2009
Pre –Budget 2010 Submission by Irish Exporters Association
When presenting the Minister for Finance Brian Lenihan TD, with the IEA Pre – Budget Submission 2010, John Whelan, Chief Executive of the Association said;
‘’With domestic demand expected to continue extremely weak, the tentative signs of recovery in international markets is very welcome, and confirms that export – led growth represents the most likely source of recovery for the Irish economy. However, to ensure that we can benefit from the global recovery, competitiveness must be restored in the economy as a whole, and this December Budget is a key opportunity , and one not to be fudged , in restoring this competitiveness ‘
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The IEA Chief Executive went on to say;
‘’’Before the excesses and imbalances of the early and mid-2000s, the Irish economy had reached advanced levels of export performance, with productivity growth that stood comparison with the best internationally. The underlying strengths, which helped ensure this performance, are still present. Building on these strengths, and restoring the cost base to competitive levels rapidly, will help speed up the return to growth in the medium term. Our ability to realise this potential depends heavily on the effectiveness with which these issues are addressed in the up–coming Budget. ‘’
The IEA Submission outlined a number of factors inhibiting the return to strong growth in the export sector, as follows;
> Labour costs: in the private sector are currently too high compared to that in competing countries, and will require reduction immediately and then a period of at least 2 years zero growth, to return to international competitiveness. To assist in this painful adjustment by the private sector, the Minister must not increase income tax in the December Budget.
>Energy costs: continue to be one of the highest in the EU , and must be reduced by 20% immediately . With petroleum costs based on US dollar barrel rates, and gas costs based on Sterling ratings, there is obviously plenty of scope for achieving this immediately in a euro denominated country.
>Access to finance: continues to be a major problem for indigenous exporters. The dramatic reduction in credit insurance, has added to the finance crises. The Budget must allow a guarantee support structure that is to be introduced for Credit insurance, much the same as the bank guarantee scheme.
With regard to Public Expenditure, the IEA Submission stated the following;
The focus on reducing expenditure in line with income levels accords well with lessons from Ireland’s experience in the 1980’s and also from international experience, that carefully targeted and prioritised expenditure reduction measures are generally more effective in the medium term than an over reliance on tax based solutions.
In this regard the IEA pointed to the Public sector Pension costs which are running at €7.7 billion p.a. between cash out costs and provisions for future retirements. The Public Sector pension Levy, which the IEA recommended for targeting in our Budget recommendations last year to the Minister, is we believe the fairest way for any added contributions to be made by the Public sector workers. Ultimately, the Public sector must pay for its own pension scheme, and hence the gradual process in achieving this must be continued in the next Budget and over the next few years.
The Public sector Pension Levy is currently yielding €1.4 billion pa, achieved through the average 7.5% deduction from public sector wages. This must be doubled to added to by a similar amount in the December Budget, yielding a total of €2.8 billion expenditure reduction in a 12 months period. Obviously this will need to be graduated by wage level bracket, so that the burden falls on the higher levels of the Public sector.
We believe this will be much more acceptable to the Social Partners than other measure such as direct wage reductions, or employment number reductions.
The remaining budgetary short fall must come from a wide range of Public sector cost reductions, which the Government must decide on from the many suggestions in the McCarthy report.
The Final element of the IEA Submission was associated with Stimulating the economy through Export support measures as follows;
Ø Expand the existing Stabilisation fund beyond the EU deminimus level €250,000 per company for a period of 2 years.
Ø Expanding the Employment Subsidy Scheme to include all exporters from micro through mid size to large companies, without restriction on prior access to other funds in the period to the end of 2010.
Ø Immediate introduction of a State backed export credit insurance scheme.
Ø Cutting energy (electricity and gas) costs to industry by 20% before the year end’09.
Ø Increase the Bord Bia promotion fund allocation to assist food and drink exporters into non sterling markets.
Ø Create a fund specifically to assist the development of our broad range of services companies to expand sales overseas, including the first year cost of an export sales manager.
Ø Introduce a productivity fund specifically for the transport sector (sea, air and road) to maintain the world class standard now necessary to meet the international supply chain challenges.
Ø To encourage entrepreneurs to start up export companies, the IEA are proposing that the Minister introduces a special tax regime for export oriented Entrepreneurs who set up in Ireland. Hence the IEA recommend to the Dept and the Minister for Finance the following broad framework for causing an increase in entrepreneurial activity;
· Ease the burden of personal risk on prospective export entrepreneurs through tax structures that reward entrepreneurial sacrifice where the embryonic enterprise matches criteria likely to spawn a successful export business. Give special income tax status to founder shareholders during critical early stages when the business must engage in reinvestment (For example the encourage entrepreneurs to establish in Ireland they could be given a three years tax holiday for all individuals who are non resident and become Irish residents and set up a business employing least five people).
· Educate / provide access to expert advice on development and commercialisation of ideas. In this regard we support the taxation Commission recommendation for ’Persons who are made redundant should be entitled to offset any retraining costs they incur on certified courses against income for the previous 6 years.
· Align County Enterprise Boards support programmes with well-defined objectives to encourage export business start up and development. Effectively turning the CEB’s into talent scouts for potential export entrepreneurs.
END
For further information please contact;
John Whelan ; e-mail JFWHELAN@IRISHEXPORTERS .IE
PHONE; 087 9271243
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