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14 September 2015

Budget 2016 – Entrepreneurs Must Be Incentivised, Not Penalised

Posted By: AIB Business
Budget 2016

Budget 2016 will mark a significant departure from previous years. In its Spring Statement earlier this year, the Government announced that Budget 2016 (which will be announced on Tuesday 13th October) will be the first expansionary Budget since December 2007. With this in mind, Budget 2016 must be used to support sustainable economic development and insulate our economy from external shocks, writes Mark O’Mahoney of Chambers Ireland. 

Recent Exchequer tax receipts have evidenced how our economic performance thus far this year has exceeded all expectations. By the end of August, tax revenues stood at just over €27.3bn – more than €1.4bn ahead of forecast. Since early 2014, we have seen increasingly strong performance in GDP growth and export levels but, crucially, we have witnessed an increase in domestic demand, which finally has translated into increased employment rates.

The forecasts for 2016 again show a strong growth trajectory for GDP, increased tax buoyancy and further employment growth. There is a general perception that Ireland has come through the worst of the recession and that we are entering a new phase of economic growth.

The improving performance of the Irish economy means the Government will have choices to make as to how best to utilise Exchequer resources in Budget 2016. It is important that we get these choices right.

At Chambers Ireland, we believe that the Budget must serve two key objectives: First, it must instil a new dynamism to the national economy and reinforce economic growth; second, it must seek to insulate the national economy in so far as possible from internal and external risks that have the potential to undermine our future economic and social growth.

In our Pre-Budget Submission launched earlier this year, we made a number of recommendations, which we believe will support these two objectives. Overall, our proposed actions can be grouped into four categories:


1. Supporting Entrepreneurship and Business Growth

We must incentivise a new generation of entrepreneurs to establish businesses and generate indigenous growth and employment. Through a series of targeted tax adjustments that will have a limited impact on the Exchequer, we believe entrepreneurs and small businesses can begin to thrive. Key to this is to ensure equity in tax and USC treatment of owner-directors and self-employed, and to reduce the marginal tax rate to below 50%.


2. Supporting Local Economic Development

There has been a pronounced disparity in how some towns and counties in Ireland have experienced the recovery. Output and employment remain low in numerous areas, and many of our Chambers outside of large urban centres report that their members are still struggling. There has been a renewed focus nationally on local economic development. We have outlined measures identified by our Chamber Network as best practice that can be implemented nationally to support this process. One such example is to incentivise Local Authorities to ring fence a portion of commercial rates for local economic development, with the Exchequer matching the funding.


3. Investing in Physical and Social Infrastructure

Ireland needs the right social and physical infrastructure if it is to maintain its international competitiveness. We are competing against the top countries in the OECD for investment and for market share. Letting our national infrastructure depreciate is not an option, and we have consequently called for prioritised investment in infrastructure to ensure we can support our future economic growth. Equally, if we are to position ourselves as a knowledge economy, our human capital must be developed to its fullest. We have highlighted areas where we believe investment and reform are required urgently to maintain our capital stock. Among these is to make childcare affordable by introducing direct public subvention and reforming the Early Childhood Care and Education (ECCE) scheme.


4. Enhancing Efficiency in Our Public Service

Our public sector has made terrific progress in implementing necessary reform and delivering more services with fewer resources. The public sector should be commended for this vital contribution to Ireland’s recovery. We believe that this process should continue, and that appropriate outsourcing to the private sector can support the public sector in streamlining its service delivery.

By taking actions in the areas listed above, we believe Ireland will be well-placed to continue our recent positive momentum, and ensure that the recovery translates into sustainable economic growth that is felt by all people, in all regions.

Written by: Mark O'Mahoney, Director of Policy and Communications, Chambers Ireland

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