Submission on Budget 2021 - Dublin Chamber
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Submission on Budget 2021
DUBLIN CHAMBER - Submission on Budget 2021
Introduction
Dublin Chamber is the representative body business survival. The continuance of wage
for businesses in the Greater Dublin Area. support in the form of the Employment Wage
Its cross-sectoral membership base spans Subsidy Scheme until April 2021 is welcome,
the spectrum from small start-ups to large but payment of the subsidy in arrears will have
multinational firms, giving the Chamber a keen cash flow implications for many businesses
insight into the needs of businesses and their still reeling from a collapse in revenue and
employees. The Chamber’s vision is that the should be paid more promptly. Similarly, while
Dublin region will be globally renowned both the Restart Grant has offered a badly needed
for its economic competitiveness and quality infusion of liquidity for many SMEs which do
of life. Our policy proposals towards this not have the capacity to take on more debt,
vision are highlighted in our report A Decade its restriction to commercial ratepayers does
of Delivery which aims to secure a sustainable not appear to serve any policy objective but
future for Dublin.1 The report highlights the excludes a range of smaller businesses. Many
need for investment in infrastructure for an start-ups, which may already have missed
urban future, sustainable urban planning funding rounds due to the crisis, are excluded.
and housing, an improved environment for Self-employed business owners who do not
enterprise and entrepreneurship, and supports have a commercial rates account are restricted
for a modern flexible workforce. to the Enterprise Support Grant, which is
negligible by comparison. To ensure adequate
Preparations for Budget 2021 and the new business liquidity for an economic reboot, the
National Economic Plan take place at a critical eligibility criteria for the Restart Grant should
juncture for the Irish economy, as businesses be expanded. More broadly, the commercial
struggle to recover from the devastating rates waiver for impacted businesses (i.e.
impact of Covid-19 and face the increasingly those with a 25% decline in turnover) should
likely prospect of a disorderly Brexit. The be considered for renewal until the end of Q1
coronavirus pandemic has wrought severe 2021, with a higher threshold if necessary. To
economic damage, particularly on Ireland’s facilitate this, Budget 2021 needs to provide
small and medium enterprises, who will also adequate replacement Exchequer funding for
be most exposed in the event of disruption of Local Authorities.2 This replacement funding
UK trade links. The crisis has also highlighted is particularly needed for local authorities in
opportunities for new ways of living and Dublin, which already raise around half of their
working and effected rapid adjustments in funding from businesses through rates and
business and consumer behaviour, with long- other business levies.
term implications that must be considered in
any economic plan. The enterprise agenda is more relevant now
than ever as Ireland attempts to charts a
The economic shock caused by the pandemic course toward economic recovery. Firms
also raises more immediate questions of are closing and will close as a result of the
1
A Decade of Delivery: Securing Dublin’s Sustainable Future,
https://www.dublinchamber.ie/DublinChamberofCommerce/media/banners/DubChamber_Election-Manifesto-2020.pdf
2
The initial 3-month waiver from 26 March 2020 had an estimated cost of €260 million. Department of Housing, Planning and Local
Government, https://www.housing.gov.ie/local-government/covid-19-coronavirus/commercial-rates-and-restart-fund
DUBLIN CHAMBER PAGE 2DUBLIN CHAMBER - Submission on Budget 2021
Covid-19 pandemic. Ireland must ensure that Our proposals for Budget 2021 under these
viable firms are supported, but also that new headings are outlined below.
firms can raise finance, trade, and generate
employment. Business and consumer 1. Boost Investment in
confidence will be key factors affecting how Irish Enterprise
business owners and entrepreneurs make
these investment and trading decisions. 2. Accelerate the Transition
to a Green Economy
To lay the foundation for prosperity in an
uncertain and rapidly changing world, Dublin 3. Support Employees and
Chamber proposes that the National Economic Improve the Labour Market
Plan should focus on boosting investment in
Irish business, and accelerating the transition
to a green and sustainable economy through
infrastructure investment and business
supports, meanwhile supporting employees
and improving conditions in the labour market.
DUBLIN CHAMBER PAGE 3Summary of Recommendations DUBLIN CHAMBER PAGE 4
DUBLIN CHAMBER - Submission on Budget 2021
Summary of Recommendations
1. Boost Investment in Irish Enterprise
Dublin Chamber recommends that a renewed focus on Ireland’s indigenous enterprise environment
should take place to establish entrepreneurship and SME growth at the centre of Ireland’s economic
strategy post-Covid-19, alongside continued success in attracting and retaining foreign direct
investment in a context of growing global competition.
1.1. Introduce a 20% Capital Gains Tax rate for investment in SMEs.
1.2. Outmatch the UK on Entrepreneur Relief by raising the lifetime limit to €15m.
1.3. Improve R&D incentives to boost innovation in Irish SMEs.
1.4. Reduce income tax on dividends for entrepreneurs to 30%.
1.5. Improve access to the EII Relief for start-ups.
1.6. Make the Key Employee Engagement Programme relevant to SMEs.
2. Accelerate the Transition to a Green Economy
Bold and ambitious measures are needed to accelerate the transition to a sustainable economic
model for Ireland that will form the basis for prosperity in a rapidly changing world. This will require
delivery of infrastructure projects in urban areas in tandem with sustainable urban planning. The
Government must also support the transition to new ways of living and working so that businesses
can continue to operate effectively post-Covid-19.
2.1. Prioritise sustainable infrastructure investment in the Greater Dublin Area.
2.2. Accelerate the Carbon Tax timeline as needs require.
2.3. Encourage residential density in areas of high demand.
2.4. Ease pressure on the private residential market by increasing purpose-built social and
affordable housing construction and providing regulatory stability.
2.5. Support home working by increasing the individual tax rebate and targeting a home
retrofitting grant at remote workers.
2.6. Provide grant aid to SMEs for cycling facilities.
2.7. Introduce an SME tax credit for ‘Going Green’.
3. Support Employees and Improve the Labour Market
A gradual and targeted withdrawal of the revised wage subsidy scheme should be planned to
allow for sector-specific needs, e.g. in tourism and hospitality. The Government must also keep
sight of the need to support female labour market participation by fixing long-standing financial
disincentives and should ensure that SMEs can compete with multinationals for talent in the long-
term.
3.1. Reform and consider extension of the Employment Wage Subsidy Scheme.
3.2. Reduce the marginal effective tax rate for second earners by introducing a Returning to Work
credit and reducing the disincentive effects of the Home Carers Credit.
3.3. Improve the National Childcare Scheme by doubling the universal component from €20
to €40 per week and evaluating the incentive effects of the scheme on labour market
participation.
3.4. Make the Special Assignee Relief Programme available to SMEs by allowing them to offer it to
new recruits.
DUBLIN CHAMBER PAGE 5Boost Investment in Irish Enterprise DUBLIN CHAMBER PAGE 6
DUBLIN CHAMBER - Submission on Budget 2021
1. Boost Investment in Irish Enterprise
The Programme for Government contains a Worse, some activities by the public sector
number of positive and timely commitments indigenous support bodies at local level
to support SMEs. We welcome the can crowd out private sector initiatives. The
commitment to review Capital Gains Tax (CGT) Government showed real ambition for FDI in
in each budget to support innovation-driven the adoption of a 12.5% corporate tax rate,
enterprises that will help the transition to a a move that continues to reward the State
low-carbon economy, and the commitment for its boldness and has become a ‘signature’
to review the taxation environment for SMEs economic policy, the importance of which
and entrepreneurs more generally with a view cannot be understated. The time has come for
to improving the various support schemes. a complementary ambition to be shown for
Dublin Chamber works particularly closely with investment in Ireland’s SME sector through an
start-ups and entrepreneurs and welcomes overhaul of indigenous enterprise policy.
this attention to the importance of the
enterprise in the Programme for Government. Dublin Chamber’s central recommendation
However, action is now required urgently. is a targeted reduction in Capital Gains Tax
to boost investment in the SME sector and
Much of the multinational sector has proved reward those who take a risk on Irish business
resilient during the crisis, though there is rather opt for the safer and easier path of
no room for complacency, with over 800 passive investment in large listed firms. Other
companies based in Dublin and providing targeted measures include raising the lifetime
significant economic impact. SMEs have cap on qualifying gains for CGT Entrepreneur
borne the brunt of the economic damage Relief to match or exceed the nominal UK
and require a new focus at the heart of Irish equivalent, and improving the R&D Tax Credit
economic policymaking. Global economic and for medium-sized companies. These should
political volatility also makes this a strategic be considered both as strategic measures to
imperative; Ireland must remain attractive to reposition Ireland as a hub of enterprise post-
international investors while also taking action Brexit, and also as possible tax expenditures
to avoid overreliance on a small number of as part of a post-Covid stimulus package.
highly mobile firms. In seeking to improve the tax environment
for entrepreneurs, the Government should
This will require a radical rethink of also keep in mind the goal of tax equality for
enterprise policy in support of small and the self-employed, increasing the Earned
medium indigenous enterprises and the Income Tax Credit for the self-employed from
implementation of the recommendations €1,500 to the PAYE equivalent of €1,650, and
outlined in the recent OECD review of Ireland’s remaining committed to removing the 3% USC
entrepreneurship policies. Government surcharge on income from self-employment
policy over the past twenty years has failed over €100,000 in line with the Programme for
to significantly bolster Ireland’s indigenous Government.
business base as a driver of economic growth.
DUBLIN CHAMBER PAGE 7DUBLIN CHAMBER - Submission on Budget 2021
With Brexit in mind, the Chamber has While progress on all fronts may not be
compared Ireland and the UK to provide a possible in one fiscal year, there is scope
competitive context for our proposals on within the State’s borrowing capacity to
enterprise and entrepreneurship. It is apparent promote a robust economic recovery.
that Ireland’s position relative to our nearest
competitor has been in decline for several
years.
€1.1157 per £1 – 28/08/20 (www.ft.com) Ireland UK
(Budget 20) (Budget Spring 20)
Income Tax
Salary at which rate changes to 40% a [€/£] €35,300 €55,786
Effective total tax rate on dividends 52% 32.5%
at higher rate
Different assessment for self-employed. Yes – 3% USC levy on income No
over €100,000
Possible to defer income tax on share-options Yes – subject to restrictive Yes
given to specific key employees b conditions of KEEP for SMEs
Capital Gains Tax
Standard rate 33% 20%
Entrepreneur relief – CGT rate 10% on gains on qualifying 10% on gains on qualifying
assets up to €1m assets up to €11.1m
Effective rate first ~€1m on exit 10% 10%
after five years
Effective rate first ~€11m on exit 31% 10%
after five years
Capital gains tax rate on disposal 33% 10%
of shares in SMEs
Capital gains tax rate on Employment and 33% 0%
Investment Incentive Scheme qualifying
investment or equivalent gains
Corporate Tax
Knowledge Development Box / 6.25% 10%
Patent box income
Corporate Tax rate 12.50% 19%
R&D Tax Credit – upfront refunds for No Yes
early stage/scaling companies c
Capital gains tax business asset rollover relief No Yes
Value Added Tax
Standard Rate d 23% 20%
Registration Threshold for SME €37,500 €94,835
providing services e
[a] In the UK, the 40% rate comes into effect on income from £50,001 - £150,000, over £150,000 45% tax rate.
[b] Conditions relating to qualifying employees are being amended to allow for part-time or flexible working arrangements and those companies who operate through group
structures.
[c] R&D credit increased to 30% and provision being introduced to allow micro and small companies conducting pre-trading R&D to claim the credit before trading commences,
limited to offset against VAT and payroll tax liabilities only.
[d] Temporary 5% reduced rate of UK VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions, effective 15 July 2020 to 12
January 2021.
[e] The threshold for the registration of VAT in the UK is £85,000.
DUBLIN CHAMBER PAGE 8DUBLIN CHAMBER - Submission on Budget 2021
1.1 Introduce a 20% Capital Gains Tax rate
for investment in SMEs
Growing Ireland’s indigenous business base The Dept. of Finance has previously said it
will require greater investment in SMEs. The is unable to calculate the cost of introducing
ESRI identified a significant investment gap any version of the UK scheme in Ireland on
in the Irish SME sector in a joint study with the grounds that tax returns do not identify
the Dept. Finance, estimating that the gap the amount of chargeable gains associated
amounts to over €1 billion annually.3 However, with unquoted shares.6 It has been calculated
Ireland’s flat rate of Capital Gains Tax (CGT) that a blanket CGT reduction to 20%, applying
undermines efforts to promote investment to investments in both listed and unlisted
in SMEs as there is no incentive to invest in a firms, would reduce Exchequer revenue by
home-grown start-up rather than in a longer- €481 million in a full year.7 However, this static
established multinational company. On the costing does not account for the increased
contrary, the present CGT regime effectively revenue generated by stimulating business
incentivises passive investment in ‘blue chip’ investment and greater participation in share
foreign firms over investment in higher- ownership, and is obviously larger than the
risk domestic enterprises by applying a flat static cost of a targeted reduction. Moreover,
33% CGT rate, the third highest in Europe,4 the cost compares favourably with the
irrespective of the level of risk taken, or the estimated €440 million cost of cutting the
contribution of the underlying investment to standard rate of VAT from 23% to 21% as part
the Irish economy. of the July Jobs Stimulus package.8
Angel investors, people providing their
services as employees, and shareholders
who do not meet the 5% threshold to avail
of Section 597AA (Entrepreneur Relief) are
Dublin Chamber proposes:
therefore unfavourably treated. Moreover,
Introduce a new 20% CGT rate on
the distinction between large quoted
investments in unquoted trading businesses,
companies, with a liquid market for the sale
i.e. companies that are not listed on any
of shares, and unquoted firms, with a much
Stock Exchange, where shares have been held
less liquid market, is not reflected. This is
for over 3 years. While still higher than the
clearly inequitable and runs contrary to the
10% rate available under the UK Investors’
national interest, which lies in building up
Relief, this would be a significant measure
a greater indigenous business base. With a
to encourage investment in indigenous
similar concern in mind, the UK introduced an
business. To keep the scheme open to small-
‘Investors’ Relief’. It offers a lower CGT rate
scale investors, there should be no minimum
of 10% on lifetime gains of up to £10 million
percentage shareholding in order to qualify.
from disposals of shares in an unlisted trading
Establish a lifetime limit on qualifying gains at
company or the holding company of a trading
the nominal UK equivalent of €10m.
group.5
3
“The magnitude of this “investment gap” is economically meaningful and is estimated to be just over 30% (in 2016) relative to SMEs actual investment.” ESRI, Measuring the
Investment Gap & its Financing Requirements for Irish SMEs, 8 March 2018
4
Tax Foundation, ‘Capital Gains Tax Rates in Europe’, 18 June 2020, https://taxfoundation.org/capital-gains-tax-rates-in-europe-2020/
5
HM Revenue & Customs internal manual, Capital Gains Manual, CG63500P, https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg63500p
6
Dáil Éireann Debate, Thursday 5 July 2018, Question No. 86, Reference No. 29776/18. Deputy Pearse Doherty. Answered by the Minister for Finance Paschal Donohoe.
7
Dept. Finance, Capital Gains Tax Capital Acquisitions Tax, Stamp Duty, Tax Strategy Group -19/11, July 2019, p. 10,
https://assets.gov.ie/19127/bf33c368730e4dc58cc7c7930c9b8487.pdf
8
Government of Ireland, July Jobs Stimulus 2020, p. 4, https://www.gov.ie/en/publication/c48ab-july-jobs-stimulus/
DUBLIN CHAMBER PAGE 9DUBLIN CHAMBER - Submission on Budget 2021
1.2 Outmatch the UK on Entrepreneur Relief
Entrepreneur Relief from Capital Gains Tax The cost of bringing Ireland’s lifetime limit up
provides for disposals of qualifying business to the nominal UK equivalent of €10 million,
assets by entrepreneurs to be charged at a as promised by the previous Government, has
lower 10% CGT rate up to a lifetime limit on been estimated at €81 million using the static
chargeable gains.9 To qualify, among other costing model employed by the Department of
conditions, an individual must own at least Finance.11 A further increase in the limit to €15
5% of the business and have spent a certain million would incur an added annual cost to
proportion of their time working in the the exchequer of just €3 million, according to
business as a director or employee for three the same model, while positioning Ireland at a
out of the previous five years prior to disposal. clear competitive advantage against the UK.12
The aim is to encourage entrepreneurs to
found, operate, and dispose of businesses in
the State, and to build a reputation for Ireland
as a country that welcomes and rewards Dublin Chamber proposes:
enterprise. Dublin Chamber made the case for
the revised Entrepreneur’s Relief in 2015 and aise the lifetime cap on qualifying gains for
R
welcomed its introduction in Budget 2016. Entrepreneur Relief from €1 million to €15
Government has previously acknowledged million to send a strong signal that Ireland
that ‘retention [of the relief] is important in the intends to compete with the UK in the
context of possible Brexit impacts and other context of Brexit. Cost: €84 million.
issues than may arise as the UK exits the EU’.10
However, Ireland’s offering to entrepreneurs
remains starkly uncompetitive in relation
to the UK’s, which includes a lifetime cap of
£10 million (c. €11.1 million in current market
prices) on qualifying gains for Entrepreneur
Relief. This compares with a €1 million cap in
Ireland. A larger limit is required to encourage
greater ambition and scaling by entrepreneurs.
To send a strong signal that Ireland intends to
compete with the UK in the context of Brexit,
the Government should upgrade Entrepreneur
Relief to surpass the UK. Consideration could
also be given to given to amending the 5%
share requirement to refer to the point of
investment, ensuring that entrepreneurs who
retain their initial investment are not penalised
if subsequent external investment is received.
10
It has previously been argued that Ireland’s less generous scheme is compensated for by the existence of Retirement Relief, which can be claimed to values ranging from
€500,000 to €3 million. However, this ignores the reality of successful serial entrepreneurship today, which often takes place well before retirement age. Moreover, the combined
value of the current reliefs is still substantially lower than the UK equivalent. Dept. Finance, TSG 17/11, Capital & Savings Taxes, 25 July 2017, p.5.
11
Programme for a Partnership Government, p.38, https://www.merrionstreet.ie/MerrionStreet/en/ImageLibrary/Programme_for_Partnership_Government.pdf#page=38
12
Dept. Finance, TSG 19/05 Tax Incentives for SMEs, p. 22, https://assets.gov.ie/19118/6aaf283f06f74698a49833ea74100098.pdf#page=22
DUBLIN CHAMBER PAGE 10DUBLIN CHAMBER - Submission on Budget 2021
1.3 Improve R&D incentives to boost
innovation in Irish SMEs
To address the growing productivity gap to increase the tax credit to 30% for SMEs
between the indigenous and multinational and welcomed the progress last year. The
sectors,13 the Government must increase 30% rate should now be extended beyond
innovation among SMEs. However, business small and micro enterprises to all SMEs in line
R&D in Ireland remains dominated by large with the above recommendations. Moreover,
MNCs, with only 1% of small firms engaged many SMEs, and most start-ups, face cash
in R&D.14 The Research & Development Tax flow issues which make the 3-year deferred
Credit is one of the principal schemes the claim model unattractive or impractical.
Government uses to encourage R&D among Allowing an upfront payment would make
businesses. Revenue figures reveal that 70% the R&D tax credit a more realistic option for
of the value of the R&D tax credit is claimed early stage firms with lower cash resources.
by companies in the ‘Large Cases Division’.15 In the competitive context of Brexit, it is also
Previous Chamber studies confirm a low worth noting the UK regime, where there is
take-up of the R&D tax credit outside the a special R&D Relief available to SMEs with
multinational sector. It has been particularly extremely attractive conditions, including a
low among firms founded in Ireland and super deduction of 130% of qualifying costs
among firms that are SMEs by the European for SMEs.18
Commission definition. The same study
indicated that use of the tax credit is almost
twice as common among large firms as among
SMEs in Dublin and is almost four times more
common among foreign firms as among firms Dublin Chamber proposes:
founded in Ireland.16
• Increase the R&D tax credit rate from 25%
The European Commission has advised that to 30% for medium enterprises.19
the emphasis in Ireland’s R&D strategies
for business should be to build up research • Allow an upfront claim of the R&D tax
and innovation capability within Irish SMEs, credit cash refund for SMEs, instead of
and has recommended that the R&D tax the 3 year lagging cash-flow mechanism
credit scheme must be targeted at SMEs that currently exists. As this a cash-flow
specifically.17 This was echoed by the OECD in measure, it is would be cost-neutral over a
its Review of SME and Entrepreneurship Policy three-year period, with minimal exchequer
in Ireland, commissioned by the Department impact.
of Business Enterprise & Innovation. Dublin
Chamber previously called on Government
13
OECD Economic Survey of Ireland 2018
14
European Commission Research & Innovation Observatory Country Report 2017: Ireland, pp. 24-26
15
Dept. Finance, TSG 19/05 Tax Incentives for SMEs, p. 29, https://assets.gov.ie/19118/6aaf283f06f74698a49833ea74100098.pdf#page=29
16
Dublin Chamber Business Risk Outlook Survey Q2 2018
17
European Commission Research & Innovation Observatory Country Report 2017: Ireland, p. 26
18
HM Revenue & Customs internal manual, Corporate Intangibles Research & Development Manual, CIRD90000,
https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird90000
19
The cost of raising the rate to 30% for all SMEs was estimated at €30 million. Dáil Éireann Debate Thursday 5 July 2018, Question No. 87, Reference No. 29777/18.
Answered by the Minister for Finance Paschal Donohoe.
DUBLIN CHAMBER PAGE 11DUBLIN CHAMBER - Submission on Budget 2021
1.4
Reduce tax on dividends for
entrepreneurs to 30%
To develop prospering indigenous businesses desirable outcome for serial entrepreneurs, for
on a large scale, it is critically important that example, it should not be the only option that
Ireland provides a supportive environment is encouraged. In many cases the scaling of
for entrepreneurship throughout the life Irish SMEs may be of greater long-term value
cycle of a business, rather than merely during to the Irish economy.
the start-up phase. Promotion of a start-up
culture must be combined with effective
long-term rewards for entrepreneurs who
choose to stay on and scale their businesses
rather than accept the allurement of a short-
Dublin Chamber proposes:
term reward by selling the firm prematurely.
Ireland’s present tax regime lacks this holistic
ax entrepreneurs at a lower rate of 30% on
T
and long-term approach. While the State
income from share dividends to outmatch
has made a commitment to ‘strengthen
the UK offering ahead of Brexit.22 The
the competitiveness of Ireland’s tax regime
qualifying criteria for this lower rate would be
to support start-ups, small and medium
the same as those that apply to individuals
enterprises (SMEs) scaling’,20 Ireland’s
and firms with respect to Entrepreneur
competitive position is clearly wanting at
Relief from Capital Gains Tax. This should
present. In the UK, the effective total tax
encourage more entrepreneurs to retain and
rate on share dividends at the higher rate is
grow their business, reducing the number
32.5% compared with 52% in Ireland, a stark
of “trade sales”. Consideration should also
differential in the context of Brexit.
be given to extending this dividends relief to
income from distributions paid to employees
Under the current system of incentives,
in qualifying start-ups in order to help them
divestment is the only means by which
attract and retain staff.
entrepreneurs can extract large-scale value
from their firm in a manner that is not subject
to the full rate of income tax, as Entrepreneur
Relief only applies to CGT on the value of
shares. Changes introduced by the Finance
Act 2017 have further increased the difficulty.21
The result is an ‘inefficient incentive’ that
drives successful businesspeople to ‘sell up’
rather that stay on and grow their business
further. While divestment is an appropriate and
20
DBEI, Enterprise 2025 Renewed: Building resilience in the face of global challenges, p. ix, https://dbei.gov.ie/en/Publications/Publication-files/Enterprise-2025-Renewed.
pdf#page=13
21
Finance Act 2017 introduced the new Section 135(3A), TCA 1997, as an anti-avoidance mechanism. In practice it serves to convert many genuine transactions from distributions
that are subject to CGT into distributions subject to income tax. E.g. management buyouts are a traditional mechanism to allow key stakeholders to exit or retire from their
businesses. But making these transactions subject to income tax undermines their attractiveness; it pushes businesses towards sales to third parties or liquidation if a CGT exit
is to be achieved.
22
Revenue tentatively estimated the total cost of a 30% income tax rate on dividend income from Irish resident companies (replacing all income tax, PRSI, and USC currently
collected) applied universally at €95 million. Restriction of the scheme to qualifying entrepreneurs would of course limit the cost to a fraction of this figure. Dáil Éireann Debate
Thursday 5 July 2018, Question No. 85, Reference No. 29775/18. Answered by the Minister for Finance Paschal Donohoe.
DUBLIN CHAMBER PAGE 12DUBLIN CHAMBER - Submission on Budget 2021
1.5
Improve access to the EII Relief for start-ups
The Employment & Investment Incentive
Relief provides a valuable means of accessing
finance for start-ups. To qualify there is a Dublin Chamber proposes:
requirement that the applicant SME must not
fall into the definition of a ‘firm in difficulty’, Start-ups should be given a 5-year period of
but this is defined as an undertaking in leeway for losses resulting from early-stage
which accumulated losses exceed the value innovation with respect to eligibility for the
of 50% of subscribed share capital.23 This EII Relief, to ensure that the scheme reflects
criterion should be reconsidered in light of the realities of the start-up scene and that
the impact of Covid-19 on start-ups (and entrepreneurs are not unduly impacted by
the supports otherwise available) as it may the Covid-19 crisis.
no longer accurately reflect the underlying
viability of such enterprises. While this
clause need not be satisfied if the company
is registered for less than three years, many
start-ups will have accumulated significant
losses by their first three years in operation.24
Moreover, Covid-19 has resulted in many such
enterprises incurring increased expenses,
delayed revenues, and missed funding rounds.
Start-ups have passed the 3-year threshold
as a result. To reflect this reality, the EII Relief
should be amended to ensure that more start-
ups remain eligible.
23
Revenue, Tax & Duty Manual Part 16-00-10, The Employment & Investment (EII) Relief for Investment in Corporate Trades, p. 6,
https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-16/16-00-10.pdf#page=6
24
European Commission, Guidelines on State aid for restructuring non-financial undertakings in difficulty, para. 21,
https://ec.europa.eu/competition/state_aid/legislation/rescue_resctructuring_communication_en.pdf; Revenue, Tax & Duty Manual Part 16-00-02, Relief for investment in
corporate trades as it applies to companies, p. 10,
https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-16/16-00-02.pdf#page=10
DUBLIN CHAMBER PAGE 13DUBLIN CHAMBER - Submission on Budget 2021
1.6
Make the Key Employee Engagement
Programme relevant to SMEs
Dublin Chamber welcomed the initial
introduction of KEEP in Budget 2018, having
campaigned for such a measure to help
SMEs retain talent and compete with larger
Dublin Chamber proposes:25
firms. The incentive aims to support SMEs in
• A ‘liquidity option’ should be provided to
competing with larger enterprises to recruit
enable the redemption of KEEP shares
and retain key employees. Smaller and/or
after a minimum holding period of 5 years
younger companies with growth potential
in a manner subject to CGT rather than
may not have the cash resources available
income tax.
to offer comparable salary packages to large
established businesses. However, where the
• Detailed guidance should be issued on
employee believes in the growth potential
valuations to provide clarity for firms
of the firm, and by extension the potential
facing the compliance burden of issuing
for the company shares to increase in value,
share options at market value.
remuneration in the form of share options
can improve the attractiveness of the SME
• The restriction of the value of share
employment offer.
options granted to any individual to
50% of the value of his/her annual
However, almost three years on KEEP has
remuneration should be lifted.
failed to achieve its policy objective of
helping small firms to attract and retain staff.
• In the absence of major changes in this
It remains irrelevant to most of the target
regard, consideration should be given
cohort of firms and take-up of the scheme
instead to the abovementioned tax
is negligible. Despite repeated business
reduction on distributions to employees in
feedback that KEEP remains overly restrictive
qualifying start-ups.
and ineffective, only minor changes to the
rules have been made in recent years and
it is generally only relevant if a company is
going to be sold. A key issue for SMEs is a lack
of liquidity in shares. As share redemptions
by private companies are subject to income
tax, KEEP is effectively restricted to being a
consideration suitable for companies targeted
for sale, undermining its intended incentive
effect for employees. To level the playing field
and support the scaling of Irish SMEs, this
anomaly must be addressed.
Further details of Dublin Chamber’s recommendations are available in our Submission to the Department of Finance on the Review of KEEP, May 2019,
25
http://www.dublinchamber.ie/DublinChamberofCommerce/media/banners/Dublin-Chamber-Submission-on-Review-of-KEEP-docx.pdf
DUBLIN CHAMBER PAGE 14Accelerate the Transition to a Sustainable Economy DUBLIN CHAMBER PAGE 15
DUBLIN CHAMBER - Submission on Budget 2021
2. Accelerate the Transition to a
Sustainable Economy
Dublin Chamber has been promoting Continued commitment to capital investment
environmental sustainability among firms in public infrastructure should play a vital
for many years and remains at the forefront role in mitigating the economic damage
of the sustainability agenda in the business wrought by Covid-19 by providing both
community. The Chamber is now leading certainty and badly needed stimulus,
the way in preparing businesses for the while also preparing Ireland to take better
transition to a green economy through advantage of the economic recovery when
its Sustainability Academy which offers it occurs. As the Government prepares a
participating businesses a range of supports new National Economic Plan, it should take
including training in green public procurement. bold and ambitious measures to accelerate
At a policy level, Dublin Chamber is a strong the transition to a sustainable economic
supporter of public transport investment, model for Ireland that will form the basis for
sustainable urban and regional development, future prosperity in a rapidly changing world.
and a well-managed transition to a green This will require commitment to delivery of
economy. planned infrastructure developments and
prioritising projects in urban areas which
The Programme for Government offers the offer the greatest return on investment, while
basis for a step change in favour of investment expanding residential capacity in the existing
in public transport and active travel footprint of the capital city. It will also require
infrastructure, with the potential to transform Government support for new ways of living
quality of life in Ireland’s growing cities. Of and working so that businesses can continue
course, this needs to be combined with to operative effectively post-Covid-19.
delivery of new residential development in line
with the National Planning Framework to meet In particular, preparation should be made
growing urban demand for accommodation. for a more ambitious approach to capital
Dublin Chamber has long made the economic, investment in green infrastructure as part
social, and environmental case for this urban of the revision of the National Development
sustainability agenda, but the Covid-19 crisis Plan next year, and Ireland should seek to take
lends it new urgency. Public transport capacity advantage of the EU Green Deal, a €1 trillion
is now a critical issue, while pedestrian space investment plan, with which the goals of
and cycling infrastructure have taken on a new active travel and public transport infrastructure
priority due to social distancing concerns. are aligned.
The Chamber has also been at the forefront
of promoting remote and flexible working,
and has sought to advise Government on the
changes needed to support businesses and
their employees in the context of ongoing
social distancing requirements.
DUBLIN CHAMBER PAGE 16DUBLIN CHAMBER - Submission on Budget 2021
2.1
Prioritise sustainable infrastructure
investment in the Greater Dublin Area
Green infrastructure in urban areas offers MetroLink
the greatest potential to achieve carbon Dublin Chamber has long advocated the North
reductions by effecting large-scale change element of the project and strongly supports
in consumer behaviour. Dublin Chamber has the delivery of MetroLink to provide a rail
long argued that the State should allocate connection between Swords, Dublin Airport
national resources in a way that respects and the city centre, while serving the rapidly
and reflects where Irish people live in their growing population of North Dublin. The
greatest numbers. The Greater Dublin Area is population of Fingal, which is the youngest in
the engine of the Irish economy and Ireland’s Ireland, grew by more than the entire province
largest population hub. Home to 40% of of Connacht in between the 2011 and 2016
the population of the State, its population censuses.29 The Government must work to
of 1.9 million will grow to 2.2 million by ensure this project is delivered by 2027 as
2031.26 Dublin’s success is critical to Ireland’s planned.
success. However, contrary to perception,
the capital city region has been significantly DART+ and DART Underground
underfunded relative to other regions in the The DART+ expansion programme represents
past. This is despite the fact that infrastructure a sorely needed upgrade to the commuter
investment, and public transport investment rail service in the Greater Dublin Area, which
in particular, is more efficient in high-density would also act as the basis of a national
zones where greater use will be made of electrification programme. While this is
completed projects. budgeted for likely completion by 2030/31
under the current National Development
Dublin was recently ranked among the most Plan, the revision of the NDP next year offers
traffic-congested cities in the world, with an an opportunity to accelerate this timeline
average of almost 250 hours lost per driver to 2027, for delivery in conjunction with
annually.27 Conservative estimates of the cost MetroLink. Meanwhile, sight must not be lost
of traffic congestion in the GDA amount to of the DART underground interconnector,
€350 million per annum, rising to a cost of €2 which will be crucial to the development of an
billion per annum by 2033.28 This impacts both integrated public transport system in Dublin
upon business competitiveness and quality of and across the island of Ireland. This project
life, while also retarding the city’s transition has been discussed since 1971, but almost a
to a green future. Irrespective of Covid-19- half-century later, no progress has taken place.
driven fiscal deficits, the positive borrowing Dublin Chamber proposes that €40 million
environment should be used to accelerate in funding should be set aside for a Railway
delivery of sustainable infrastructure projects Order and tender design process to bring it to
in the capital city region. Priority projects ‘shovel ready’ status by the end of the current
include: Government term in 2025.
26
CSO Census 2016, EP001: Population & Actual & Percentage Change 2011-16 by Sex, Province County or City, Census Year & Statistic,
http://www.cso.ie/px/pxeirestat/Statire/SelectVarVal/Define.asp?maintable=EP001&PL#anguage=0
27
INRIX Global Traffic Scorecard 2018, http://inrix.com/scorecard/
28
Dept. of Transport calculation, Dáil Question No: 346, John Lahart TD. Ref No: 1857/17, Proof: 348, Answered by the Minister for Transport Tourism and Sport
Shane Ross.
29
CSO, 2011-2016 Connacht Growth: 8,195; Fingal Growth: 22,223. CSO Census 2016, Preliminary Actual and Percentage Change in Population 2011-2016 by Sex,
Province, County or City, Census Year and Statistic
DUBLIN CHAMBER PAGE 17DUBLIN CHAMBER - Submission on Budget 2021
BusConnects & Midland Region Water Supply Project is an
The NTA plan for new bus corridors and Bus urgent priority to ensure a sustainable supply
Rapid Transit in the capital includes new orbital of this vital resource.
routes better linking communities together
along with the rollout of segregated cycle Luas Extension
lanes. It has the potential to be a valuable Dublin Chamber recently welcomed the
solution to mounting traffic congestion and publication of plans for the Luas extension
should be prioritised for funding. This project to Finglas. The Luas is a vital part of the
needs to remain on target and be delivered by transport infrastructure in Dublin and plans for
2027. this extension, alongside extensions to Bray,
Lucan and Poolbeg, were all committed to in
Greater Dublin Area Cycle Network Plan Project Ireland 2040. These projects should be
There is strong business appetite for better accelerated as part of the National Economic
cycling infrastructure in Dublin, as a means Plan.
of easing congestion, improving quality of
life, and making progress towards carbon Broadband infrastructure
reduction targets. The rapid improvements As remote and flexible working increases, the
to safer urban cycling infrastructure in the reliability of broadband infrastructure in Dublin
wake of Covid-10, albeit provisional, show will grow in importance. During the Covid-19
what can be achieved if there is political will in crisis, WiFi black spots in the Greater Dublin
this area. We warmly welcome the significant Area, coupled with increased pressure on
commitment of funding for new cycling and broadband causing slowing and connection
pedestrian infrastructure in the Programme outages, contributed to difficulties for people
for Government. It is important that these working from home. According to a recent
funds are allocated and used to rapidly deliver ComReg Survey 77% of broadband users
the long-awaited Greater Dublin Area Cycle saw an increase in the usage of their home
Network Plan, which would transform Dublin broadband service after Covid-19 restrictions
for the better. This should be prioritised for were introduced. Telecommunications
completion by 2025 to support the goal of a networks have largely been able to cope
20% modal share for cycling by 2030. with the additional demand, but continued
infrastructure investment will be required
Eastern & Midland Region Water Supply over the long-term to enable employees
Project throughout the Dublin region to remote work
Water systems in competitor cities typically effectively.
operate at c. 80% capacity, while in Dublin this
figure is c. 98%. With Dublin expected to meet
water supply constraints by 2025, the Eastern
DUBLIN CHAMBER PAGE 18DUBLIN CHAMBER - Submission on Budget 2021
Home working is generally not possible
without a strong virtual connection to
the office. With increasing use of video
conferencing, e-learning and other
programmes that require high-speed
broadband, access must be ensured for the
more peripheral areas of the Dublin region,
e.g. through office hubs. The rollout of a
number of gigabit hubs in rural areas has been
a notable success, e.g. in Skibbereen, Cavan,
Drogheda and Sligo, and a similar innovative
scheme should be rolled out in appropriate
towns in the Greater Dublin Area.
As well as showing more ambition for
investment in new sustainable infrastructure,
the revised National Development Plan 2021-
2031 should be accompanied by a clear plan to
ensure stable fiscal support for future projects.
Ireland’s recent pattern of capital expenditure
is among the most unstable in Western
Europe, with the level of public investment
falling precipitously after the last economic
crisis.30 Future capital investment plans can
be threatened not only by fluctuations in the
economy, but by significant cost overruns
in individual projects. With this in mind, we
recommend taking steps to guarantee delivery
of the economic infrastructure improvements
that are necessary to compensate for past
decades of underinvestment.
30
Eurostat, General Government Gross Fixed Capital Formation in European countries, 2001-2015
DUBLIN CHAMBER PAGE 19DUBLIN CHAMBER - Submission on Budget 2021
2.2 Accelerate the Carbon Tax timeline
as needs require
In the context of the uncertain economic
outlook, and the extraordinary pressure on
the public exchequer this year as Ireland
grapples with the social and economic impact
Dublin Chamber proposes:
of Covid-19, it appears inevitable that the
In addition to making appropriate use of the
Government will have to adopt new fiscal
positive borrowing environment, the National
adjustment measures. It is not likely or
Economic Plan may accelerate the carbon tax
desirable that this be achieved purely through
timeline if necessary in order to secure the
adjustments to current expenditure, and
funding required for a revised and expanded
the National Economic Plan must therefore
National Development Plan that will advance
consider how best to raise revenue without
Ireland’s transition to a green and sustainable
undermining the goal of economic recovery.
economy. This ought to be accompanied by
Increased taxation on labour and investment
a clear schedule of future increases to allow
should be avoided so as to support economic
businesses to plan.
recovery. The Programme for Government
commits to raising the Carbon Tax from €26
per tonne to €100 per tonne by 2030.
DUBLIN CHAMBER PAGE 20DUBLIN CHAMBER - Submission on Budget 2021
2.3 Encourage residential density in areas
of high demand
Urban density remains a crucial driver of
sustainable city planning. Redevelopment of
brownfield sites for residential use, particularly
with one and two-bed apartments, will be
crucial to meeting the goals of the National
Planning Framework, increasing urban density,
and meeting demand for accommodation
appropriately. However, recent private
investment has been concentrated in
commercial development and student
accommodation.
Dublin Chamber proposes:
Consideration should be given to:
• A targeted exemption from stamp duty on
the sale of buildings converted to multiple
dwellings in areas of high demand. The
onus would be on the developer to show
that this benefit has not been clawed back
from purchasers by way of price increase.
This could be done by comparison of
prices of similar dwellings.
• A Capital Gains Tax exemption on sale of
gardens in appropriate urban areas which
are sold for the purposes of intensive
residential development.
• An examination of impact of various
costs, including taxes and levies, on
the commercial viability of brownfield
apartment construction.
DUBLIN CHAMBER PAGE 21DUBLIN CHAMBER - Submission on Budget 2021
2.4 Ease pressure on the private residential market
Inflation in the price of accommodation
has been and will likely remain the most
immediate source of pressure on wage cost Dublin Chamber proposes:
competitiveness in Dublin, while supply issues
threaten to affect the city’s global reputation • To reduce pressure on the private market,
as a magnet for FDI. Unsurprisingly, in a pre- social housing provision should shift from
Covid survey of Chamber members, the cost reliance on acquisition and rental support
and availability of housing was the greatest to the construction of purpose-built social
concern for nearly two thirds of company and affordable homes.
employees. Pressure will increase in the years
to come, with the population of the Greater • Meanwhile, Government must ensure
Dublin Area set to grow from 1.9 million today regulatory stability to provide medium-to-
to 2.2 million by 2031. 31 long-term certainty for private developers.
• Consideration may also be given to
two measures to encourage release of
unoccupied housing to the rental market,
without prejudice to the Fair Deal Scheme:
First, homeowners who move into long-
term convalescent or nursing home
care should be incentivised to rent their
properties through a rental exemption up
to a specified limit or allowance of nursing
home fees against rental income.
Second, people exempt from LPT due to
long-term care should similarly be allowed
to keep their exemptions if they rent out
their homes.
30
CSO statistical release, 12 December 2013, Regional Population Projections 2016-31, Actual & Projected Population of Regional Authority Areas 1981-2031,
https://www.dublinchamber.ie/DublinChamberofCommerce/media/banners/Dublin-Chamber_Remote-Working-Policy-Paper_April-2020.pdf
DUBLIN CHAMBER PAGE 22DUBLIN CHAMBER - Submission on Budget 2021
2.5 Support home working
Although current public health advice remains in increased home energy consumption,
that employees should continue to work from meaning that the return on investment for
home where possible, traffic volumes in Dublin home retrofitting will decrease. This should
have already reached 78% of pre-Covid-19 be capitalised upon by the Government in the
levels, demonstrating that more support for service of the carbon reduction agenda.
remote working will be required in the short-
term.32 Long-term, major transitions in work
practices are likely. Dublin Chamber surveying
indicates that there will be a significant
increase in businesses facilitating remote Dublin Chamber proposes:
working in some way, with 40% of businesses
that previously did not offer remote working • The Government should give consideration
options prior to the Covid-19 lockdown to allowing an individual tax rebate against
reporting that they will do so post-crisis. 50% of allowable expenses associated with
working from home, in order to make the
Dublin Chamber was already committed to scheme more attractive and support home
supporting businesses through the transition working.
to the future of work, and in response to
Covid-19 has made a number of broad • A new SEAI grant for home retrofitting
recommendations in this regard, including should be introduced specifically targeted
in our Position Paper on Remote & Flexible at those who are remote working.
Working.33 However, the budget provides Alternatively, consideration could be given
an opportunity for monetary supports. At to classifying SEAI-supported retrofitting
present, persons working from home may projects as zero VAT rated products.
make an individual tax rebate claim against
10% of the costs of home working (including
electricity, broadband, and heating) at their
marginal tax rate at the end of the year. The
rebate is very modest. For example, if tax is
claimed back on expenses worth €100 (10% of
annual bills amounting to €1000) by someone
on the lower income tax rate of 20%, only €20
would be received. This should be expanded.
The increase in remote working will also result
32
Dublin City Council, 7 August 2020, COVID Mobility Measures Update to the Lord Mayor and Elected Members
33
Dublin Chamber, April 2020, Position Paper on Remote & Flexible Working,
https://www.dublinchamber.ie/DublinChamberofCommerce/media/banners/Dublin-Chamber_Remote-Working-Policy-Paper_April-2020.pdf
DUBLIN CHAMBER PAGE 23DUBLIN CHAMBER - Submission on Budget 2021
2.6 Provide grant aid for cycling facilities
The National Transport Authority has warned
that a successful return to work and trading
while maintaining necessary social distancing
will rely upon dramatic changes in commuter
Dublin Chamber proposes:
behaviour in favour of walking and cycling. For
Dublin Chamber recommends that in addition
example, the Covid-19 Mobility Programme
to new public bike storage as part of the GDA
for Dublin City is predicated upon a 200%
Cycle Network Plan, Budget 2021 should
increase in cyclist numbers from 13,131 in
make new grant aid available specifically for
2019 to 39,000. 34 However, most SMEs, unlike
SMEs to cover the costs of new cycling-related
some larger firms, simply do not have the
infrastructure on private commercial premises.
bike storage, shower, and changing facilities
to accommodate a major shift to cycling by
their employees; they also face liquidity issues
and cost constraints that do not burden many
larger firms.
In the absence of funding to address these
constraints, it is highly unlikely the cycling
target will be met. To make the proposed
modal shift more realistic, direct support for
SMEs should be introduced.
34
Dublin City Council / National Transport Authority, Enabling the City to Return to Work, May 2020, p. 9,
https://www.dublincity.ie/sites/default/files/content/RoadsandTraffic/COVID/Covid%20Mobility%20Programme%2022.5.20%20FA%20WEB.pdf#page=9
DUBLIN CHAMBER PAGE 24DUBLIN CHAMBER - Submission on Budget 2021
2.7 Introduce an SME tax credit for ‘Going Green’
To accelerate the transition to a sustainable
economy, the National Economic Plan must
also consider ways of encouraging individual
Dublin Chamber proposes:
businesses of adopting green business
practices. Many of the changes required for
The Government should consider a tax
a business to ‘go green’ involve a significant
credit for SMEs that have undertaken and
initial outlay, and Government support would
completed three items from an approved
assist SMEs in making the transition. It would
list, or ‘Sustainable Business Register’, to
support both innovation in the SME sector
significantly reduce greenhouse gas emissions
and Ireland’s overall shift towards sustainable
or otherwise improve sustainability. Items on
business practices, carbon emissions
the list could for example include: facilitation
reduction, and the circular economy.
of remote and flexible working; retrofit and
energy efficiency measures; green supply
chain guarantees; waste management
practices; circular economy measures; and
adoption of low emissions transport. The tax
credit would be linked to the costs incurred
in completing these items, and would be
modelled on the R&D tax credit, calculated at
30% of qualifying expenditure.
DUBLIN CHAMBER PAGE 25Support Employees and Improve the Labour Market DUBLIN CHAMBER PAGE 26
DUBLIN CHAMBER - Submission on Budget 2021
3. Support Employees and Improve
the Labour Market
The Covid-19 pandemic has had a dramatic rate in Ireland is 10.4 percentage points
impact on the labour market, with the Covid-19 lower than the male rate. This gap may well
Adjusted Measures of Unemployment be exacerbated by Covid-19 as more women
indicating an unemployment rate of 17% by leave the labour market for childcare reasons,
July 2020.35 Whereas previously tight labour and also due to a high level of women
market conditions were driving wage pressure working in the sectors most affected by the
and constraining SME growth, the more recent pandemic. This gender gap is considerably
challenge has been maintaining relations higher than that in most other Northern
between employees and their employers European economies, and the room to expand
during the pandemic in order to minimise the female labour participation has been widely
long-term ‘scarring’ effects of the crisis. Dublin noted.36 There is also scope to increase the
Chamber welcomed the Temporary Wage participation rate of other groups, such as
Subsidy Scheme as an important measure those with disabilities.
which reflects the fact that labour costs
account for the bulk of the business costs of There is clear evidence that Ireland’s gap in
firms in Dublin. The continuation of support female labour market participation is largely
in the form of the Employment Wage Subsidy due to the burden of childrearing falling upon
Scheme from September 2020 was necessary women in a context of high childcare costs.37
to avoid a financial ‘cliff edge’ for otherwise The female rate of labour force participation
viable firms that continue to struggle due to diverges sharply from the male rate around
the pandemic. childbearing age and does not recover. As a
result, amongst people of typical childrearing
While Covid-19 continues to pose immediate age, there are 141,000 fewer women in the
challenges which must be addressed, the labour force than men.38 Statistical evidence
longer-term issues facing the labour market for the impact of childcare costs on the labour
remain relevant, and the Government must be market is strongly supported by business
sure to keep sight of these as part of its New feedback. We therefore endorse IMF advice
Economic Plan and to take account of them in that ‘attention should be given to providing
Budget 2021. For example, it should consider affordable childcare, reducing high second-
levelling the playing field between Irish SMEs earner marginal tax rates, and eliminating
and multinationals with respect to accessing gender pay gaps.’39
talent.
In particular, the ongoing challenge of the
gender gap in labour market participation
must be considered. The female employment
35
CSO statistical release, 5 August 2020, Monthly Unemployment July 2020, https://www.cso.ie/en/releasesandpublications/er/mue/monthlyunemploymentjuly2020/
36
E.g. ESRI Quarterly Economic Commentary Summer 2018, pp. 51-55, https://www.esri.ie/pubs/QEC2018SUM.pdf#page=62
37
Indecon Report on Support for Childcare for Working Families & Employment Implications, Nov 2013, pp.ii-iii
38
Comparison of men and women aged 20-59, CSO, Labour Force Survey Q1 2019, Table 7
39
IMF, Ireland Staff Concluding Statement of the 2018 Article IV Mission, May 2018
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