John Gilroy (Labour)

I welcome the Minister of State to the House and acknowledge our guests in the Public Gallery.

Before I commence my contribution I want to say that I had hoped that we could add to the goal of helping small and medium businesses in these constrained times. I had hoped that we could discuss some of the measures that we Labour Party Senators think might go some way towards finding solutions. It would be easier to discuss these ideas, however, if we had some Members from the Opposition here to listen to what we are saying. I am very disappointed with the turnout. I hope that this debate can be taken in the manner in which it is intended and not used as an exercise for Government bashing and I trust that my colleagues on the other side of the House, when they arrive, will indulge us in this.

To underscore the importance of this sector, we note that SMEs account for 99% of enterprises and 68% of employment. We have seen the economy shrink by nearly 20% in four years, we have seen unemployment rise by nearly 300,000 in the same period and we have seen businesses starved of finance. If we are to recover, and we will recover, the SME sector has a vital role to play in that recovery. We have seen welcome growth in export revenue but the domestic side of the economy remains flat. Without growth on the domestic side, we will not achieve sustainable levels of employment or a meaningful level of progress.

My colleagues will outline some of our ideas but I will concentrate on an issue which has received widespread comment recently, namely, allowing directors of companies have access to their pensions in order to support their businesses. We have structured the motion in the manner outlined to tease out the implications of this suggestion. There is a certain attraction in this proposal. If a director of a company has built up a substantial pension fund and now finds that his business is facing challenges in accessing finance, why should that director not be allowed to use a portion of his pension fund to support that business? It is a sensible and simple option but in life few things are simple and in politics few things are sensible.

One difficulty that becomes apparent when we examine this issue is the idea, which is a core issue with regard to pensions and the theory underpinning the provision of pensions, is that of risk diversity. Best practice in this regard says that one's entire pension fund should not be invested in one sector of the economy or indeed in one geographical area. The risk should be spread across a range of sectors and industries and even a range of countries. We can imagine what would have happened if the pension industry had decided during the boom that property in Ireland would yield a good return or, worse, that shares in Anglo Irish Bank would. What if we had invested a substantial portion of our pension funds in such areas? Thankfully, we did not. Diversity of risk is very welcome in this area.

We must be informed by the expert view in this case. That view clearly points in the direction that the proposal might not achieve the outcome we hope to achieve and that the entire assets of a business owner, that is, his business and pension, would be exposed to risk if we followed this course of action. However, there is scope to develop and further examine the merits of this proposal. We should examine the issue of pension fund investment in a more strategic way. There are €72 billion in Irish pension funds and approximately 19% of these funds are invested in Ireland. The Irish Taxation Institute has proposed that we should find a way to incentivise the industry to invest more in small and medium enterprise. It suggests that a 5% investment would result in a fund of €3.5 billion being made available for investment in this sector.

The main responsibility of pension fund trustees is to maximise the benefit and return to their members. We must find a way to make it an attractive proposition for managers of pension funds to make this decision. I do not believe we can legislate to coerce pension funds to act in this way, nor would it be desirable. I believe this must be done through the taxation system. I am aware that a great deal of work is being done in this area at present in the Department and in some private sector institutions. We expect a working paper to emerge in the near future which might give expression in further detail to some of the ideas I have mentioned.

Another area where the pension funds could play a vital part in national recovery is through investment in high potential start-up enterprises. These are enterprises that employ ten people or have a turnover of more than €1 million and have export potential. It is noticeable, and ironic, that the main seed fund and venture funds in Ireland appear to be risk averse. Several business ideas have failed due to the scarcity of investment or risk money. Enterprise Ireland's annual report shows that it has €15 million to invest in seed capital.

Again, if we can find a way to incentivise the pension funds to invest in this area, it would make all the difference for many entrepreneurs. Even a 0.1% investment would make €72 million available. This is minuscule in the general scheme of things but imagine what the most imaginative and innovative entrepreneurs in this country could do if they had access to such a fund.

I could speak all day on this issue, but I doubt the Acting Chairman would allow that. I will conclude by asking the Minister to give consideration to some of the ideas I have outlined. I hope to speak personally to the Minister or his officials over the next couple of days.