Government has a tin ear for business which doesn’t bode well for Brexit
BUDGET 2019 has something for everyone – or almost everyone – but employers have been singled out to pick up the tab. Despite the rhetoric about people who get up early in the morning, there’s very little to excite the small business owner.
It’s not even that business in general is being leaned on. Most companies – including many of the country’s most profitable – come away from Budget 2019 unscathed.
There’s a huge let-off for the new class of institutional landlords that can own thousands of lucrative apartments and have tiny numbers of employees. They escaped any tax rises at all.
There was even good news for the kind of big multinationals that are able to shift assets in and out of Ireland to maximise tax savings.
A 12.5pc ‘exit tax’ that will apply to such moves in future is new, but an exit tax had to be introduced and what they got is dramatically lower than the 33pc that was expected.
In contrast, modest, often family-owned pubs and cafés are going to take a big hit over the next year, even if the hospitality sector Vat rise was well flagged.
In the minister’s defence, scrapping the special Vat rate makes sense. When it was cut in 2011, it was explicitly a temporary measure. At the time, the sector was on its knees – there were boarded-up properties and hundreds of so-called ‘zombie hotels’ on the brink of closure across the country.
Thousands of jobs had been lost and thousands more were at risk. The sector is now transformed. Even with Brexit looming and sterling weak for the past two years, tourism has continued to boom.
In some cases, especially the Dublin market, there’s been little pretence that consumers were benefiting.
But the scale of the increase – 9pc to 13.5pc in a single step – is undoubtedly a blow.
A staggered approach would have been easier to bear. That’s especially true because Budget 2019 included a double whammy for many of the same businesses – an increase in the minimum wage.
That increase will also hit the retail sector, an industry which evidence from the UK suggests is on the brink of major disruption, and which suffered second only to construction in the last crash.
The €5 a week rise in job seekers’ allowance will also – in at least some cases – make it relatively less attractive to take up low paid and part-time work – long a feature of retail and the seasonal tourism sector.
Big business will be better able to absorb some of this, but 2019 looks set to be a shocker in particular for the kind of small catering businesses that emerged during the crisis – when rents were low, staff were plentiful and the Vat rate had been cut. For some at least, the recovery won’t be what it was cracked up to be.
But the Government’s tin ear for businesses goes beyond that. Even when they try to help, the evidence is stacking up that policymakers lack the insight to formulate policies that work.
Paschal Donohoe as good as admitted it yesterday.
The so-called KEEP scheme, launched in Budget 2018, was supposed to help small business in the likes of the technology sector to hold on to staff by boosting their wages with tax-efficient share options. It’s been a flop.
To the minister’s credit, it’ll be reworked but at the cost of a lost year.
A €300m loan scheme to help businesses ride out Brexit, launched to huge fanfare in 2017, has barely been used.
The employment and investment incentive scheme, which replaced the old business expansion scheme (BES), is now also going to be retooled, after falling foul of European state aid rules.
So-called crowd funding done well can provide a better option than banks for some relatively risky start-ups. Mr Donohoe promised to look at the sector, in conjunction with the Central Bank, with a view to regulation. In both cases, in the meantime, its businesses that need expansion capital now that will suffer until the administrative fix is made.
The Government is not ideologically anti-business.
It may be that the minister is betting on a fair economic wind to smooth any economic ruffles. If growth in the domestic economy continues apace, then pubs and restaurants should ultimately be able to absorb higher costs and small firms will continue to expand.
Brexit could scupper that, and the question marks over the existing supports for SMEs don’t bode well on that score.