need to be explored and exploited in the future. Grant, seed capital and business expansion schemes and venture capital arrangements all contribute positively to SMEs financial requirements. The Government's €175 million investment in venture capital funds, promoted through Enterprise Ireland, has resulted in seven new venture funds which have raised over €500 million and is available for investment in the Irish SME sector.

The enterprise development agencies are focused on helping Irish businesses through the current economic difficulties to develop and grow their exports by continuing to prioritise investment in science, technology and innovation and providing financial and non-financial supports to small businesses.

The Government has put in place policies and programmes that encourage the emergence of new business creations and facilitate long-term business survival, including the positioning of our tax system as one of the most supportive of business in the world, the development of Ireland as a knowledge-based economy through the dedication of significant Exchequer resources to the promotion of research and development, the introduction of the better regulation programme to tackle regulatory burdens, particularly those faced by the business community and acting on the report of the small business forum which provided a blueprint for the further development of the sector.

Some of the report's recommendations implemented to date include increases in the VAT cash accounting and VAT registration turnover thresholds introduced to simplify administration and reduce working capital requirements on small businesses. Small companies are now permitted to calculate their preliminary tax payments based on 100% of the prior period tax liability if their tax liability for the prior period did not exceed a threshold of €200,000. New companies which do not expect their tax liability for the first year to exceed €200,000 are no longer obliged to pay preliminary tax in that first year. The most recent Finance Bill introduced tax relief measures for start-up businesses by way of remission in corporation tax and capital gains tax in the first three years for new and start-up businesses. These measures will help to grow small business and promote an entrepreneurial culture.

The extended international credit crunch which Ireland and virtually the whole world are experiencing should remind us of the pivotal role the financial system plays in the economy and conduct of business. We must find a path through these difficult times and I am confident that all in the House today want to assist in this task.