Paddy Burke (Fine Gael)
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I welcome the Minister for Finance, Deputy Michael Noonan, to the House. Before we commence, I remind Senators that they may speak only once on a recommendation on Report Stage, except for the proposer of the recommendation, who may reply to the discussion on the recommendation. Each recommendation on Report Stage must be seconded.

Recommendation Nos. 1 to 3, inclusive, in the names of Senators Sean Barrett and Feargal Quinn have been ruled out of order because they involve a potential charge on the Exchequer.

Paschal Mooney (Fianna Fail)
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I move recommendation No. 4:

In page 26, between lines 1 and 2, to insert the following:"19. The Minister shall, within 1 month of the passing of this Act, prepare and lay before the Oireachtas a report on the operation of the Employment and Investment Incentive in particular in how it relates to companies more than seven years old.".

Feargal Quinn (Independent)
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I second the recommendation.

Michael Noonan (Limerick City, Fine Gael)
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The rationale behind the changes referred to in the recommendation was explained on Committee Stage, and officials in the Department of Finance furnished further information to Senators Darragh O'Brien and Mark Daly as requested. I reiterate that the employment and investment incentive, EII, is targeted at job creation and retention and is available to the majority of small and medium-sized trading companies. As it is a state aid scheme, we were required to make changes to the qualifying company criteria in order to comply with new European Commission guidelines that came into effect recently. Failure to do so could have resulted in the scheme being in breach of state aid rules. In such a scenario, the Commission could have requested the suspension of the scheme in its entirety and launched a full investigation into its compatibility with Internal Market rules.

The revised guidelines from the Commission take account of the fact that SMEs may face difficulties in gaining access to finance, particularly in the early stages of their development. The Commission notes that business finance markets may fail to provide the necessary equity or debt finance to newly created and potentially high-growth SMEs, resulting in a persistent capital market failure which would negatively affect SME growth prospects. The Commission made changes to the qualifying company criteria in recognition that newer SMEs find it more difficult to raise funding via traditional routes. Such companies typically create more employment than companies that have been operating for longer periods, which further justifies the targeting of the relief.

It is unfortunate that some companies will no longer qualify for the incentive, the conditions for which are laid out in the regulation from the Commission. As I said, that information was provided to the Senators. The Government had to ensure compliance with those conditions in order to retain the EII as an approved state aid. In essence, we had to make a choice between risking the whole scheme being disqualified by the Commission on state aid grounds and introducing it with a narrow set of qualifying criteria and, consequently, a narrower base of application. We are following the latter course and, for that reason, I cannot accept the recommendation.

Paschal Mooney (Fianna Fail)
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I am grateful to the Minister for his reply. One welcomes any initiative that will encourage SMEs, which are the backbone of the Irish economy. I applaud the Minister because I know he is very focused on this. Senator O'Brien is absent but I understand that because of the relatively new nature of this initiative and its implementation, the amendment attempted to address the efficiency and successful operation of the scheme and was worded in such a way that a report would be laid before the Houses within a month of the passing of the Act. Maybe the Minister has a view on that.

Feargal Quinn (Independent)
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I welcome the Minister. The concern I had about this was the reference to seven years. The Minister of State, Deputy Simon Harris, explained to the best of his ability why we were controlled in that area. It still causes upset and I would like to think the Minister would give this further consideration in the coming year.

Michael Noonan (Limerick City, Fine Gael)
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Senator O'Brien's amendment was one worth considering and, in the interest of debating the legislation properly, we welcomed it. At the end of the day, however, we had to design the scheme in accordance with the regulations which are now being applied by the European Commission and they narrow the intended scope of the scheme. We would wish it had been broader but in my experience, it is better to introduce the scheme with the full support of the Commission and nuance it later on. I can commit to the Senator that, if we are all alive and well and back in government, we will look at it again.

Paddy Burke (Fine Gael)
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Recommendations Nos. 5 to 7, inclusive, in the names of Senators Barrett and Quinn, are out of order.