Dara Calleary (Mayo, Fianna Fail)

I thank Senator Twomey for his sentiments. I should point out that we provide a great deal of information through the country enterprise boards and area-based partnerships on starting up businesses and how to get involved in such processes. However, I will take the Senator's suggestions on board.

I empathise with the sentiment, in terms of encouraging and making it easier to set up companies, but I am not convinced the changes as proposed in Senator Twomey's recommendation represent an appropriate use of resources towards that end. This incentive is aimed at stimulating new activities and employment in the productive sectors of the economy and much employment in this economy is created and maintained by small and medium-sized companies. For reasons explained in the Dáil debate, the operation and impact of this incentive is better targeted, monitored and controlled by confining it to corporates. It is also less open to unintended manipulation.

It would be much more difficult to control the application of the incentive if it was extended to sole traders, where there would be much greater scope for blurring the lines between when a new trade started and who started it. The incentive in its current form can be more effectively monitored as it only applies to companies registered after 14 October 2008 and which commenced a new trade this year or last.

While my concerns about this recommendation are not primarily on cost grounds, it remains the case that the incentive in its current form is more cost effective than would be the case if it were extended to income tax liabilities. Where resources are scarce, we have to seek to invest them in areas where we believe we will get the best return. Following the approach of this proposed change - to provide income tax relief to individual taxpayers who are start-up sole traders - it might also be argued that a similar income tax exemption should be provided to individual first-time employees. The rationale for such an approach in our current fiscal circumstances does not stand up to significant scrutiny.

There is a further important reason for maintaining the provision of this relief through the corporation tax system. Any additional funds or savings arising through the relief and retained in the company structure can be used to re-invest in the business, which is the intention behind the incentive. If, on the other hand, those additional funds or savings are paid out by the company for the benefit of directors or shareholders, they will be subject to income tax in the normal way. This safeguard on the use of savings generated, as intended by the incentive, would not be available if it were extended to the income tax liabilities of sole traders or other non-corporate entities. In contrast to the situation for start-up companies, there would be no tax charge to be paid as a result of drawing funds out of the sole trader, or non-corporate, business.

As I noted, there are various grant aid and other supports available to persons setting up a new business from Enterprise Ireland and the county enterprise boards, CEBs. The role of the CEBs is specifically to provide support for the micro-enterprise sector in the start-up and expansion phases and to stimulate economic activity and entrepreneurship at local level.

In addition, as I stated in regard to the previous amendment, there is a back-to-work enterprise allowance scheme to encourage people in receipt of certain social welfare payments to become self-employed. Individuals taking part in this scheme can keep a percentage of their social welfare payments for up to two years. Grants received from the various enterprise agencies do not affect entitlement to this allowance. There are other appropriate channels for providing support and encouragement to individuals who wish to become self-employed.

It has also been suggested that the tax incentive should be extended to sole traders in particular sectors of the economy or that the enterprise agencies might have some role in controlling who should benefit from it. I believe, however, that the targeting of specific sectors for the promotion of new business start-ups is best achieved through the supports provided by our various enterprise development agencies, to which I have already referred. Where there is a particular focus in assisting new businesses in areas of high potential, for example, businesses which are export-oriented or businesses which are based on a technical advantage or innovation, Enterprise Ireland provides excellent support.

For the reasons I have outlined, I consider the effects of the recommended change could not be adequately targeted or controlled and would not, therefore, represent an appropriate use of resources. Accordingly, I cannot accept the recommendation.