Seanad debates
Wednesday, 17 April 2024
Cost of Doing Business: Statements
10:30 am
Paul Daly (Fianna Fail)
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Before calling the Minister, Deputy Burke, who will have ten minutes to speak, it gives me great pleasure to welcome him in his role as a full Minister. As a former Westmeath County Council colleague, he and I go back a long way in politics. It was not by design but it is brilliant that I actually happen to be in the Chair when he comes in for his first engagement here. I sincerely congratulate him on his appointment. I wish him the very best of good fortune and good luck going forward in the role.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank the Acting Chairperson. We were before our time in having to negotiate the first Fianna Fáil-Fine Gael coalition pact in the local chambers back in 2009. That paved the way for the future, indeed. I appreciate the good wishes.
I thank everyone for the opportunity to address this very important issue. I fully recognise that businesses are concerned about the rising costs they have faced in recent years. The Government has introduced or progressed several initiatives to improve working conditions in Ireland over recent years, including but not limited to the transition to a living wage and the roll-out of statutory sick pay. These changes were signalled in advance and were typically subject to public consultation prior to being adopted. These changes will be implemented incrementally over a number of years. My Department, in collaboration with the Department of Social Protection, has assessed the cumulative affect of these changes in a report published last month.
A range of measures are currently being brought forward to assist businesses in adjusting to these increased costs as well as more generally to improve the cost of competitiveness of firms, including making up to €15 million available 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, bringing the grant up to €8,000, and I am pleased to inform Senators that this measure is live as of Monday of this week; preparation of an options paper on the application of the lower 8.8% rate of employer PRSI contributions and the National Training Fund; a range of measures to reduce red tape and the administrative burden on businesses, including enhancing the small and medium enterprises, SME, test; and accelerating the roll-out of a fully functioning national enterprise hub, with staff available to provide immediate advice and support to vulnerable firms.
Separately, as part of budget 2024, the Government signed off on a package of €257 million for the increased cost of business grant. This grant has been set up in a way that makes it easily accessible to smaller businesses which may have had difficulties availing of previous schemes. Local authorities have written to businesses directly, providing them with a customer ID and pin to access the increased cost of business portal. I encourage businesses to register as soon as possible as they receive their letters. The closing date for registration is 1 May 2024. The portal opened on Thursday, 14 March, and as of 16 April approximately 34,000 businesses have registered for the scheme. Authorities will begin paying out this grant over the coming weeks.
Businesses must verify their eligibility through the online portal, showing that the business is commercially trading, operating directly within a commercially rateable premises and intends to trade for a three-month period following registration; the business has provided confirmation of its bank details; the business is rates-compliant, including those businesses with a phased payment arrangement in place; and the business is tax-compliant, providing a valid tax registration number. The grant provided will be for qualifying businesses with a 2023 commercial rates bill of less than €10,000. The increased costs of business grant will be paid at a rate of 50% of the business's commercial rates bill for 2023. For qualifying businesses with a 2023 commercial rates bill between €10,000 and €30,000, the increased cost of business grant will be €5,000. Businesses with a 2023 commercial rates bill greater than €30,000 are currently not eligible.
I, with my colleagues, have consulted businesses that have registered for the increased cost of business grant, and the feedback we received is that the registration process is very straightforward and only takes a few minutes. Businesses are currently concerned after previous experience that this would be an onerous task. Rest assured, it will not be.
It is also important to note that the Government has taken substantial action in supporting enterprises in recent years. A variety of supports have been made available to businesses, including through the temporary business energy support scheme, the business user support scheme for kerosene, and the Ukraine enterprise support scheme. In addition, many rateable premises will have benefited from a commercial rates waiver that was in place from 2020 to the first quarter of 2022.
Senators will also be aware of the ongoing excellent advice and support by the local enterprise offices, LEOs, as the first-stop shop for anyone looking to start or to grow a business as well as general business advice. Along with the financial supports available, they offer a suite of mentoring and training support supplemented with consultancy programmes that give the vital support required by small businesses at key stages of their development.
By availing of schemes such as the energy efficiency grant or the trading online voucher, small businesses can ensure their future resilience and competitiveness by upgrading their energy systems or opening up new markets online. I will shortly publish a new LEO policy statement which will clearly outline the role of the LEOs in contributing to the priorities of the White Paper on Enterprise. The extension of the 9% VAT rate on gas and electricity to the end of October 2024 will alleviate some of the pressures faced by businesses as a result of rising energy prices. It must also be noted that the reduced rate was originally due to expire on 31 October 2023.
In addition, budget 2024 introduced a number of measures which will be beneficial to businesses, including an increased VAT registration threshold of up to €40,000, up from €37,500, for services and €80,000, up from €75,000, for goods as well as an increase in the rate of research and development tax credit from 25% to 30% on qualifying expenditure on research and development from 1 January 2024. This will allow large multinational enterprises subject to a new minimum tax to claim a credit at the same rate they previously availed of and will allow SMEs to avail of the full benefit of the rate increase. The first year payment threshold of the research and development tax credit will also increase from €25,000 to €50,000 which will alleviate concerns for SMEs engaging in research and development.
A new reduced rate of capital gains tax of 16% will apply to angel investors in innovative start-up SME when they dispose of the qualifying investment for gains of up to twice the value of their investment up to €3 million. In addition, enhancements to the key employee engagement programme and the enterprise incentive investment scheme, EIIS, are beneficial for businesses. Additionally, I must highlight the effective role of the tax debt warehousing scheme in providing vital support to businesses during the pandemic and subsequent cost-of-living difficulties. In early February, the Minister, Deputy Michael McGrath, announced his intention to reduce to 0% the interest rate applying to warehouse debt.
While I recognise the difficulties that have been faced by businesses in recent years, I am sure Senators will agree that the changes to working conditions will have a positive impact for workers. Nonetheless, business concerns are recognised in the recommendations put forward in the working conditions report will be published on 5 March.
Paul Daly (Fianna Fail)
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I thank the Minister. Our first contributor is Senator Micheál Carrigy who is sharing time with Senator Maria Byrne.
Micheál Carrigy (Fine Gael)
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I welcome the Minister, Deputy Burke, to the Chamber. It is an honour for me, as a constituency colleague of his in Longford-Westmeath and on behalf of all the members of Fine Gael in Longford-Westmeath, to welcome him and congratulate him on his new role on this his first time in the Seanad. It is well deserved and I wish him every success and luck with the role. It is important to acknowledge the work of the Minister, Deputy Simon Coveney, over the past 12 months in his role and the recognition he had of the difficulties businesses face and have faced over recent months. It is important to recognise the €250 million that was allocated, as the Minister mentioned, in budget 2024.However, I recently heard of figures showing there is an extremely low take-up on that from businesses. That is something we need to get out there from this debate. Businesses only have a short two-week period in which to send their documentation to the local authority and claim that money. I heard that in one county in the region of 5% of the total value was all that had been claimed. The LEOs do a huge amount of work in every county. There is a great team in my county supporting businesses led by Michael Nevin. We might ask the LEOs to make further contact with business to ensure everyone avails of the grant that is in place.
Is it enough for businesses? I am afraid not. I speak from experience as I have a small business at home. There have been many positive changes implemented in the form of supports for workers. We have seen significant rises in the minimum wage - which are deserved - there is sick pay and now we have auto-enrolment. As I said, we have also had high energy costs over a significant period of time and while there were supports it still left companies with seriously high expenses over that period. Businesses are struggling. I know it from my own. I have only a very small business with a number of full-time and part-time staff. The minimum wage increase is probably going to cost me in the region of €4,500 to €5,000. The reality in a small retail business is it is not an option to add it on to something else. There are a lot of products you sell that you cannot put any extra cost on, whether it is the lotto or cigarettes or other stuff like that. We need help, to be quite honest, across the board. There are a lot of regulations in place, especially, as I said, for small businesses. If you are a petrol retailer there are constant monthly reports to be submitted to Revenue. All that takes time and comes at a cost, so we need additional supports. That is something the Minister is quite well aware of and I know that from any of the conversations I have had with him. He is already working on that situation and putting something in place. There will be additional supports and then, I hope, further supports in budget 2025.
I sit on the tourism Oireachtas joint committee and we have had significant engagement with the Restaurants Association of Ireland, the Irish Hotels Federation, etc. There are a lot of difficulties, especially at the hospitality end of things. In recent times we have seen a significant number of closures, particularly of cafés and restaurants. They are struggling a lot. The VAT rate was brought down to 9% during Covid but has returned to the flat rate of 13%. These businesses are finding it difficult. We could look at the possibility of splitting the VAT rate. It was said previously that it could not be done, but I believe it can be. To the best of my knowledge seven countries within the EU have a split rate. It is something we need to give serious consideration to. We need to ensure we support these businesses. They are providing jobs, especially throughout the rural economy. As I said, any support that can be put in place will help these businesses to survive. They had a tough period through Covid and in fairness to the Government we supported those businesses. They have got through Covid and are now hit with these additional challenges. The minimum wage increase is a warranted challenge, but it puts that additional strain on businesses. I look forward to further discussion today and to the recommendations that will be put in place in the near future to ensure we will be able to support these businesses and get through this tough period.
Maria Byrne (Fine Gael)
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I thank Senator Carrigy for sharing time. The Minister is so welcome here. I congratulate him on his appointment and look forward to working with him from here on in on the plight of small and medium businesses.
Some 43% of employees are in businesses of under 50 employees. The Small Firms Association is looking for a PRSI rebate. That was discussed before and brought forward by the Minister’s Department in the past. In addition to high energy costs, initiatives like auto-enrolment, the move towards a living wage and the increased cost of the minimum wage - although very welcome, especially for those on lower incomes - are leading to significant costs for small and medium-sized businesses. A report commissioned by the Minister’s Department shows those most impacted are small and medium-sized businesses, especially in the tourism and hospitality industry. Senator Carrigy referred to the possibility of splitting the 9% VAT rate. It is something I have called for in the past because it needs to be looked at. In November 2023 there were 50 restaurants and cafés closed, but nationwide there were 280 of them in the second half of 2023. Those are quite stark figures. I welcome the fact most businesses in the category are going to receive up to €5,000, but it still is not enough when we take into account the increased costs of insurance and energy. Even though the energy companies are passing on, or allegedly passing on, reductions to businesses, the businesses have not yet seen that in their bills.
Commercial rates also need to be looked at. In some counties there have been rates reviews, but some businesses are unfairly treated due to the size of their buildings. Many of them are not filling their buildings anymore, so there needs to be some degree of flexibility anymore. The insurance companies need to be met. I will be speaking to the Minister of State, Deputy Richmond, who has taken over from the Minister of State, Deputy Carroll MacNeill. When she was in that role she met the VFI and a number of industries across the tourism sector on the increased cost of insurance, because it is very prohibitive.
I wish to pay tribute to the Minister’s predecessor, Deputy Coveney. About a month ago we met small businesses in Limerick. Some 40 businesses were represented there, including everything from the hairdresser to the café, the butcher and somebody who owned a small shopping centre. There was a bookseller and a small grocery shop. These businesses are feeling pain. The Limerick City Business Association put a proposal to the Minister on dereliction, which we have a lot of in Limerick. Many operators of small, niche businesses retired or closed them during Covid and have not reopened. A proposal was put forward that they would love to be part of a pilot scheme to see how we can support small business. I will be sending the Minister an invitation to come and engage with these businesses because it is really important we send out the message to small businesses that the Government is interested in supporting them and working with them. I am aware of the grants available for small business from the Minister’s Department, but for the smaller businesses that cannot absorb the costs the €5,000 is not enough.
I look forward to working with the Minister into the future on how we can support and work with these businesses to keep them open. I think there are 280,000 people employed in the tourism sector nationwide. The additional costs from PRSI and the whole lot have added up for small and medium-sized businesses and I am concerned we will see more closures if we do not act quickly. A key thing that needs to be looked at straight away is the splitting of the VAT. In 2020 the 9% VAT rate was reintroduced and that needs to be looked at again.
Sharon Keogan (Independent)
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The Minister is very welcome. I congratulate him on his elevation to the office.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank the Senator.
Sharon Keogan (Independent)
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I welcome this timely opportunity to make statements on the cost of doing business. This is a year in which the costs across the nation are increasing. Businesses in particular suffer not just as a result of increased business costs, but also due to the costs imposed and initiatives created by this Government.The Government's increased cost of business grant offers €257 million for small and medium-sized businesses. Given that there are 143,000 rateable businesses in Ireland, when this fund is divided out, just under €1,800 will be available per business, in effect, if this grant is structured to be shared equally. That is less than €5 per day, so well done.
Eligible businesses will receive a once-off credit payment as a contribution towards the rising costs faced by businesses. The following are a few examples of the increased costs imposed on businesses in 2024. On 1 May, carbon tax will increase. The general employment scheme critical skills occupation list will increase from €30,000 to €34,000. Parent’s leave and parent’s benefit will be extended by two weeks to nine weeks from August 2024. The sick pay entitlement increased from three days to five days per year in January of this year. In October of this year, PRSI is set to increase by 0.1%. Auto-enrolment is a new pension scheme for certain employees who are not paying into a pension; they will be automatically included in the scheme but can opt out after six months. Auto-enrolment is expected to be introduced in January 2025. The Government raised the minimum wage from €11.30 to €12.70 per hour from 1 January of this year. There is also the extra bank holiday. All of these are in addition to the cost of insurance, gas, oil, electricity, the upkeep of depreciated assets and more.
Under this scheme, for qualifying businesses with a 2023 commercial rate bill of less than €10,000, this grant will be paid at a rate of 50% of the business commercial rate bill for 2023. For qualifying businesses with a 2023 commercial rate bill of between €10,000 and €30,000, the ICOB grant will be €5,000.
The Irish Timesreported in December 2023 that IBEC estimates that the annual increases in labour costs arising from these measures will exceed €4 billion. This demonstrates a massive chasm between the Government’s understanding of business needs and the real help they need. Businesses need a government that relieves cost obligations and rates. We could be forgiven for thinking this is some sort of scam in the name of generating winning electoral policies around parental leave, more sick days, auto-enrolment in pensions and so on. A likely knock-on effect of these electorally appealing policies will simply be that there are fewer jobs.
The restaurant association and the hospitality trade have called for a reduction of VAT from 13.5% to 9%. These businesses are an integral part of our communities. Two restaurants are closing per day and the closures are due to the cost of living and the increased cost of food, energy, interest rates and wages, as well as labour availability. The CSO data state that last year, 15,609 businesses were engaged in food and beverage services in this country. At the end of 2023, 130,800 people were employed in the sector, with an additional 79,680 indirect employees because of the operations of a restaurant. According to Jim Power, economist, the closure of a restaurant costs the State up to €1.36 million in total economic impact in one full year.
In recent weeks, I have received correspondence from many members of the Irish Association for Counselling and Psychotherapy. This group has 6,000 members and is calling for increased accessibility to therapeutic services by extending the VAT exemption to counsellors and psychotherapists in Ireland. The IACP’s comprehensive VAT proposals were submitted to the Minister for Finance in March and call for creating equity of treatment and parity of esteem for mental health professionals providing psychotherapy and counselling services with those who deliver physical healthcare. I urge the Minister to take their concerns seriously. Mental health services are part of a crucial sector but they are under-resourced despite being of essential public importance.
I call on the Government to listen to the people running businesses. They know how to solve their operational issues. Sweeping policies that affect enterprises all over the country, regardless of the size of the industry, can have a catastrophic effect. Aside from competition, automation and inflation, businesses will likely fail this year due to the added burden of the costs outlined above. Ultimately, a grant of €5,000 will do little to help small to medium-sized businesses which face ever-increasing costs at the hands of our Government. These policies will only serve to stifle entrepreneurship in this country. Day one operating costs, taxes and obligations are deterring people from operating their businesses and access to the market. Taxation is considered theft by some but can you really rob a business that cannot maintain liquidity or even establish itself with so many overheads imposed by the Government?
The social enterprise sector is one of the most untapped sources of economic and social value to the State but it is rarely looked at by Ministers or Departments as an economic value. I would like the Minister to consider allocating moneys for the development of these enterprises to the local authorities through the LEOs in order to engage in supporting credible and sustainable social enterprises that will tackle social and environmental issues while also creating employment. This is one sector the Government could look into while supporting the local enterprise offices. It is an untapped sector within our economy. I urge the Minister to look at this during his ministry.
Malcolm Byrne (Fianna Fail)
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Like others, I welcome the Minister. He served very well as Minister of State at the Department of housing and as Minister of State with responsibility for European affairs. I am certain he will bring his own innovative style to this job. I also pay tribute to his predecessor, Deputy Simon Coveney, who regularly attended this House and was certainly willing to engage with Members on issues. We wish him well in the next chapter. I am certain that the Minister, Deputy Burke, will be in the House as often as Deputy Coveney was and will take on board the views that are expressed.
Within Fianna Fáil, we have met regularly with quite a number of small business groups and most recently with RGDATA. With all of these initiatives that we talk about, which are very welcome, such as auto-enrolment and the increase in the minimum wage, businesses are very supportive but the fact they are all coming at once becomes a big challenge. This is one of the concerns that is raised when it comes to all of the additional “red tape” that comes along.
The Minister will notice that of the political parties represented here, it is telling that it is only the Government parties that are present, which says a lot about the commitment to business and, in particular, to supporting small businesses within this country. It is small businesses that are the backbone of our enterprise economy. They are rightly concerned about red tape and I appreciate the initiatives the Minister has about reducing those costs. The Minister will remember that for a small business, the cost is not just the financial cost but also the time and administrative costs. Big companies can have their own HR manager and marketing manager but for a small company, the owner is frequently responsible for HR, marketing, accounts and everything else.
I want to raise a number of issues with the Minister. I certainly share the views of some of my colleagues that we should explore splitting the VAT rate. I realise the very significant costs in this regard and I realise that when, in government, we reduced the 13.5% rate to 9% for a short period, some sectors, in particular the hotel sector, did not pass it on to consumers as we sought to be the case. However, if we can look at a split rate as has been done in other countries, particularly with regard to food because restaurants and the food sector are under a lot of pressure, I think that is worthy of consideration.
For many start-ups and scale-ups, one of the issues that is regularly raised is around access to funding, which in itself becomes a cost. Scale Ireland has raised this on a regular basis. While I appreciate that the Minister mentioned the increased research and development credit and reducing capital gains tax for angel investors, we have to look at ways to further enhance the digitisation of business and support those start-ups and scale-ups to avail of new technology. To put it bluntly, it has to be more than simply LEO grants to set up a website.As we move into an age when technology is influencing and impacting on all our lives, we have to be able to support a more thorough level of investment.
Senator Maria Byrne referred to commercial rates. We are coming up to the bicentenary of the Valuation Act, under King George IV, of 1826, which introduced the commercial rates system in Ireland that remains the basic system of funding local government. About €1 in every €3 that funds local government comes from commercial rates, predominantly from small businesses, contributing about €1.5 billion annually. The Minister will know this from his previous role. It is wrong that a 200-year-old system discriminates against bricks-and-mortar businesses as a way of funding local government. While the increased costs of business grant and so on are welcome and we can have all the reforms we want relating to the commercial rates system, as long as the system continues to penalise bricks-and-mortar businesses relative to online offerings, we will continue to have this problem. I appreciate that reforming local government is a big challenge but the idea that, in the modern world, a specific tax is determined on the basis of a business's floor space is just nuts. If we want to ensure businesses can be competitive, and in particular those businesses on our main streets, we have to ensure they are able to compete against online offerings, which means we cannot penalise them with commercial rates. We need to radically overhaul that model.
This session on reducing the costs of business has replaced the subject that was intended for debate this afternoon, namely, the legislation that would allow for a referendum on the unified patent court system. If we are talking about reducing the costs of business, an inventor or creator will have a very significant cost if, in order to get the patent for an invention, where they cannot get it in Ireland, they have to go through the courts in France, Denmark or the Czech Republic. The unified patent court system would significantly reduce the costs of business and also the administrative burden for any inventors or content creators. It would make life a hell of a lot easier if that were in place, and I am disappointed we are not going ahead with the referendum in June.
The Government, which has been very strong about fighting for small business, should get out there and make the case. This is a pro-European Government. I can certainly speak on behalf of Fianna Fáil and I know the Minister will do so on behalf of his party. The patent court system makes a lot of sense and for inventors and content creators, Ireland's membership of that court would result in significant reductions - in fact, five-figure reductions for the average inventor if they had to patent their invention throughout the European Union. It would be administratively far easier, as the Minister will know, but given this session is specifically about reducing the costs of business, that would have led to a reduction in costs, so I am disappointed with the paper he brought to the Government seeking to prevent it from proceeding with the referendum. I hope he might indicate in his response when it is planned to proceed with it because it is important for those businesses.
I welcome Deputy Burke's appointment and believe he will be an innovative Minister. I know he appreciates and understands it is critical we reduce the costs of small businesses and support them in creating employment and wealth within our communities, and I wish him well in what he does.
Róisín Garvey (Green Party)
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I welcome the Minister and congratulate him on his promotion. It is great to have him on board the enterprise, trade and employment challenge. I worked with his predecessors. I will focus on a few matters as the Green Party's spokesperson on that portfolio and also its rural development spokesperson. Both of these briefs tie in nicely with the importance of small businesses. Not only are small businesses important in cities but they are all we have in a lot of towns and villages. Towns are becoming homogenised, and that is because only the big multinationals and chain stores can afford the rates or can afford to have bricks-and-mortar buildings on the streets. If there is not a significant intervention to support small businesses, every town will look the same. There will be a thousand McDonald's outlets and no small coffee shops or bakeries. It will be all multinationals and large profits and small business will disappear, as is happening.
There are 309,000 SMEs, of which 281,000 are micro-sized, comprising between one and ten people. Those are the people who are creating most of the jobs in this country, not the multinationals, despite all we think about how great they are and despite us always going on about the likes of Google. The majority of jobs in this country are a result of hardworking self-employed people who employ other people. I had this out with Sinn Féin previously and, ironically, its representatives are not in the Chamber for this debate. They always talk about the poor workers and say employers are the big problem. For so many people I know, employers are the workers, and they are the ones who need our help and who are trying to do everything they can to pay their staff and keep on the lights. It is a huge issue and the Minister has been handed a can of worms. His predecessor tried to address this, as did his predecessor. It was Leo Varadkar when I first came to the House, who was followed by Simon Coveney and now Peter Burke. He will have maybe a year until the next election but there are some simple issues we need to look at in the meantime. We cannot treat all businesses the same. As I said earlier at the meeting of the rural development committee, it is like treating the Larry Goodmans the same as a guy with 20 dry suckler cows. We have to have a nuanced, intelligent debate if we are to sort out small businesses. They cannot be treated like the big ones. The CEOs of our local authorities cannot say let us up the rates, give all the councillors a couple more quid with a discretionary fund to keep them quiet, and increase the rates because we will make more money. The small businesses will say they cannot afford that and get out of here, and then the big ones will come in to replace them. We have to hold on to the beauty of the individuality, culture and nature that make up our towns and villages, which are the backbone of our tourism and of all our jobs. We are losing it and that is a serious issue.
What can we do? I think we need to look at rates and reduce them based on the profits and size of the business. It should not be based on the size of the building. Another issue is that if a business is not an owner-occupier, its landlord will have no impetus or encouragement to upgrade the building. There is a lot of money available for retrofitting, upgrading, installing solar panels and so on, and that is something really good the Government has done in this Department, but if the business does not own the building, it will be reliant on the landlord giving a damn, and the landlord will not care if the bills are not his or hers. We need some kind of carrot for landlords, because it is going to increase the value of the building in any event. It is difficult because some of the green measures we have pushed in are really good if the business owns the building.
I could go on about this but I am sure the Minister has heard a lot of it previously. We should also extend the terms of the SBCI loans for businesses. That was very helpful during Covid. People are trying to pay back everything weekly, and while some of them are managing and catching up, there were huge loans because of Covid. I invited Eamon Ryan to Ennis recently. He met representatives of every small business in the town and there was a real heart to heart. Small businesses want to pay back their suppliers and pay back all their loans. There was a good model during Covid and we need to look at that again.
There are a lot of local enterprise offices and, as I have seen over the past three years, we have given them more money and staff but they are not doing what we need them to do. We need to have a review of the local enterprise offices and of what they are doing with our money. Are we getting bang for our buck and are small businesses getting the supports they need? Small businesses keep telling me they do not want any more consultants, mentors, training or help with website design. They did all that during Covid. They need hard cash to reduce the costs and they need investment. The green for micro programme is a brilliant idea, with a free two-day energy audit. I have told many small businesses about it because, for some reason, the LEOs are not telling them about it. It is not known about but it is worth €2,500. The auditors come in and, without any judgment, impugnment or anything, they look at all the business's energy costs, losses and demands. Thanks to my work with Leo Varadkar in the year we entered government, there is funding in the form of a direct grant that will give businesses the money they need to deal with the findings of that free energy audit. Five businesses in Clare got it last year but the target for the LEO was 17. What is that about? At a national level, as a Government we are giving money to the LEOs, ISME and everybody else but we have to look at how they are spending it. Are we listening to small businesses on the ground that are crying out for help?We keep throwing money at the problem but it is not going to where it is needed. I will forward the Minister on that note. I am looking forward to meeting with him and working on that specific issue. I will help the Minister in any way I can. I am here to support the small businesses of Ireland. Like the small farmers, they are the most important thing to protect the beauty of this country in order that people will still come here and it will not look like downtown New York or Paris. We have a uniqueness in our small businesses and we need to protect them in every way we can.
Lisa Chambers (Fianna Fail)
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I welcome the Minister and congratulate him on his elevation to a senior Cabinet position. I wish him well in the time ahead.
I welcome this debate on the cost of doing business. There has been a particular focus, and rightly so, on small and medium enterprises because that is where the pinch is being felt the most. It would be remiss of me not to mention the report that is out today. It was commissioned by the Restaurant Association of Ireland and compiled by Jim Power Economics. The report states that the Irish economy could lose up to €288 million annually as a result of the closure of over 200 restaurants, cafés and other food-led businesses. In the part of the country where I live in County Mayo, a rural area with a thriving tourism offering, food-led businesses are a huge employer and are part of the structure around our tourism offering. They are struggling with the cost of running their businesses. I know the Minister is well aware of this. Businesses want to do the right thing. They welcome the changes we have made regarding the minimum wage increase because they know it is the right thing to do. They know that statutory sick leave and auto-enrolment are the right things to do. They want to work with us, but they are finding this a lot to deal with in one go. The increased cost of doing business grant provides up to €5,000 to a business, but €5,000 is kind of scratching the surface for many of these businesses in view of all they have had to deal with.
I was canvassing recently in Mayo and Roscommon. In two separate locations, two supermarkets - I will not name the retailer, but it is a large supermarket providing huge employment in a labour-heavy business due to the type of service it provides - said that while they understand the increase in the minimum wage and the need for it, if it were to go any higher, they would certainly look at increasing automation and putting in place more machines to do the jobs of the people they currently have on the shop floor. We have to take that seriously and be mindful of the long-term impacts of these changes in order to ensure that we do not make it difficult to create and sustain jobs and that machines and automation will not replace people in these sectors. We must be mindful that the margins of these businesses are fairly tight and that every increase we impose just eats further into those margins.
The cost of energy is another matter that arises. We know that energy costs have been a huge challenge for businesses. While they acknowledge that these costs have come down significantly, they are still very high. They are concerned about global conflicts, like the continued war in Ukraine and what is happening in the Middle East, the impact on the supply chain and whether we are going to see another significant increase maybe next year or the year ahead. They are concerned about this. On that front, they would like more supports in the context of installing solar panels to benefit from renewable energy and to keep their costs down. In terms of the costs involved in this regard, one supermarket was quoted €140,000 to put solar panels on its roofs. It would take it probably ten to 15 years just to pay back the cost of installation. We need to look at that in the context of making what I refer to viable for these businesses. Not only does it help reduce their business costs, we also must be cognisant that we have carbon reduction targets to meet by 2030 and 2050. We need to incentivise businesses to take up these measures. Clearly, what we are offering by way of grants to businesses is not making it attractive enough at this point.
I want to speak to the commercial rates issue, which I have raised previously in this Chamber. We need to look at how we fund local government. I know the Minister was previously in that brief. It is currently not a runner for the county councils in Mayo, Galway, Roscommon, Donegal or Sligo to reduce rates because they use the moneys raised to fund local government. If one looks at commercial vacancy rates in parts of the country, one in five commercial premises in Galway city is sitting vacant. In Mayo and Roscommon, the rate is 17.4%. In Donegal, it is 18.2%. That it is in stark contrast to the national average, which is 14.3%. In Meath and Wexford, the rate is 10% and it is 12.2% in Cork. There is a regional imbalance there. We have higher rates of commercial vacancies in the western region than anywhere else in the country and it is far above the national average. We have to look at how we incentivise people to set up shops, particularly as they are competing with those in the online space. We need to present a new vision and ambition for our town and city centres in order that it is not just charity, vape and coffee shops that are operating on our high streets. We need to see how we can incentivise retail premises to operate in our town and city centres, taking into account that, as the Minister mentioned, they are competing with the online space. Online retailers do not have the same overheads. They do not have to pay the same insurance costs or commercial rates, nor do they have to pay rent. How do we level the playing pitch for physical shops in order that they can compete with online retailers? We want the main streets in Castlebar, Sligo town and Galway city full of shops. In order to do that, we need to look at the overheads businesses have and how we can level the playing pitch to allow them to compete with online retailers and keep our towns and city centres vibrant.
There are many issues to deal with in terms of the cost of business. I look forward to the Minister's response and thank him for being here for the debate.
Aisling Dolan (Fine Gael)
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I welcome the Minister to his new role. It is great to see that one of the first acts he will oversee next Monday is the provision of the additional €3,000. There will be €8,000 available to hospitality and retail businesses across the country. I know we have been talking about this in Fine Gael in recent months, and I know it was discussed with the former Minister for Enterprise, Trade and Employment, Deputy Coveney, and his team. I have been in touch with businesses across Roscommon and Galway in recent months explaining and promoting the green for business programme, telling businesses, particularly cafés, restaurants, hotels, that there is a planned increase up to €8,000 for them, that is, an energy efficiency grant. I went into those businesses and they say to me that it is actually going to be a help and a boost to them. It can be used for lighting or for something like a new A-rated fridge. It is a way to bring down their energy costs.
The steps that are going to be taken here are looking at the businesses that are applying for this money and providing support. The fund that the Minister is giving to the local enterprise offices, which is over €15 million, is really important. In the past, those offices had programmes that were open to certain sectors. What is really good about this programme is that it is open to all sectors, including retail and hospitality. Previously, it would have been limited to certain types of sectors within the local enterprise office, so this is a real win and a real support for businesses in the time ahead. It has really taken into account the costs that businesses have faced over recent months, particularly those in the areas of hospitality and retail. I am delighted to see that this is going to be coming into place on Monday next.
As for the increased cost of business grant, the deadline is coming up on 1 May. There are 2,000 businesses in Roscommon and nearly 3,700 in County Galway that are eligible for this grant. We need these businesses to apply. The challenge lies with the application rates, and we need to make sure those are increased. If we do not see more than 60% of businesses applying, can the deadline be extended? Only 20% or 30% of the businesses that are potentially eligible for the grant have applied. We need to consider if an extension is feasible and possible, because we need to work with these businesses. In recent weeks, I have been contacting businesses to tell them about this fund and encouraging them to apply. I even sat down with businesses and spent time working with them to complete their applications. As the Minister said, the process is streamlined. However, it has to be all done in one step. When people are applying for this grant, people need to get all the different information. I sat down with people and helped them with that. It literally has to be done in one step. If you go online to do it on your phone or laptop, it is not the case that you can save as you go. May I ask that perhaps this might considered in the context of the tech side of support for this programme?
The national enterprise hub is really important. When we look at the local enterprise offices, it is about expanding how they support people. I know that is within the Minister's remit.
I wish to know a bit about the mentorship programme offered by the local enterprises offices. I have spoken about that and have encouraged businesses to contact the offices about the programme. There is a great deal more that can be done in that regard. The challenge I see in places like Ballinasloe, Ballygar and Ballyforan in County Roscommon is that the one has to link in with many businesses that are one- or two-men or one- or two-women enterprises. Those people are up the walls.They have no time. I go in and sit down with them. I ask them if they have five minutes and we do it together. It is well worth it, but the challenge is they do not have time. Is it possible the mentors could be available in the evening time to speak to employers or to speak to someone to offer that support? Maybe they do that already; I do not know. It is something to consider. The ones who work 9 a.m to 5 p.m., 9 a.m to 6 p.m. or probably never stop working find it really hard to fit in getting that extra hour of support around those times.
The terms and conditions are really important. We need to ensure people who work in Ireland get a fair wage and a living wage. That is crucial. We very much saw the impact during Covid in vulnerable sectors when people were not able to take sick leave, so I appreciate the advances we have made to bring us into line with other European countries. That is something we have achieved in government and something we in Fine Gael have very much been advocating, but I also understand the challenges when it comes to businesses in ensuring they can keep as many employees as they would like. There is the flexible nature of employment. We are looking at supporting businesses to take on people coming back into the workforce. We have full employment, which is wonderful, but the challenge is how do people get people to work in cafés, restaurants and bars. We need to look at that flexibility. How can we support them with that? I mean taking on three people working ten, 12 or 18 hours a week and maintaining their benefits. I thank the Minister for his time.
Aidan Davitt (Fianna Fail)
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I welcome the Minister to the House. He is a Mullingar man the same as me. We soldiered on the town council and county council together and last week was a great week for the town as we now have a senior Minister. I wholeheartedly welcome the Minister to the House and congratulate him on his elevation. As the Minister knows, I am involved in running a business and employ quite a lot of people, so I have quite a vast knowledge of what goes into running a business. There are a lot of things to mark. The easy answer is to say they are matters for Revenue, but unfortunately they are related to business, so they are all under the one umbrella. The Minister has not shirked his responsibility to deliver in any portfolio he has held.
Everything came at the turn of the year. There is pension auto-enrolment which is still progressing and whatever else. Something which came under the radar that people would not know of unless they run a business is the division of the expenses. Heretofore your business will claim a certain expense, but if I brought four people for dinner I would have to return my own expense, a fifth of the total, now and the other four parts are claimed by the company. The paperwork and manpower involved in this is absolutely ridiculous. I am sure the Minister is aware of this. This has come under the radar a bit and it is tying it to the business owner or employer that they have to make a return on what exactly they were spending. There is not as much scrutiny on the money being spent on his clients or whatever else, but that division of expense has to be returned with your wage slip to claim the expense back. People do not get the amount of manpower and work being put into this at present. This came in at the same time of year as the minimum wage increase - which I do not have a problem with - but it is all these things at once. It was like a storm of different paperwork coming all at one time. We are going to have a change in the corporation tax rate. All of these are not of the Minister’s doing, of course, but they are all things that fall within the remit of the Department he is walking into.
Then there are elements many employees are not aware of. When you talk to employees they talk to you about increasing wages and everybody’s wage going up. It is a good conversation to have with your employees, but they seem to be totally unaware of the PRSI and USC that employers are paying, which can be at different rates. It can be up to 7% with PRSI and up to just over 8% with USC. That is 15% if you are ticking both those boxes. It is on employees’ wage slips if they are getting a detailed one, but what employee is reading what an employer is paying? It is an extreme hidden cost employers are paying.
Employment is slowing at present, as the Minister knows. Looking at America, which the Leas-Chathaoirleach is very aware of, there is fear there about a recession in the last quarter. This will have a massive knock-on effect for Ireland. As our Leader has mentioned here, the average business on the street is competing with online retailers, especially on main streets. How the Minister will deal with that I do not know. I am just laying out the problems facing him from the viewpoint of a day-to-day business guy. I am not like the Opposition Members who could not be bothered turning up, because I am going to provide some practicalities about what I think it might help to do. They would not provide any of them either to be honest, going by the big black holes in their budgets. Maybe they are out trying to find the money for their budget that does not exist at present. We will give them that; they could be busy at that.
The abolition of the USC, which was a short-term measure when it originally came in, would be a huge step forward if we were really serious about bringing people into the workforce. Certainly we could try to cut it back. We had still been increasing it until recently. I am sorry, I meant the PRSI rate. It increased in the last budget by 0.1% in nearly all categories and more in some, as the Minister will be well aware. We should link the rates to the profitability of a business. That would be a huge help. We have done that before. We have linked different grants to profitability of businesses and it said if a firm was over a certain threshold here is how much it would get. That would be a huge step forward. For Aldi, Tesco and the like, which are paying a lot in rates in larger footprints it is no problem, but what about the small guy trying to cope who has ten or 15 employees and is to the pin of his collar paying the wages every week? Why is he paying €10,000 in rates when he is trying to keep the lights on? There has to be a real look at the rates and the model. I appreciate it is not going to be easy, but we have previously linked profitability to grants and whatever else.
The requirement related to expenses only came in recently. I would reverse it. It is harebrained and a lot of manpower is going into it. It is killing businesses. It is a thing being put on top of businesses, especially smaller businesses that do not have the manpower of a full-time accountant or somebody working on accounts full time. It is murdering them. The auto-enrolment and all that is tough enough for these guys, but this is something silly. It is being accounted for anyway. I thank the Minister.
Mark Daly (Fianna Fail)
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I agree with my colleague on the issue around commercial rates, which is a 19th-century tax in a 21st-century world. We need to look at different ways for our local authorities to raise funds that do not put people out of business, which is what is happening in Kerry and other parts of the world. There are the issues around pension auto-enrolment and the increase in wages, which is welcome, but these all coming at the same time is having a crippling effect on many small businesses.
John Cummins (Fine Gael)
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I thank the Leas-Chathaoirleach for facilitating me. I welcome the Minister to the Seanad Chamber. I am absolutely delighted for him.I wish him all the best in his new role. The increased costs to business is a topic that is raised with us daily by people in the sectors involved. Obviously, we as a Government are doing a lot and I know the Minister is committed to doing more. The increased cost of business grant is being administered by local authorities but, to my knowledge, the take-up has not yet been sufficient. There may be an exercise to be done on promoting it because €0.25 billion has been allocated to the scheme for small businesses to get the equivalent of 50% of their rates back as a grant in a cash support. A key part of that scheme was that it would not be an offset in rates but rather a cash injection into businesses. That was critical.
There will be debates between now and the next budget on the VAT rate. I am on record in my support for a different VAT rate in the tourism and hospitality sector. I hope that is being considered by the officials. I know 9% is being floated and it has been the rate previously but there might be another rate that could be looked at to ensure that small businesses are able to compete in the environment of ever-increasing costs.
The Government is committed to examining employers’ PRSI. To borrow a phrase from a larger retailer, every little bit will help here when it comes to support for small businesses. No one in the sector is saying the changes that have been introduced are the wrong decisions. No one is saying that but a lot has come at businesses at the same time. That is something we need to be cognisant of as a Government in our response in the coming months. I know the Minister is committed to that.
Finally, we order the business in this House to talk about topics which are important to various sectors. I have asked for debates on many issues. This is a critically important matter. We see exactly what the opposition thinks of small businesses. There is nobody in the Chamber here for a debate on such an important issue. I think that is shameful. That is what they think of small businesses. The Minister is here and we are here to debate these issues and they could not be bothered to turn up.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank all the Members for their interventions on a topic which is very important to our local economies in protecting our SME sector. We all know the economic activity they provide in our communities is very much valued by the Government. That is demonstrated by the policies we have put in place to support them in recent years.
First, I will raise the increased cost of doing business grant. It is a very important grant. I know the lifeblood of businesses is cash. It is so important that they are supported. It is vital that where there are any mitigation measures we can put in place, we do so. The increased cost of doing business grant is a maximum €5,000 payment for those with rates under €30,000. So many businesses qualify -127,000 businesses up and down the country are eligible. We need them to apply. It is a very simple, one-page application which asks for very little information. The payments will be going out shortly. It is so important that businesses register for the grant and draw it down as it will assist them.
As I go about trying to frame and prepare a package for small businesses in the coming days and weeks, it gives me a strong argument to go back to the Department and say that this money is being spent and that it is being drawn down. I do not want to go back and argue with the Minister for public expenditure and reform and for him to tell me he has given €0.25 billion for the SME sector that has not been drawn down. We want to appeal to businesses on this. I ask Senators to market that grant and to work with small businesses in their communities and assist them. It is there for them and we want them to get it. We will work with them knowing that it is not enough but that we will work with them on a package that will come forward in the days and weeks ahead.
When I started working as an accountant in a busy practice in Mullingar in 2008 to 2010, we were in a very different situation. When business owners came in to our practice, one of the first decisions they were making was how many members of staff they would have to let go to keep their business viable. Would they weather this storm? We are in a very different position now from then and we can never go back. We are in a position now where 2.7 million people are employed and we have a very strong economy which is still growing. There are so many women in the workplace, which is incredible, because of supports the Government has brought in such as remote working and how we are trying to transform how we value everyone in our economy. It is so important we continue on that trajectory. We see data coming in on improvements in employment numbers in recent years, which is quite striking. There number of people working in our economy over the past three years has increased by a couple of hundred thousand and it is important that we maintain that.
From speaking to small businesses, I know the accumulated costs of the valued interventions we have made as Government in an effort to improve solidarity in the workplace and show that employees are valued and we are trying to improve their conditions, especially lower paid workers. Some of those accumulated costs have been striking for businesses. There is a trajectory which features measures towards the living wage, important sick pay rules, going through the remote working process. Take the minimum wage. From 2016 to now, the average increase has been 3.4%. Last year it was 12.4%. That is a significant increase for employers to bear the brunt of. The legislation has commenced in the Dáil on auto-enrolment. There is an extra public holiday. There is some very important leave, such as parental leave to try to make family life better and improve conditions but we want to work with employers to ensure their viability is in no way impacted by any of those measures. We will do that in the days and weeks ahead.
There are some important interventions such as the 9% VAT rate on gas and electricity up to October. That is significant. The energy efficiency grant is also very important. A small café, hospitality business or deli can change its fridges, lighting or kitchen operation. Every month, they will feel the benefit from that capital intervention. We as a Government want to help them, and do it immediately.
Senator Byrne raised the research sector. It is important that we are committed to the patent referendum. The legislation had not passed through the Houses and we are less than eight weeks before the date of the referendum. With so many elections, it was a crowded field for media attention especially in a technical debate. That is a huge challenge but we are committed to bringing forward the referendum. It is very important to remember that our research community has received so much from our last budget including the increase in the R&D tax credit to 30%, increasing the first payment up to €50,000. All those interventions show we are fully committed to working with them.
Future-proofing policy for SMEs will be crucial. Whether it is a statutory instrument or primary or secondary legislation, we need to know it passes the test for SMEs that they will not be impeded by it. We have a test to identify affected businesses and, working through consultation, doing an impact assessment and mitigating where we can.That is one of the things I want to bring forward very strongly. All Departments will have to carry out an SME test before they bring forward any regulation. We need to think small first and consider the backbone of our economy, namely those family businesses that are working so hard creating economic activity. I am absolutely committed to doing that.
On other matters, as I said, we have increased the VAT threshold. Access to finance is going to be very important into the future in order hat we can assist businesses to get the cash they need. It is so important to keep them ticking over.
As I pointed out earlier, business failure is something we cannot take for granted. We are still at a rate of about 27 in 10,000 in terms of business failures. Before the recession, at times it was up near 36 and 40. We have not got back to that level, but we want to be very careful and ensure that we monitor everything that happens in our economy and that we hear from businesses. Our LEOs are doing such fantastic work in the context of mentoring. We do not want any businesses to fail without having got the support of the State, connected with their LEOs, talked to them and identified what opportunities they may have, be it help with online marketing, whatever strategy they are embarking upon or whatever financial options are available to them. Mentoring is a key aspect of our process.
Senator Keogan referred to social enterprise. I will refer that back to the Minister, Deputy Humphreys, whose very important brief is strongly connected to it. Our LEOs can obviously link in with that process. We are very much committed to working with our SME sector. We know exactly what it takes for SMEs to succeed. I will be working with and listening to them over the coming days and weeks. I will chair the hospitality and tourism forum with the Minister, Deputy Catherine Martin, in May. It is very important to hear from that sector and from all of our restaurants and valued small businesses within it. We will work with them.
There is a large campaign under way in respect of the VAT rate. That is something we will take seriously. We will listen to them and look at the options. There is significant cost attached to it. That would be a budgetary measure between ourselves, the Minister for Finance and the Minister, Deputy Catherine Martin. We will work with them and look at all the options. I do not want to make any promises. That is something I do not do as a Minister. I want to be very honest and realistic with people. We will fight for them. We will do our very best. We want to work with them every step of the way.
As Senators pointed out, it is shameful that Sinn Féin has not turned up for this debate. Sinn Féin Deputies had the gall to come into the Dáil last week and comment on our new Taoiseach at a time when he was ringing world leaders trying to cement Ireland's place on the global stage and doing very important work. When a new Taoiseach is nominated, they would normally have a week to read themselves into the brief and connect with world leaders and European leaders. Sinn Féin has failed to show up for a very important debate on our SME sector. That is shameful and it should be called out by everybody.
Mark Daly (Fianna Fail)
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Go raibh maith agat, a Aire. I congratulate you on your elevation to high office and thank you for coming to the Seanad. You always came in when you were a Minister of State. It is great to see you back in here as a Cabinet Minister. We wish you every success in your new role. I ask the Acting Leader to move the suspension of the House until 3.20 p.m.