The Government's Economic Recovery Plan outlines a pathway for a sustainable jobs-led recovery. It focuses on four key pillars: sustainable public finances, supporting a return to work, re-building sustainable enterprises, and supporting a balanced and inclusive recovery.
For businesses, the plan offers clarity for the months ahead on the supports available, such as the Employment Wage Subsidy Scheme (EWSS) and COVID-19 Restrictions Support Scheme (CRSS), as well as details on new measures such as the introduction of the Business Resumption Scheme (BRSS) will be introduced in September.
The €3.6 billion package of spending supports and measures will help boost the economy as it emerges from the COVID-19 pandemic. For further insights see below.
The export-oriented economy has fared much better through the pandemic and has continued to strongly contribute to exchequer receipts. The importance of the multinational sector and international trade is acknowledged in the Economic Recovery Plan and it is recognised that Ireland must continue to remain an attractive location for foreign direct investment.
Ireland’s economic landscape was laid out in the Stability Programme Update released in April which is projecting a 4.5% growth in GDP this year and 5% growth in 2022. Critically, employment growth of 4% is projected for this year and 11% in 2023. This will drive greater consumption and will be the engine for the projected 7% increase in income tax receipts and 15.7% in VAT receipts this year with further growth in 2022.
The Economic Recovery Plan comprises of €3.6bn in spending supports largely focused on preserving existing supports such as the EWSS and PUP for another 3 months and then expected tapering thereafter.
The COVID-19 Restrictions Support Scheme will be extended until the end of the year making available restart payments of up to €30,000 to businesses. Other restart grants for smaller business are also being made available.
The commercial rates waiver will be extended to end of September and the plan also includes an extension to the Tax Debt Warehousing Scheme to the end of 2021, with an interest free deferral period during 2022. Certainty on this measure is welcome, as the approach to phasing out of warehousing had previously been unclear.
Importantly, the Economic Recovery Plan reinforces our 12.5% corporation tax rate as a fair rate which is within the ambit of healthy competition. This statement comes at a critical time as negotiations among the G7 intensify in seeking consensus on a minimum effective tax rate.
The National Recovery & Resilience Plan, which was submitted to the European Commission on 28 May, is a requirement to draw down from the EU’s Recovery & Resilience Facility under which Ireland should receive roughly €915m in grants under an initial allocation which will be used to support investments between now and mid 2026. A further set of grants will be allocated to Member States in 2023.
It is encouraging that the main focus of the National Recovery & Resilience Plan is on the transitions to a more climate friendly and digitally enabled and supported society. We look forward to more detail on what this will mean for businesses when the updated Climate Action Plan and National Development Plans are published later in the summer.
While the plans set out a broad roadmap to position Ireland to emerge strongly from the pandemic, much of the detail has yet to issue. It is key that we remain versatile as various developments potentially impact Ireland’s attractiveness. We expect more details on the elements later in the summer and into Q3 and Q4.
The extension of the EWSS in the Economic Recovery Plan to December 2021 will provide much needed reassurance and stability on payroll costs for businesses in the near future, however there is uncertainty over what rates will apply from September onwards. Should rate reductions be considered later this year, we would strongly call on Government to take a targeted approach and maintain higher rates for the most affected industries like hospitality, leisure and tourism.
The plan also refers to the broadening of the period of assessment for businesses, so more can benefit from the EWSS. Clarity on this detail will be important to ensure there are no unintended consequences – for example, if the period concerned is January to December 2021 this would require businesses who will have experienced a 30% decline during the first 6 months of 2021 to maintain that decline until the year end. This would seem to suggest that only businesses that continue to suffer a decline in the second part of 2021 will be eligible to continue in the scheme past 30 June 2021.
There are a number of changes referred to in the Economic Recovery Plan that run the risk of significantly increasing the burden on employers. For example, changes to all classes of PRSI have been mooted in the plan to replenish the Social Insurance Fund. While we await the detail of what this will look like from the Commission on Taxation and Welfare, we need to ensure the right balance is struck in ensuring employer PRSI rates are not disproportionately increased, so as to act as an employment disincentive. This is especially vital in what will be a jobs-led recovery for our economy.
The Economic Recovery Plan confirms that the super reduced VAT rate of 9% will be extended for a further 8 months until 1st September 2022, from its original planned expiry date of 31 December 2021. This is a reduction of 4.5% from the normal 13.5% VAT rate applying.
The 9% rate covers a wide range of services in the tourism and hospitality sectors, including meals in a restaurant, hotel and guest house accommodation, admission to events including concerts, cinema and theatre and certain personal services including hairdressing services. This is a welcome boost for sectors which have been amongst the most heavily impacted by the COVID pandemic, as many businesses begin to re-open and look to the future. This measure can provide a 4.5% VAT saving and cash boost for businesses for a further 8 months where the VAT rate cut is not passed onto customers.
As previously announced in Budget 2021, as part of the Government’s Shared island initiative, a €500m Shared Island Fund is to be provided out to 2025. This is in recognition of the series of major all island challenges such as the COVID pandemic, Brexit, building economic and societal recovery and tackling the climate crisis. The fund will be ring-fenced for investment in North/South projects - including in research and innovation, education and training, sustainable transport.
The Government will also continue to fully support the work of InterTradeIreland in developing sectors with most potential for the island as a whole, including in the bio-economy, advanced manufacturing, health and life sciences and the green economy.
The PEACE PLUS programme - funded by the European Union and UK Government, together with the Irish Government and Northern Ireland Executive, will also provide significant support for economic regeneration and transition in Northern Ireland and the six southern border counties.
The plan outlines a re-commitment to auto-enrolment on pensions, which has been on the table for a number of years with Government. It’s clear that reforms are required for private pensions in Ireland, but the timing of this change needs to be considered carefully given the cost of auto-enrolment for businesses. We are in very different times now to when initial plans were drafted, and in the short term, focus should remain on stimulating employment and getting businesses operating again profitably. In considering timing for the introduction of auto-enrolment, the Commission on Taxation and Welfare should very closely align with what stage businesses are at in their recovery and take account of the impact of adding to the cost of hiring or retaining employees for different types and sizes of businesses.
The investments by Revenue in technology, coupled with a move into real-time reporting of employment taxes, facilitated the delivery of the employee supports provided to businesses. Revenue’s Annual Report also highlighted how such supports could be operated within days of being announced by Government, a point that was further reinforced by Revenue’s Chairman in a recent conference. The value shown by real-time reporting in employment taxes may accelerate the discussion around the roll out of real-time reporting for VAT.
The Online Retail Scheme has been critical in helping smaller retailers survive over the past 15 months, where online selling was often the only viable option to reach customers. Looking ahead to our economy’s recovery, many retailers will need continued support to enable further digitalisation, in turn allowing them to increase their customer base, build more resilient businesses, and critically remain open for both their employees and the communities they serve. We know that consumer behaviours will continue to change, and retailers without big budgets need every support to help them stay competitive and relevant. The financial supports announced in the Economic Recovery Plan will go some way to helping businesses return to pre-COVID levels, and the gradual phasing out of schemes will allow businesses much needed breathing space to get back up and running.