Ireland’s economic pillars are more threatened now than they have been in some time. The landscape facing our exporters in global markets is very challenging. The battle for investment in the global economy is changing. Large countries like the US and China are increasingly competing using aggressive investment subsidies and tariffs on imports. Europe has been slower when it comes to the use of industrial policy, but it is moving in the same direction. There is a major risk for Ireland that an outsized EU response in a subsidy war could damage the level playing field in the Single Market, by allowing large countries a free hand to ladle on subsidies which small countries could never match.
The rise of State-driven competition for investment, increasing geopolitical tensions, and decreasing trade openness are not beneficial for small countries like ours. We will never be able to compete with big countries when it comes to subsidies, whilst we have had our tax edge blunted by global changes in recent years.
The signals we send in this election debate are being watched not just by a domestic audience, but also by corporate decision makers who need to be convinced that we can still deliver.
The income tax system should be broad-based and be designed to support an economic model driven by highly mobile talent: Considering Ireland’s highly concentrated tax base, the international evidence on the elasticity of higher marginal tax rates, growing competition for skilled workers and the future changes in global employment which will make key workers more rather than less mobile, we believe that the best path for future reform of income tax would be to make changes which gradually move the top marginal rate of tax to around 45% from 52% of income and index the entry point to the top rate over and above the average full-time wage in the economy. This should be allied to an attractive temporary regime for the most mobile workers. On the other hand, more workers should pay tax, and this can be achieved very gradually through non-indexation or partial indexation of the entry points to the personal tax and Universal Social Charge (USC) net.
What measures business wants to see in the Programme for Government.
- A commitment to adequately fund public services and keep a sustainable public finance, through a broad, stable and competitive income tax base.
- A commitment to index the entry point to the top rate of tax well above the average full-time wage.
- A commitment to a supportive tax regime to attract mobile talent into the country.
- A commitment to a tax system which supports employers doing the right thing – including expanding Benefit-in-Kind (BIK) relief for health and wellbeing and allowing employers reward milestones and recognise expenses in the workplace without overly burdensome reporting.
- A commitment to allow employers reward exceptional performance in a flexible manner through expansion of support for share-options, residual stock units, the small benefits exemption and similar schemes.
Changes proposed in recent years represent the biggest single change in Irish labour market policy in decades and a deficient approach to the implementation of those changes has risked creating significant challenges for business. These concerns can be evidenced by the fact that our recent Ibec CEO survey, shows the increasing cost of doing business is the single most significant challenge for business leaders. When asked what their priorities were for the next Government, 74% regarded the cost of doing business as the most important issue.
These major changes in the labour market were conducted in the absence of any overarching action plan, strategy, or impact assessment. Government Departments and agencies are introducing new legislation and regulations regularly without any cognisance or reflection of the overall context or impact of those measures. We welcome recent changes in form, if not quite yet in substance, which will help ensure this is not repeated in future.
Improving conditions for workers in a sustainable way is important for social stability but it must be done in a measured and co-ordinated way.
What measures business wants to see in the Programme for Government.
- A commitment to subject all further labour market policy measures, which involve a direct or indirect cost to employers, to impact assessment and coordination.
- A commitment to a new ‘Competitiveness Charter’ setting an annual ceiling on the total amount of additional labour market costs which can be imposed on business in any single year.
- A commitment to introduce a Pay Related Social Insurance (PRSI) rebate for the most exposed companies including increasing the top-rate employer PRSI threshold above the new Living Wage annually and the introduction of a temporary PRSI rebate based on the number of lower earning workers on a company’s payroll.
The secure supply of affordable and sustainable energy is central to all economic development in Ireland. The war in Ukraine and resulting European energy crisis has brought renewed attention to Ireland’s overdependence on imported fossil energy, the lack of emergency gas storage, and the economy’s high exposure to international gas prices. Measures introduced to protect consumers had mixed results and many businesses were unable to remain viable throughout the affordability crisis.
Ireland also faces its own home-grown energy security challenges unrelated to the war in Ukraine. Because of system-wide failures in energy planning and oversight, Ireland now faces significant electricity supply constraints this decade. While emergency solutions will get us through this difficult period, these solutions come with added costs to consumers and the environment. The future competitiveness of Irish energy must be a priority for the next Government. Research published by BusinessEurope in July 2024 shows that even with the benefits of new interconnection and renewable generation, Ireland’s energy prices over the coming years could be significantly higher than in other European countries. Businesses need greater line of sight on the future of Irish energy prices and how the necessary investments in our energy system will be financed without undermining industrial competitiveness.
The next Programme for Government must prioritise the full delivery of the 2023 National Energy Security Strategy, the roll out of new conventional gas fired generation to support intermittent renewables, emergency storage, and innovative measures to support the competitiveness of Irish energy prices which remain some of the highest in Europe.
What measures business wants to see in the Programme for Government.
- A commitment to develop an integrated long-term energy strategy to support the net zero transition.
- A commitment to implement the National Energy Security Strategy in full.
- A commitment to undertake a benchmarking exercise of Irish energy costs and their drivers relative to competitors. This should include analysis of different policy options to help close the competitiveness gap, including direct Exchequer subvention where needed.
- A commitment to explore better All-Island and regional cooperation on energy.
- A commitment to scale up public funding for the modernisation and decarbonisation of energy networks.
Strong business growth has delivered both the current employment success story and the significant resources to the State that has allowed Ireland to prosper despite difficult headwinds in the wider global economy. A business environment that supports ongoing investment and broad-based growth across sectors and firms of all sizes is essential to ensuring fiscal stability and the continued success of the Irish economy. In an environment of rising interest rates and squeezed margins, business taxation has a stronger role to play in supporting business formation and growth.
Simplifying and expanding existing schemes aimed at promoting business growth is necessary to ensure they work effectively and allow for higher uptake among businesses. In an increasingly competitive global environment, ensuring Ireland is an attractive place to start and scale business will safeguard our prosperity into the future.
What measures business wants to see in the Programme for Government.
- A commitment to allow Ireland to compete for investment by simplifying the corporate tax regime including a commitment to move to a participation exemption regime for dividends, reform of Ireland’s interest deductibility rules and subsequent work on ending the multi-rate system over time and allowing related businesses to compute income tax on a consolidated basis as a single entity (‘fiscal unity’).
- A commitment to keep Irish businesses innovative and competitive by ensuring R&D tax credit and schemes aimed at promoting innovation are accessible and not so administratively burdensome as to discourage take up.
- A commitment to ensure that SMEs have the environment needed to innovate and to scale. Develop a tax roadmap for SMEs, similar to Ireland’s corporation tax roadmap, that provides both predictability and a joined-up approach for the tax treatment of SMEs including supporting on growth and succession planning.
There is a need for a fundamental change in how we design, implement and enforce regulation in Ireland. It is now two decades since Ireland’s last comprehensive policy statement on regulation and a decade since we had central Government oversight of how we manage the process of regulating. The policy drift is now evident in both business feedback and in objective measures of the way we regulate.
Ireland now ranks 30th of 36 OECD countries for the quality of our Regulatory Impact Assessments (RIAs) on primary laws, 28th for Ex-Post Evaluation of primary laws and the worst of all OECD countries for Stakeholder Engagement on primary laws. A complex economy can be helped or hindered by the regulatory process. It is critical that the Irish economy is underpinned by well-considered regulation along with State capacity that delivers better outcomes rather than hinders them.
We must provide more certainty to business: Regulatory uncertainty is a growing challenge for business with a recent Ibec ‘Leaders Pulse’ survey showing that ‘Business regulation and administrative burdens’ as the second most pressing competitiveness challenge. The better regulation agenda requires policymakers not to simply look at the impact of a single regulatory proposal, but crucially to also consider each new proposal in the context of the cumulative costs and effects of existing regulatory burden on the economy. To combat uncertainty the Government should bring forward a new successor policy statement on the regulatory agenda, implement standard minimum lead times between passing new complex legislation or reporting requirements and that legislation coming into force.
What measures business wants to see in the Programme for Government.
- A commitment to a new successor Government policy statement on the regulatory agenda. This should include not only underlying principles but also outline a comprehensive approach to the evaluation and design of regulation and building the State capacity to deliver on that ambition.
- A commitment to implement the OECD recommendation to re-establish the ‘Better Regulation Unit’ in the Department of An Taoiseach and establish a new arms-length regulatory oversight body to put the better regulation agenda back at the heart of Government.
- A commitment to implement standard minimum lead times between passing new complex legislation or reporting requirements and that legislation coming into force. This is necessary to give companies the time needed to fully prepare for the increasingly complex legislation and regulations they are being asked to implement on the ground.
- A commitment to mandate that new legislation or regulations which impose new material costs or administrative burdens on business are subject to a comprehensive assessment of their addition to business costs. Too often RIAs do not quantify the impacts of proposed regulations.
- A commitment to introduce measures of regular programmatic review of regulations with costs above certain thresholds including comprehensive ex-post assessments and public consultations. This could be implemented in line with existing provisions in the Department of Finance for tax expenditure evaluation which provide for three- or five- year regular reviews with comprehensive expost analysis.
