Entrepreneurs & SMEs

At this critical time, Minister Donohoe has endeavoured to use all the tools of fiscal policy to support SMEs, the backbone of our domestic economy. There is liquidity support through the Covid Restrictions Support Scheme and the tax warehousing scheme, retention and extension of the CGT entrepreneur relief, as well as incentives to spend through the VAT rate reduction to 9% and to invest through the promised review of EIIS. These measures place Ireland firmly on the road ahead – but more will be required in future Budgets to complete the journey.

In setting Budget 2021, the Minister has recognised the importance of cash conservation measures for SMEs generally while also targeting particularly impacted sectors. But given the scale of the impacts and uncertainty this year for Irish businesses, I would question whether the package of measures for SMEs is going to be enough. The new Covid restrictions support scheme applies at Level 3 upwards and will benefit businesses whose turnover does not exceed 20% of the turnover for the corresponding period in 2019 – but does this go far enough as there are countless businesses that would be above this limit and yet seriously struggling for their survival? In addition the capacity constraints caused by social distancing for businesses that are open, even when not at Level 3 are putting a severe strain on their viability.

Conversely, for those businesses agile and brave enough, there may be opportunities to expand and reinvest as part of this Budget; for example, using funds raised under the Covid-updated EIIS regime or savings realised through the extended KDB regime. However, it is indeed bravery that will be required for interested businesses, as both the EIIS and KDB regimes are well established as schemes which appear very good on paper but devilishly difficult to put into practice, reflected by their low take-up across the board. Unfortunately, these schemes are unlikely to realise their full potential as a fiscal policy tool while in their current format.

For others, Budget 2021 may provide just enough for survival, with the extension of the debt warehousing scheme to income tax payments for the self-employed and the waiver of commercial rates potentially being the critical measures needed to allow affected business retain cash at a time when needed most.

Self-Employed Debt Warehousing

Allowing personal tax bills to accrue at a zero interest rate for 12 months may make the difference between closure and staying in business. It will serve as a lifeboat to many self-employed individuals who may otherwise have needed to rely on credit to fund their tax bills, or were unable to fund those tax bills due to an absence of available credit.

Infrastructure & Government

Unlike in previous recessions, Government has committed to continue with the capital projects set out in the National Development Plan (Project Ireland 2040). The €9.7 billion announced today is an increase of €1.5 billion from Budget 2020 and will provide a boost for areas like climate action, housing, transport, communications, education and defence. Given the historically low cost of long term borrowing now available to the State, it makes sense for Government to use this opportunity to invest in infrastructure which in many cases will last for generations. As Project Ireland 2040 is designed to address the country’s infrastructure deficits, this is welcome news.

Help to Buy Scheme

Extending the enhanced Help-to-Buy scheme to the end of 2021 is a good measure. The original measure was crammed into too short a timeframe. This change now provides an enhanced and valuable incentive to first time buyers and now gives them enough time to make solid plans. It will suit homebuyers and housebuilders who now have certainty for the next 15 months.

Pandemic Unemployment Payment (“PUP”)

A self-employed individual who is entitled to the Pandemic Unemployment Payment (“PUP”) falls into an “all in or all out” approach - if they have any level of self-employment income they do not qualify for PUP. In Budget 2021 the Minister recognised that these individuals may have the opportunity to work or perform occasionally, and as a result the Minister will adjust the PUP qualifying conditions to allow earnings of up to €480 per month. This is a welcome adjustment for PUP recipients who do not want to miss an opportunity to work, but who could not afford to forego the financial support from PUP.

The view from Munster

The ambitious breadth of measures and spend committed to by Minsters Donohoe and McGrath announced during yesterday’s Budget 2021 address will have positive stimulus impacts right across our economy. Importantly, these impacts will be where they are needed most, specifically indigenous SMEs, self-employed, hospitality, tourism, arts, culture and sport.

The Hospitality sector, which accounts for 18,000 jobs alone in Cork, will certainly welcome the VAT reduction from 13.5% to 9% as well as the COVID Restrictions Support Scheme (CRSS) allowing access up to €5,000 a week in level 3 situations. The continuation of warehousing of Tax debt for those in hospitality and other sectors that are severely impacted will also offer respite to those most impacted.

Investment and funding for regional infrastructure are also positive. €10 million for Cork and Shannon Airports is welcome, but will most like require further supports to survive in the coming months. The further commitments to the N22 and Dunkettle interchange upgrades are reassuring and look forward to visible progress on these important projects over course of 2021.

The commitment to a digital gaming tax credit, effective from Jan 2022,is a welcome move for Cork which has a strong technology hub. In addition the availability of €5 million for rural digital hubs is a welcome support to advance the digitalisation of rural economies.

Finally, the positive assertion of Government’s commitment to maintaining a stable and transparent corporate tax environment is welcomed.

R&D Tax Credit Regime

Digital gaming has significant potential for the Irish economy given our well established IT credentials. The announcement by Minister Donohoe that he will commit to a Tax Credit for the Digital Gaming sector, effective from January 2022 onwards, is a welcome move. Other countries have similar credits in place already and this will boost Ireland’s competitiveness, and complement the existing R&D tax credit regime.

Employee PRSI

Increases in the minimum wage are important and the changes in the USC bands and employer PRSI threshold which minimise the impact to employees and employers are welcome. It remains to be seen if any changes to the Employee PRSI credit will be made to adapt the current earning threshold of €352-€424 per week to the new minimum wage. If no changes are made, the full benefit of the minimum wage increase may be reduced for some.”

Retail & Manufacturing

The extension of the EWSS and creation of the new Covid Restrictions Support Scheme (CRSS) will go some way towards supporting the hardest hit businesses, especially in the retail sector. The accessibility and practical application of the supports however will be critical.

Supports announced in today’s Budget for the hardest hit sectors may be the difference between businesses toughing it out and closing for good.

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