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Irish Business Awaiting Budget In Trepidation

by Jason Gorringe, Tax-News.com, London

04 December 2001


Ireland's business community is all a-tremble ahead of tomorrow's budget, fearful of what Finance Minister Charlie McCreevy may have in store for them at a time when the State's finances are rapidly deteriorating. In particular, business interests worry that Mr McCreevy may fail to reinstate the ceiling on employers' PSRI, which he removed last year, and which they estimate has increased their payroll costs by 1.5%.

From the employers' representative body, IBEC, to the small and medium business organisation, ISME, every business grouping is dissatisfied with the PRSI system as it stands. All are hoping for change this year, whether that be through a reintroduction of the ceiling or a reduction in the overall PRSI rate. IBEC doubts whether the Minister is likely to change his mind on the publicly controversial ceiling issue, but has submitted that the rates should be reduced.

IBEC economist Mr Aebhric McGibney argues that while last year's 'unilateral' decision was inexplicable at the time, it is today completely at odds with the needs of an economy in the midst of slowdown. Employers' PRSI should be cut to 9% from 12% to compensate for last year, says Mr McGibney. IBEC says that the removal of the IRP36,000 ceiling has hit crucial high-tech jobs disproportionately hard. Its calculations show that PRSI costs for a worker earning IRP 40,000 at the time of last year's budget have increased by IRP768, or 17% in the course of the year, due to the impact of the Programme for Prosperity and Fairness (PPF) and the abolition of the ceiling.

A similar PRSI argument is being pushed by ISME, the representative association for small and medium-sized companies. In a pre-Budget submission which informs the Minister that 'the much-heralded rainy day is now upon us', ISME claims that small and medium-sized businesses have been bearing a disproportionately high PRSI burden for several years, with the 2001 budget simply adding to this. The organisation is hoping for a 1% reduction in both the higher and lower rates and has estimated that the proposal would cost around IRP260 million. But ISME also wants the IRP36,000 ceiling to be reinstated, citing like IBEC the need to sustain high-value jobs.

Profit sharing is another issue being pushed by business groupings, many of which say that the Revenue-Approved Share Option Schemes introduced in last year's budget have not achieved the penetration that was originally expected. They point to the 70% inclusion rule, which has meant that companies with existing share option schemes have declined the option to convert them into approved schemes. Ms Sheena Doggett, of A&L Goodbody's Share Schemes Unit, believes that schemes which leave more scope for performance-related reward would be welcomed by multinationals, among whom the take-up is currently 'non-existent'.

ICT Ireland is another group pushing for measures to encourage entrepreneurship, such as tax incentives for those investing in start-ups, or an extension of the soon-to-terminate Business Expansion Scheme. The communications industry association is also looking for a cut in the 20% VAT rate applying to e-commerce in order to make firms in the sector more competitive.


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