Regina Breheny, director general, Irish Venture Capital Association
If Ireland wants to compete in global markets, then a competitive tax code is essential to encourage entrepreneurs to start up, build and scale a business.
Ireland has undergone a significant loss of competitiveness in attracting and supporting entrepreneurship, especially when compared to the UK. This budget does little to redress the imbalance.
1. Rewarding Risk
Ireland’s Capital Gains Tax rate, reduced to 20 per cent on the sale of a business, remains uncompetitive compared to the UK rate (utilising Entrepreneur’s Relief) of 10 per cent. The cap of €1 million will mitigate against entrepreneurs building/scaling a business to a significant size. However, while this reduction is a step in the right direction, there is no distinction made between entrepreneurial gains from “innovation activities” and speculative, non-productive gains.
2. Retaining Talent
The budget fails to address the absence of employee equity incentives or share option schemes that are essential for start-ups and SMEs to attract and retain scarce talent. The UK system provides relief from income tax when options are exercised and from CGT when options are sold.
3. Raising Capital - Seed Enterprise Investment Scheme (SEIS)
The opportunity to improve the funding environment for start-ups has been missed by not introducing an SEIS scheme, which could have incentivised seed investment in new companies at a very early stage.
Fergal O’Brien, head of policy and chief economist, Ibec
While this is obviously a very political budget, it is also mainly sensible from an economic perspective. The economy didn’t need demand-side stimulus, but the many supply-side measures in areas such as housing, childcare and tax on work were warranted.
The overall scale of the €1.5 billion package remains fairly modest at just 0.7 per cent of GDP - equivalent to about one month’s growth in nominal GDP at the current run rate.
From a labour supply perspective it is great to see the marginal tax rate for most workers below the psychological threshold of 50 per cent. The new third higher rate of tax has been further enshrined, however, and the next Government will have to address that if Ireland is to be a location of choice for mobile talent.
This has been the best budget for entrepreneurs in over a decade. It has gone some way towards unwinding the tax disadvantage faced by the self-employed and has also brought down the very penal capital gains tax rate.
The introduction of the knowledge development box and changes to the Employment Investment and Incentive scheme will also help ensure that both indigenous and foreign-owned business growth continues to drive economic recovery.
The recent OECD-led international tax reforms are very significant, but this budget has gone some way towards helping Ireland maximise the opportunities that will be available for mobile investment.
Eilish Corcoran, chief executive, County Carlow Chamber
Time and time again, SMEs have been identified as the sector to get Ireland’s economy moving again.
Previous budgets missed opportunities to address imbalances, but Budget 2016 certainly speaks a more pro-business language with some welcome changes for small and medium businesses and indications that there is more to come, should the current government remain in place.
Some key issues for small and medium business owners have been addressed. The introduction of a €550 income tax credit for them is an acknowledgment of the fairness gap between self-employed and PAYE workers, with Budget 2016 taking the first step towards closing it.
The much anticipated changes to the income tax/USC system which have brought the marginal tax rate below 50 per cent again has a positive impact - more money in people’s pockets is a boost to consumer confidence and has a knock-on effect on the local economy and local businesses.
Capital Gains Tax measures see a drop from 33 per cent to 20 per cent for those selling shares in businesses – a significant change for small business owners and entrepreneurs.
It signals a culture which rewards entrepreneurship and business growth.
The 6 per cent increase in the minimum wage to €9.15 per hour will be difficult for many small businesses which are struggling to meet costs already and there is a danger that for some it may lead to reduced hours and potential job losses.
Many obstacles still face the SME sector, and those should not be made light of in the face of renewed positivity. Credit still remains a frustration, along with rates, rents and utility prices.
Dr John McCartney, director of research, Savills Ireland
After the speculation of recent weeks, the housing element of Budget 2016 turned out to be a damp squib.
The problems in our housing market are not new - pressure on rents has been building since early 2011 and property prices have risen by one third since March 2013.
Despite the ample opportunities that the Government has had to develop a coherent strategy to deal with the housing crisis, there is a lack of any new thinking in Tuesday’s announcement.
Reiteration of Nama’s role in the supply side of the market is welcome and will help to offset some of the effects of the housing shortage. However, Nama alone cannot solve our problems as the proposed 3,600 units per annum will only scratch the surface of what is required.
Dublin’s population is growing by 32,000 people per annum.
We therefore need to be building about 12,000 additional dwellings each year to prevent the current shortage from becoming more acute.
In view of this, it is regrettable that no measures were announced that might help to cut construction costs and make housing building commercially viable for private sector developers.
A range of possibilities exist on this front, including reduced VAT on new homes and a reduction in local authority levies.
On a positive note, however, the focus has correctly remained on the critical issue of supply. Until the fundamental shortage of property is addressed, other measures such as rent control and landlord incentives are unlikely to solve our housing problems.
Austin Hughes - chief economist, KBC Bank
Budget 2016 mightn’t be an Ian Madigan moment for economists, but it’s simplistic to suggest election pressures undermined economic prudence.
While putting money into a rapidly growing economy can be dangerous, this is not the early 2000s. Although GDP is about 5 per cent above its pre-crisis peak, household income is 9 per cent lower.
Unemployment, at 9.4 per cent, is still high and probably understates the underutilisation of resources in what remains an uneven upturn. Moreover, after a prolonged and painful adjustment, consumer and business confidence must be supported.
EU rules will constrain future public spending and require ongoing improvements in the budget balance.
The vagaries of these rules mean even without an election, there is a strong incentive to boost spending up to end-2015 to maximise the base from which next year’s increase is calculated.
Ireland’s deficit and debt ratios are improving rapidly, possibly faster than the Minister predicted.
The drop below euro zone averages in 2016 underscores remarkable progress. Sound public finances are vital, but they alone cannot deliver a functioning economy and a fair society.
The question is whether the details of Budget 2016 do enough in these areas, not whether “giveaways” are appropriate. Unfortunately, the answer may not be clear for some time.
