Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber

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Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Pre-Budget Submission Budget 2019

                    DUBLIN IS OUR BUSINESS
Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Introduction

                                                                                      Budget 2019 comes
Dublin Chamber is the representative body for busi-                               at a pivotal moment.
nesses in the Greater Dublin Area (GDA), the engine of                            It will be the first since
the Irish economy and Ireland’s largest population hub.
Our cross-sectoral membership base comprises 1,300
                                                                                  the announcement of
firms across the capital city region, employing 300,000                           the National Planning
people nationally. This gives Dublin Chamber a keen in-                           Framework (NPF) and the
sight into the needs of both businesses and their em-
ployees, informing a holistic vision of the commercial
                                                                                  accompanying National
environment in which economic competitiveness and                                 Development Plan (NDP).
quality of life are complementary. We are committed                               It will also be the last
to helping businesses succeed in a successful Dublin.
   Budget 2019 comes at a pivotal moment. It will be
                                                                                  before the UK exit from
the first since the announcement of the National Plan-                            the European Union.
ning Framework (NPF) and the accompanying National
Development Plan (NDP). It will also be the last before
the UK exit from the European Union. Budget 2019 will                           At the same time, Ireland is experiencing robust eco-
therefore be crucial to demonstrating Ireland’s serious-                     nomic growth, low unemployment, a buoyant labour
ness about business competitiveness vis-à-vis the UK                         market, and healthy consumer sentiment. In this con-
and its commitment to long-term planning and infra-                          text, the challenge is to formulate fiscal policy in such
structure investment. Government must send a loud                            a way as to insure Ireland against current and future
and clear signal in both respects.                                           threats to the extent that is possible without overheat-
   Ireland’s small open economy has continued to per-                        ing the economy.2 This requires a distinction between
form strongly despite rising international risks.                            expansionary measures that are strictly necessary
   However, while the headline indicators are positive,                      to strengthen the fundamentals of the economy and
the underlying situation is more precarious.                                 those that may be undertaken on a more short-term
   With Government indebtedness equal to 260% of                             basis to improve Ireland’s relative competitive position.
General Government Revenue, Ireland remains acutely                          Additional fiscal expansion in 2019 should be under-
vulnerability to external shocks.1 The potential causes                      taken only to strengthen the productive capacity of
of these include Brexit, US tax reforms, EU pressure on                      the Irish economy, i.e. in the areas of infrastructure,
the Irish tax model, and global market downturns caus-                       Irish business productivity, and human capital. Target-
ing a sharp drop in Ireland’s corporate tax receipts from                    ed tax reliefs aimed at strengthening Ireland’s indige-
the multinational sector. Dublin Chamber believes that                       nous business base and increasing female labour force
Budget 2019 should be developed with these challeng-                         participation would be the most prudent use of fiscal
es in mind.                                                                  space at this time.

1 Department of Finance (SPU 2018, April 2018), quoted by NTMA, www.ntma.ie/business-areas/funding-and-debt-management/debt-profile/debt-projections/
2 Early signs of overheating have already been reported by the OECD. OECD, Ireland Economic Forecast Summary, May 2018, www.oecd.org/eco/outlook/eco-
nomic-forecast-summary-ireland-oecd-economic-outlook.pdf

1 | Pre-Budget Submission Budget 2019
Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Dublin Chamber recommends
                                        that the fiscal space should
                                        be used to prepare Ireland
                                        for the challenges ahead
                                        by strengthening the
                                        fundamentals of the economy

                                                While Dublin Chamber highlights the growing diver-
                                             gence in business tax competitiveness between Ire-
                                             land and the UK, we argue that the business commu-
                                             nity is more immediately concerned with the deeper
                                             structural challenges facing Irish competitiveness. In-
                                             ternal risk factors include the inadequacy of Ireland’s
                                             economic infrastructure, the productivity gap between
                                             Irish and multinational businesses, a pronounced reli-
                                             ance upon tax receipts from a relatively narrow portion
                                             of the economy, and a growing skills shortage. These
                                             internal weaknesses leave Ireland’s highly globalised
                                             economy vulnerable. Budget 2019 must take decisive
                                             action to address them.
                                                In this context, Dublin Chamber recommends that
                                             the fiscal space should be used to prepare Ireland for
                                             the challenges ahead by strengthening the fundamen-
                                             tals of the economy. Government should:

                                               •    Invest in Ireland’s Infrastructure
                                               •    Grow Ireland’s Businesses
                                               •    Invest in Ireland’s Human Capital

                                               Dublin Chamber has outlined four specific mea-
                                             sures under each of these headings, detailed in sum-
                                             mary overleaf. All measures have been costed where
                                             appropriate and possible on the basis of official infor-
                                             mation, while the overall package falls well within the
                                             limits of fiscal space as outlined in the Summer Eco-
                                             nomic Statement 2018.3 In developing this submission,
                                             Dublin Chamber consulted with its membership base,
                                             which includes firms of all sizes in a wide variety of sec-
                                             tors. The recommendations were developed through
                                             a series of surveys, workshops, briefings, one-on-one
                                             meetings, and sessions of our Budget & Taxation Task-
                                             force, and have been approved by the Chamber’s Policy
                                             Council.

                                             3 Department of Finance, Summer Economic Statement 2018,
                                             June 2018, p. iii, https://www.finance.gov.ie/wp-content/up-
2 | Pre-Budget Submission Budget 2019        loads/2018/06/20180622-SES-2018.pdf#page=4
Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Summary of Recommendations

Invest in Ireland’s Infrastructure:
Measures to prioritise productive investment
Deliver the National Development Plan effectively           Ring-fence unexpected receipts for investment in
and on schedule                                             infrastructure
• Meet the fiscal commitments outlined in the               • Use tax windfalls to accelerate delivery of priority
    National Development Plan, requiring €7.3 billion           infrastructure projects under the NDP or, where
    in exchequer funding for public capital expenditure,        this is not practicable in a given year, to increase
    and clarify which projects will receive the increased       the size of the Rainy Day Fund.
    capital expenditure.
• Allow an informed debate on investment choices
    by publishing a breakdown of capital spending by
    county and Metropolitan Area; publicly ranking
    infrastructure projects according to their cost-
    benefit ratio; and publishing the cost-benefit
    analyses for completed projects.

Prioritise projects in the Greater Dublin Area
Projects to relieve the growing pressure in the capital
city region must be prioritised for progress and
investment by the Exchequer in 2019. Dublin Chamber’s
priorities are:
• MetroLink
• DART Expansion Programme
• BusConnects
• Eastern & Midlands Region Water Supply Project
• Social & Affordable Housing Construction in Dublin
    and other high-demand urban areas

Use the ‘Rainy Day Fund’ as an insurance policy for
the NDP
• Permit drawdown from the Rainy Day Fund if
    economic growth dips below the level required to
    fund delivery of the NDP (minimum 2% growth), to
    ensure stable and steady delivery of the planned
    infrastructure investments.

3 | Pre-Budget Submission Budget 2019
Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Grow Ireland’s Businesses:
                                        Measures to encourage
                                        entrepreneurship
                                        & enterprise
                                        Upgrade Entrepreneur Relief to surpass the UK.
                                        • Raise the lifetime cap on qualifying gains for
                                           Entrepreneur Relief from €1 million to €15 million
                                           to send a strong signal that Ireland intends to
                                           compete with the UK ahead of Brexit.

                                        Introduce an Investor Relief to encourage investment
                                        in Irish SMEs
                                        • Introduce an Investor Relief along the UK model,
                                             offering a lower 20% CGT rate on all investment in
                                             unquoted trading companies where shares have
                                             been held in excess of three years, with a lifetime
                                             limit on qualifying gains of €10m.

                                        Make the R&D tax credit work for SMEs
                                        • Allow an upfront claim of the R&D tax credit cash
                                           refund for SMEs, instead of the three year lagging
                                           deferred cash-flow mechanism that currently
                                           exists, and increase the R&D tax credit rate from
                                           25% to 30% for SMEs.

                                        Reduce income tax on dividends for entrepreneurs
                                        to 30%
                                        • Tax entrepreneurs at a lower rate of 30% on income
                                            from share dividends to outmatch the UK offering
                                            ahead of Brexit.

4 | Pre-Budget Submission Budget 2019
Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Invest in Ireland’s
Human Capital:
Measures to attract, retain,
and develop talent
Increase female labour market participation
• To ameliorate the childcare affordability problem,
    double the maximum universal childcare subsidy for
    children before the start of ECCE under the Affordable
    Childcare Scheme from €80 per month to €160 per
    month for a child in full-time care, with a commitment
    to similar progressive increases in subsequent years.
• Consider improving the targeted subsidy element
    of the Affordable Childcare Scheme to better reflect
    the net income of the second earner in a family (not
    just combined parental net income) with a view to
    increasing labour force participation. More broadly,
    and in the context of the proposals to reform income,
    PRSI and USC, undertake a thorough examination of
    how these taxes discourage ‘second earners’ from
    returning to the workforce, with a commitment to
    progressively removing labour force participation
    barriers on the basis of the findings.

Allow SMEs to avail of the Special Assignee Relief
Programme (SARP) for new recruits
• Extend the Special Assignee Relief Programme to
    new recruits for firms that are SMEs by the European
    Commission definition.

Make the Key Employee Engagement Programme work
for SMEs
• Issue detailed guidance on valuations to provide
    clarity for firms facing the compliance burden of
    issuing share options at market value;
• The restriction of the value of share options granted
    to any individual to 50% of the value of his/her annual
    remuneration should be lifted.
• Allow qualifying individuals to make their services
    available to other entities in a group, and reduce the
    time required to work for a qualifying company to 30
    hours per week.

Prevent taxation of employer-funded professional
subscriptions from taxation as BIK
• Amend Revenue guidance to make clear provision
   for the exemption from Benefit-In-Kind taxation of
   professional memberships that are commercially
   necessary but not statutorily required.

5 | Pre-Budget Submission Budget 2019
Pre-Budget Submission Budget 2019 - DUBLIN IS OUR BUSINESS - Dublin Chamber
Invest in Ireland’s Infrastructure

Ireland has a major public infrastructure deficit due to                                    noted that urban Ireland particularly suffers as a
historic underinvestment, compounded by the fiscal                                          result of shortcomings in transport infrastructure, and
impact of the economic crisis. Large-scale and long-                                        warned the situation will be further aggravated by rising
term investment is now urgently required in Dublin’s                                        economic activity and population growth.8 Dublin has
infrastructure stock in order to redress past neglect,                                      been ranked as the 5th most traffic-congested city in
protect Irish competitiveness, and enhance the                                              Europe,8 with public transport usage by commuters in
productive capacity of the Irish economy. From a broad                                      the capital standing at just 22%.10 Using a very narrow
perspective, there is strong evidence of a positive                                         definition of congestion, the NTA has estimated that
relationship between public investment, aggregate          traffic congestion in the GDA now costs the national
demand, and potential growth; and Ireland has been         economy at least €350 million per annum, rising to an
identified by the OECD as a country that would             annual cost of €2 billion by 2033.11
particularly benefit from a change in                                          Meanwhile, the social cost of inade-
fiscal priorities from current spending Table  1: Business  feedback   on    quate infrastructural investment con-
                                        internal challenges to Dublin
to capital investment.4                        competitiveness7              tinues to mount.
   Economic infrastructure consis-                                             Government       should     allocate
tently ranks as the most important                                           national resources in a manner that
                                                          7% 5
policy issue affecting Dublin busi-                               %          respects and reflects where Irish
nesses, with almost half (48%) of                                            people actually live in their greatest
recently surveyed firms choosing                                             numbers. Investment should be
investment in infrastructure as their                         22%            focused on urban areas, which
top priority for Budget 2019. The in-
                                5
                                                                             generally offer the greatest return
adequacy of Irish infrastructure is in-                                      in terms of cost-benefit due to
ternationally perceived as the most                    65%                   higher populations. The National
important barrier to doing business                                          Competitiveness Council has argued
in Ireland according to the World Eco-                                       that enhanced city performance
nomic Forum survey;6 and the busi-       What is the biggest problem         has positive spill-over effects on
ness community in Dublin concurs, facing Dublin’s competitiveness? the country as a whole. Prioritising
with inadequate infrastructure identi-             Bad planning              investment and initiatives to develop
fied as the biggest problem facing the     Inadequate   infrastructure       the competitiveness of our cities is
city’s competiveness.                           Poor governance              therefore the most effective use of
   The European Commission has           Ineffective promotion of Dublin     Exchequer funds.12

4 International Monetary Fund, IMF Country Report No. 17/333, Ireland Technical Assessment Report: Public Investment Management Assessment, November 2017, p.7
5 Dublin Chamber Quarterly Business Risk Outlook Q2 2018
6 International Monetary Fund, IMF Country Report No. 17/333, Ireland Technical Assessment Report: Public Investment Management Assessment, November 2017, p.7
7 Dublin Chamber Quarterly Business Trends Survey Q4 2017
8 European Commission, 2017, ‘Country Report Ireland Including an In-Depth Review on the prevention and correction of macroeconomic imbalances’, p. 53
9 TomTom Traffic Index, Full Ranking, Europe – All Cities, https://www.tomtom.com/en_gb/trafficindex/list?citySize=ALL&continent=EU&country=ALL, accessed 23.07.2018
10 CSO, Census 2016, Profile 6 Commuting in Ireland, https://www.cso.ie/en/csolatestnews/presspages/2017/census2016profile6-commutinginireland/
11 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. This is likely a conservative estimate. Back in 1997 the Dublin Transportation Office estimated the cost at £500 million, or c. €1.2 billion today adjusted for inflation.
12 Forfás, National Competitiveness Council, Our Cities: Drivers of National Competitiveness, April 2009, p. 7

6 | Pre-Budget Submission Budget 2019
1. Deliver the National Development
Plan effectively and on schedule

Ireland requires a long-term approach to infrastructure                                 has improved the allocation of resources for projects,
planning that accounts for future population                                            the planning process is still inadequately linked to
projections and supports the growth of city regions as                                  decisions on funding. It also notes that there is room
drivers of regional development.13 With this in mind,                                   to improve the methodological rigor, sequencing, and
Dublin Chamber welcomed the National Planning                                           effectiveness of the project appraisal and selection
Framework: Ireland 2040 Our Plan (NPF), Ireland’s                                       processes.14 Parliamentary efforts to secure early
new spatial development plan, and the accompanying                                      clarity from Government about which specific projects
National Development Plan 2018-2027 (NDP) for capital                                   will receive extra funding from the increased capital
investment. The NPF’s recognition of cities as the                                      allocations in 2019, and how they will be prioritised,
drivers of regional growth throughout Ireland was a                                     have been unsuccessful.15
particularly welcome change from previous approaches                                      The debate about capital investment priorities
to spatial planning. The co-publication of the NDP                                      should be informed by clear and up-to-date data on
and NPF represented a positive step towards proper                                      the relative costs and benefits of proposed projects.
alignment of spatial and infrastructural development.                                   In practice, however, there is a lack of transparency
  Budget 2019 will be the first since the launch of the                                 both with respect to comparisons between regional
two plans. It is crucial that Government demonstrates                                   investment levels16 and comparisons between
seriousness about its commitment to the infrastructure                                  specific infrastructure projects. To introduce greater
investments needed to support long-term planning and                                    transparency to the decision-making process, Dublin
intelligent urbanisation. The first test of Budget 2019                                 Chamber proposes that all infrastructure projects
will be whether it meets the Government’s own fiscal                                    under consideration be publicly ranked according to
commitments as outlined in the NDP and allocates                                        their cost-benefit ratio. This can be done in the form of
additional capital funds in an effective manner.                                        a simple list, without publicly revealing an estimate of
  However, serious concerns remain about delivery of                                    cost in monetary terms. There would be no reason to
the NDP and how projects will be prioritised in order                                   withhold such information on grounds of commercial
to make best use of public funds. The IMF has warned                                    sensitivity; on the contrary, release of such data would
that, while implementation of multi-year budgeting                                      be clearly in the public interest.

13 Dublin Chamber, Submission on the Mid-Term Review of the Capital Investment Plan, April 2017
14 International Monetary Fund, IMF Country Report No. 17/333, Ireland Technical Assessment Report: Public Investment Management Assessment, November 2017, p.8
15 E.g. Dáil Éireann Debate Wednesday 11 July 2018, Question No. 490. Reference No. 31281/18. Deputy Barry Cowen. Answered by the Minister for Transport Tourism &
Sport Shane Ross. Question in relation to use of the additional €316m for the Dept. Transport capital allocation in 2019.
16 National Income & Expenditure Table 25: Central & Local Government – Details of Gross Physical Capital Formation is no longer published, meaning that it is no longer
possible to accurately compare the total level of capital formation in the GDA with that in other parts of Ireland.

7 | Pre-Budget Submission Budget 2019
Recommendations
Budget 2019 must meet the Government’s fiscal                                    Government must allow an informed debate on capital
commitments as outlined in the National Development                              investment choices by:
Plan. This will require €7.3 billion in exchequer funding                        • Publishing a breakdown of capital spending by
for public capital expenditure, accounting for 3.5% of                               county and Metropolitan Area in its National
projected Gross National Income.17                                                   Income & Expenditure tables;
  The Government must clarify which projects it is                               • Ranking all infrastructure projects under consid-
prioritising to receive the increased capital expenditure                            eration according to their cost-benefit ratio and
under the National Development Plan over the 2019-                                   making this data available to the public.
2022 period, with particular attention given to the €3.3                         • Publishing the cost-benefit analyses prepared for
billion in additional capital allocations to the Dept. of                            completed projects to encourage learning from
Transport, Tourism & Sport over the same period.18                                   past experience.

17 Project Ireland 2040: National Development Plan 2018-2027, p. 19
18 Annex 1, Project Ireland 2040: National Development Plan 2018-2027, p. 104,

8 | Pre-Budget Submission Budget 2019
2. Prioritise projects in the Greater Dublin Area

  Analysis by Dublin Chamber demonstrates that,                                          Dublin received the second lowest level of capital
  far from being a favoured location for Government                                      investment per head from central government of
  spending, the capital city receives significantly                                      any county from 2009-2016. The combined four
  less investment in its productive and social                                           Dublin Local Authorities received less than half of
  infrastructure than is required to support economic                                    the national average over the period, and less than
  competitiveness and quality of life. Despite the                                       a third of the amount received by higher per capita
  demographic pressures on its infrastructure,                                           recipients, as illustrated in Table 2.

                      Table 2: Average Annual Capital Spending per capita 2009-201619
                    Kilkenny                                                                                              718
                     Leitrim                                                                                        633
                 Westmeath                                                                                    596
               Roscommon                                                                                557
                       Mayo                                                                     499
                     Kildare                                                                    492
                   Longford                                                                    484
                       Laois                                                                  478
                 Monaghan                                                                     472
                    Average                                                             430
                   Tipperary                                                           425
                       Clare                                                           422
                       Kerry                                                           419
                    Galway                                                        404
                  Waterford                                                       396
                    Limerick                                                     386
                    Wexford                                                 367
                    Donegal                                                350
                       Offaly                                               348
                      Cavan                                            345
                        Cork                                           343
                      Meath                                          317
                    Wicklow                                    280
                       Louth                                  270
                     Dublin                             229
                     Carlow                          203

                               €-          100          200           300               400           500           600    700          800

19 Includes 1) Income Received by Local Authorities for Capital Spending in Six Budget Service Categories including transport (37%), housing and urban regen-
eration programmes (34%) and general purpose grants (16%); 2) allocations from Transport Infrastructure Ireland for National Roads in each county. Does not
include: 1) One-Off Capital Spending on National Infrastructure Projects (such as Hospital Buildings and Primary Care Centres) that is difficult to geographically
localise and mainly takes the form of availability payments on PPPs.
           19
              Includes 1) Income Received by Local Authorities for Capital Spending in Six Budget Service Categories
9 | Pre-Budget  Submission
           including transportBudget  2019 and urban regeneration programmes (34%) and general purpose grants
                               (37%), housing
           (16%); 2) allocations from Transport Infrastructure Ireland for National Roads in each county. Does not include:
           1) One-Off Capital Spending on National Infrastructure Projects (such as Hospital Buildings a nd Primary Care
Table 3: Capital Spending by Central Govt. in Local Authority 2009-2016

The underfunding of Dublin has been consistent                                           Perhaps the most egregious example of underinvest-
in recent years and it marks the continuation of a                                     ment has been in the Housing category. Dublin is the
broader pattern.20 Severe levels of underinvestment                                    epicentre of the accommodation crisis; it has propor-
have occurred in Dublin’s local infrastructure and                                     tionally the highest social housing waiting lists in Ireland,
capital maintenance. This includes the categories of                                   and the highest number of households reliant upon
Transport, Environment, Development Management,                                        social housing supports such as Housing Assistance
Education and Employment Services, Recreation and                                      Payment or Rent Supplement. Yet despite having the
General Purpose Grants. Dublin also received below-                                    greatest needs, Dublin received below average capital
average current funding for local services and below-                                  investment in housing by the Central Government over
average total spending by central government in the                                    the 2009-2016 period, and less than half the amount
2009-2016 period.                                                                      per capita received by the highest recipient county.

20 Edgar Morgenroth, The Regional Development Impacts of Transport Infrastructure, 2014, found that Dublin received the lowest level of capital investment in
public infrastructure per head of any Irish region. Data collected in 2009: Dublin per capita capital investment €1041 vs. national average €1543 (i.e. two thirds of the
national average).

10 | Pre-Budget Submission Budget 2019
This analysis is based only on Dublin’s resident                            account, it is clear that the abovementioned spending
population. It does not account for those living outside                      figures are merely a conservative representation of the
of Dublin who use its infrastructure every working day.                       inadequacy in funding for Ireland’s capital.
A further 116,000 people commute into Dublin to work                            This anomaly is both socially inequitable and econom-
on a daily basis, and many more travel into the city for                      ically unsound. If sustained, it will exacerbate existing
education and public services.21 Moreover, the capital                        social problems and undermine Dublin’s international
city is the reception point for the overwhelming majority                     competitiveness as a city in which to live, work, invest,
of Ireland’s tourist population, with Dublin Airport                          and do business. Already, levels of life satisfaction are
receiving 82% of overseas visitors to the Republic                            lower in Irish cities than in rural areas, both among
of Ireland,22 and 68% of holidaymakers spending                               high-income and low-income groups.24 Other research
time in Dublin before travelling on to other parts of                         has found that the capital city has one of the lowest
the country.23 Taking these additional pressures into                         levels of self-reported life satisfaction in Ireland.25

                     Table 4: Total Housing Capital Investment per capita 2009-2016

21 Analysis of CSO Census 2016 data privately supplied to Dublin Chamber.
22 Dublin Airport, North Runway: Potential to connect, compete and grow, p.4, https://www.dublinairport.com/docs/default-source/North-Runway-Docs/po-
tential-to-connect-compete-and-growd6ad438b73386836b47fff0000600727.pdf?sfvrsn=0#page=4
23 Tourism Ireland, Facts& Figures 2016, p.4, https://www.tourismireland.com/TourismIreland/media/Tourism-Ireland/Press%20Releases/Press%20Releas-
es%202017/Facts-and-Figures-2016.pdf?ext=.pdf#page=4
24 Eurostat, Statistical Books, Urban Europe: Statistics on Towns, Cities & Suburbs 2016 Ed., p. 267
25 UCD Briefing Paper for Comhar, Clinch et al, Understanding & Measuring Quality of Life in Ireland: sustainability, happiness and well-being, p. 56

11 | Pre-Budget Submission Budget 2019
Recommendations
Projects to relieve the growing pressure in the capital
city region must be prioritised for progress and invest-
ment in 2019. Dublin Chamber’s priorities are:

• MetroLink
Dublin Chamber strongly supports the MetroLink proj-
ect. We have long advocated an underground rail line
to connect North County Dublin with the city centre,
including a stop at Dublin Airport. This line should also
serve the swelling commuter populations of North
and South Dublin, including Sandyford and other high-
growth areas.

• DART Expansion Programme
The DART Underground project will be crucial to the
development of an integrated public transport system
in Dublin. In the absence of developments on this, we
recommend that other elements of the Expansion Pro-
gramme, such as electrification, be progressed in 2019.

• Bus Connects
The NTA plan for new bus corridors and Bus Rapid
Transit in the capital has the potential to be a valuable
solution to mounting traffic congestion and should be
prioritised for funding where further progress on the
larger projects is not feasible.

• Eastern & Midlands Region Water Supply Project
Water systems in Dublin’s competitor cities typically
operate at c. 80% capacity, while in Dublin this figure
is approximately 98%. With Dublin expected to meet
capacity constraints by 2025, and water outages al-
ready a reality, construction of the Shannon pipeline is
an urgent priority.

• Social & Affordable Housing Construction
Government must shift from the counter-productive
policies of rental support and private home acquisition
to the construction of new purpose-built social and
affordable homes in high-density apartment develop-
ments in the capital. This is needed to relieve pressure
in the private market, address Dublin’s homelessness
problem, and protect quality of life in the capital city.

12 | Pre-Budget Submission Budget 2019
3. Use the ‘Rainy Day Fund’ as an
  insurance policy for the NDP

  Steady investment in Ireland’s productive infra-         But the investment surge was short-lived, and cap-
  structure will be crucial to economic success in the     ital expenditure fell precipitously before these goals
  coming years, but achieving this will require learn-     were achieved; almost a decade later, it had failed to
  ing from the lessons of the past. Ireland’s pattern of   recover. This highly variable pattern contrasts with
  capital investment in recent decades has been one        the more stable pattern in Ireland’s European neigh-
  of the most volatile in Western Europe. During the       bours. Capital expenditure levels are now recovering,
  boom years, Ireland raised its capital spend to com-     but it is crucial that Ireland does not fall back into its
  pensate for generations of underinvestment and to        historical pattern of instability on account of an ex-
  place itself on an even footing with competitors.        ternal economic shock.

              Table 5: General Government Gross Fixed Capital Formation, 2001 – 201526

26 Eurostat

13 | Pre-Budget Submission Budget 2019
Dublin Chamber acknowledges the Rainy Day Fund                                   Recommendation
as a prudent means of strengthening Ireland’s fiscal                             To avoid a relapse into volatility, drawdown from the
resilience. The initial tranche of €1.5 billion from the                         Rainy Day Fund should be legally permitted to ensure
Ireland Strategic Investment Fund, combined with                                 stable and steady delivery of the planned infrastructure
annual €500 million contributions from 2019 to 2021,                             investments, if and when economic growth dips below
will see the Fund reach €3 billion by 2021, providing a                          the level required to fund delivery of the National
substantial resource for economic stabilisation.                                 Development Plan (minimum 2% growth).27

27 4% over 2022-2027 period, based on 2% real and 2% inflation. Project Ireland 2040: National Development Plan, p. 19

14 | Pre-Budget Submission Budget 2019
4. Ring-fence unexpected receipts
  for investment in infrastructure

  Ireland’s infrastructure deficit is the biggest internal
  challenge to both economic competitiveness and
                                                                                Recommendation
  quality of life. Addressing this should be the country’s                      •    Tax windfalls, whether from the activities of
  most pressing priority. Delay in delivery of key                                   multinationals or other sources, should be used
  infrastructural programmes will constrain economic                                 to accelerate delivery of priority infrastructure
  growth in the years ahead, ultimately undermining                                  projects under the NDP or, where this is not
  Ireland’s fiscal position. The EU Commission has                                   practicable in a given year, to increase the size of
  indicated that Irish fiscal sustainability is not at                               the Rainy Day Fund.
  short-term risk, while medium and long-term risks
  are based as much on competitiveness concerns
  as on the level of Government debt.28 Therefore,
  Government should take all opportunities to
  accelerate infrastructure delivery where possible
  under EU fiscal rules.
    In recent years, several categories of receipts
  have generated more revenue than was expected
  on the basis of initial estimates. Figures released by
  the Department of Finance suggest that exchequer
  returns for 2018 may be ahead of target, principally
  due to buoyant receipts from tax on corporate
  income. Cumulative corporation tax receipts by end-
  June 2018 are 9.1% or €335 million ahead of target.29
    Fiscal prudence demands that better-than-
  expected revenues are not committed to the
  expansion of current spending programmes, and
  Dublin Chamber endorses the IMF’s recent warning
  to avoid using temporary revenue gains to fund
  permanent measures.30 Instead, they should be used
  to enhance the productive capacity of the economy
  through infrastructure investment.

28 European Commission DG ECFIN, Assessment of the 2018 Stability Programme for Ireland, 23 May 2018, p.16, https://ec.europa.eu/info/sites/info/files/econo-
my-finance/07_ie_sp_assessment_0.pdf#page=16
29 Department of Finance Fiscal Monitor (Incorporating the Exchequer Statement) June 2018, p.3, https://www.finance.gov.ie/wp-content/uploads/2018/07/
Fiscal_Monitor_2018_June-1.pdf#page=4
30 IMF, Ireland Staff Concluding Statement of the 2018 Article IV Mission, May 2018, https://www.imf.org/en/News/Articles/2018/05/14/ms051418-ireland-staff-
concluding-statement-of-the-2018-article-iv-mission

15 | Pre-Budget Submission Budget 2019
Grow Ireland’s Businesses

Budget 2019 will be the last before the UK withdrawal                               and the UK in order to provide a competitive context
from the EU, a historic event that is likely to have major                          for our proposals on enterprise and entrepreneurship.
implications for Ireland’s economic model. Brexit is                                It is clear that the UK is focused on assisting new
not the only external threat that Ireland faces. As a                               British businesses to grow, thereby increasing both
small open economy, Ireland is highly vulnerable to                                 the employment and revenue-generating potential of
fluctuations in the international market, or even to                                these firms. As illustrated in Table 6, Ireland’s business
restructuring by a small number of multinational firms.                             environment now compares negatively with its nearest
Meanwhile, US tax reforms have already blunted the                                  neighbour in numerous respects.
competitive edge of Ireland’s offering to FDI.                                        Dublin Chamber acknowledges that Government
   While Ireland must withstand external political                                  must balance social and economic needs when
pressures on its corporation tax regime, and remain                                 determining tax policy, and believes that this can
attractive to international investors, it must also take                            be achieved whilst improving the entrepreneurial
decisive action toavoid excessive reliance upon a                                   environment. For example, the Chamber has long
narrow number of highly mobile businesses.31 This                                   advocated fairer and equal tax treatment for the self-
will require the strengthening of Ireland’s indigenous                              employed, including raising the Earned Income Tax
business base, both to increase the size of the overall                             Credit to the PAYE equivalent of €1,650, and removing
economy and to increase the proportion of it accounted                              of the 3% USC surcharge on self-employed people
for by Irish firms. Ireland must start to take a broader                            earning over €100,000. We would welcome progress
view of industrial policy that places greater priority on                           towards these goals in Budget 2019, while consideration
welcoming entrepreneurs and encouraging Irish SMEs                                  should also be given to gradually increasing the entry
to scale.                                                                           point for the higher 40% income tax rate in order to
   The Government’s updated enterprise development                                  ease pressure on average income earners.
policy, Enterprise 2025 Renewed, acknowledges that                                    While progress on all fronts is not be feasible in
while some progress has been made towards updating                                  one fiscal year, there is scope within the fiscal space
Ireland’s tax regime in recent years, ‘we need to take                              as outlined in the summer economic statement
account of our comparative position relative to the                                 to send a strong signal that Ireland intends to
offerings of our main competitors, and the reality that                             sharpen its competitive edge in an uncertain world.
Irish enterprises are mobile too.’32 The need for such a                            Informed by comparative analysis and business
comparison has never been more urgent than today.                                   feedback, the following are Dublin Chamber’s priority
With this in mind, Dublin Chamber has compared Ireland                              recommendations for 2019.

31 National Competitiveness Council, Competitiveness Bulletin 18-2: Economic Concentration 2018, http://www.competitiveness.
ie/Publications/2018/Concentration-Bulletin.pdf
32 Enterprise 2025 Renewed: Building resilience in the face of global challenges, p. 13, https://dbei.gov.ie/en/Publications/Publica-
tion-files/Enterprise-2025-Renewed.pdf#page=29

16 | Pre-Budget Submission Budget 2019
Table 6: Ireland-UK Business Competitiveness Table

                                                                       Ireland                UK / NI
     (€1.1333 per £1 – 10/05/18 – www.ft.com)
                                                                    (Budget 2018)        (Budget Spring ‘18)

     Investment in Critical Infrastructure
     General Government Gross Capital Expenditure
                                                                                2.00%                 2.88%
     as % of GNI (Current LCU) 2017
     Income Tax
     Salary at which rate changes to 40% 33 [€/£]                             €34,550               €52,528
     Effective total tax rate on dividends at higher rate                         52%                  32.5%
                                                                  Yes – 3% USC levy on
     Different assessment for self-employed.                               income over                    No
                                                                             €100,000
                                                                          Yes – recent
     Possible to defer income tax on share-options given to
                                                                  introduction of KEEP                  Yes
     specific key employees
                                                                             for SMEs
     Capital Gains Tax
     Standard rate                                                               33%                    20%
                                                                     10% on qualifying
     Entrepreneur relief – CGT rate
                                                                      assets up to €1m
     Effective rate first ~€1m on exit after five years                             10%                    10%
     Effective rate first ~€11m on exit after five years                            31%                    10%
     Capital gains tax rate on disposal of shares in SMEs                        33%                    10%
     Capital gains tax rate on Employment and Investment
                                                                                 33%                     0%
     Incentive Scheme qualifying investment or equivalent gains
     Corporate Tax
     Knowledge Development Box / Patent box income                              6.25%                   10%
     Corporate Tax rate (UK’s by 2020)                                        12.50%                    17%
     R&D Tax Credit – upfront refunds for early stage/scaling
                                                                                    No                  Yes
     companies
     Capital gains tax business asset rollover relief                               No                  Yes
     Value Added Tax
     Standard Rate                                                               23%                    20%
     Registration Threshold for SME providing services34                      €37,500               €96,330

17 | Pre-Budget Submission Budget 2019
1. Upgrade Entrepreneur Relief to surpass the UK

Entrepreneur Relief from Capital Gains Tax provides for                             The Department of Finance has acknowledged that
disposals of qualifying business assets by entrepreneurs                            ‘retention [of the relief] is important in the context of
to be charged at a lower 10% CGT rate up to a lifetime                              possible Brexit impacts and other issues than may arise
limit on chargeable gains.33 To qualify, among other                                as the UK exits the EU.34 Moreover, the Programme
conditions, an individual must own at least 5% of                                   for Government promises ‘We will reduce the rate of
the business and have spent a certain proportion                                    Capital Gains Tax for new start-ups to 10% from 2017
of their time working in the business as a director or                              (held for five years and subject to a €10 million cap on
employee for three out of the previous five years, prior                            gains).’35
to disposal. The aim is to encourage entrepreneurs to                                  The cost of bringing Ireland’s lifetime limit up to the
found, operate, and dispose of businesses in the State,                             nominal UK equivalent of €10 million, as promised in
and to build a reputation for Ireland as a country that                             the Programme for Government, has been estimated
welcomes and rewards enterprise. Dublin Chamber                                     at €54 million using the non-dynamic costing model
made the case for the revised Entrepreneur’s Relief in                              employed by the Department of Finance. However, a
2015, and welcomed its introduction in Budget 2016.                                 further increase in the limit to €15 million would incur an
  However, Ireland’s offering to entrepreneurs remains                              added annual cost to the exchequer of just €2 million,
starkly uncompetitive in relation to the UK’s, which                                according to the same model, while positioning Ireland
includes a lifetime cap of £10m (c. €11.2m in current                               at a very clear competitive advantage against the UK.36
market prices) on qualifying gains for Entrepreneur
Relief. This compares with a modest €1m cap in Ireland.
A larger limit is required to encourage greater ambition
                                                                                    Recommendation
and scaling by entrepreneurs; and Ireland should send                                 •     Raise the lifetime cap on qualifying gains for
a strong signal that it intends to compete with the UK                                      Entrepreneur Relief from €1 million to €15 million
ahead of Brexit. Consideration could also be given to                                       to send a strong signal that Ireland intends to
given to amending the 5% share requirement to refer                                         compete with the UK ahead of Brexit. Cost: €56
to the point of investment, ensuring that entrepreneurs                                     million.
who retain their initial investment are not penalised as
subsequent external investment is received.

33 Qualifying business assets include those in most productive businesses, excluding businesses involving land dealing or holding investments.
34 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. Department of Finance Tax Strategy Group – TSG
17/11, Capital & Savings Taxes, 25 July 2017, p.5.
35 Programme for a Partnership Government, p.38.
36 Department of Finance Tax Strategy Group – TSG 18/10, Capital & Savings Taxes, 10 July 2018, p.11, https://www.finance.gov.ie/wp-content/up-
loads/2018/07/TSG-18-10-Capital-and-Savings-Taxes-PL.pdf#page=11. Dublin Chamber notes the limitations of non-dynamic costing, and the fact that previous
reductions in Capital Gains Tax have had a stimulatory effect on economic activity, ultimately increasing revenue generation.

18 | Pre-Budget Submission Budget 2019
2. Introduce an Investor Relief to
  encourage investment in Irish SMEs

  Growing Ireland’s indigenous business base will                                    The Irish CGT regime effectively incentivises
  require greater investment by SMEs. While the                                    passive investment in larger foreign firms over
  Government’s enterprise policy commits to ‘ensuring                              investment in higher risk Irish SMEs. This runs
  a competitive funding environment that provides                                  contrary to the national interest, which clearly lies
  a range of options to support our enterprises from                               in building up a greater indigenous business base
  start-up to growth’, in reality, the flat-rate CGT                               so as to avoid over-reliance on a small number of
  regime undermines efforts to promote investment in                               highly mobile multinationals. With a similar concern
  SMEs.37 There is no incentive to choose investment                               in mind, the UK introduced an ‘Investors’ relief’ from
  in a home-grown start-up over investment in a                                    CGT. It offers a lower CGT rate of 10% on lifetime
  longer-established multinational. The ESRI recently                              gains of up to £10 million from disposals of shares in
  identified a significant investment gap in the Irish                             an unlisted trading company or the holding company
  SME sector in a joint study with the Dept. Finance,                              of a trading group.39
  calculating that the gap amounts to just over €1
  billion for 2016 alone.38
     Application of a flat 33% CGT rate on all capital
  gains, irrespective of the level of risk taken and the
  contribution to the Irish economy of the underlying
                                                                                   Recommendations
  investment, is clearly inequitable. Investors pay the                            •     Introduce an Investor Relief along the UK model,
  same CGT on passive investments in large blue chip                                     offering a lower 20% CGT rate on all investment
  foreign companies as they would on higher-risk Irish                                   in unquoted trading companies where shares
  companies. People providing angel investment,                                          have been held in excess of three years.40 While
  people providing their services as employees, and                                      lower than the British rate of 10%, it would be an
  shareholders who do not meet the 5% threshold                                          important first step to encourage investment in
  to avail of Section 597AA (Entrepreneur Relief)                                        indigenous business.
  are therefore unfavourably treated. Moreover, the                                •     To keep the scheme open to small-scale
  distinction between large quoted companies, with                                       investors, there should be no minimum
  a liquid market for the sale of shares, and unquoted                                   percentage shareholding in order to qualify.
  firms, with a much less liquid market for the sale of                            •     Establish a lifetime limit on qualifying gains at the
  shares, is not reflected in the taxation regime.                                       nominal UK equivalent of €10m.

37 Dept. Business Enterprise & Innovation, Enterprise 2025 Background Report, p. xv
38 “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, https://www.finance.gov.ie/wp-content/uploads/2018/03/180308-
Measuring-the-Investment-Gap-and-its-Financing-Requirements-for-Irish-SMEs.pdf
39 HM Revenue & Customs internal manual, Capital Gains Manual, CG63500P, https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg63500p
40 The Dept. Finance has reported that it is unable to calculate the cost of introducing a version of the UK scheme in Ireland as tax returns do not identify the
amount of chargeable gains associated with unquoted shares. 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.

19 | Pre-Budget Submission Budget 2019
3. Make the R&D tax credit work for SMEs

Business Research & Development in Ireland remains                                Development tax credit is almost twice as common
dominated by larger, foreign-owned MNCs, with only                                among large firms as among SMEs, and is almost four
1% of small firms engaged in R&D.41 This year, the OECD                           times more common among foreign firms as among
Economic Survey has again highlighted the existence                               firms founded in Ireland.44
of a two-speed economy in Ireland, confirming that                                   Many SMEs, and most start-ups, face cash flow
the productivity gap between the indigenous and                                   issues which make the 3-year deferred claim model
multinational sectors is actually widening rather than                            unattractive or impractical. Allowing an upfront
narrowing.42 To address the growing productivity gap                              payment would make the R&D tax credit a more
between the indigenous and multinational sectors,                                 realistic option for early stage firms with lower cash
Government must take steps to improve the low levels                              resources. In the competitive context of Brexit, it is
of innovation among Irish SMEs.                                                   also worth noting the regime in the UK, where there is
  The Research & Development Tax Credit is one of the                             a special R&D Relief available to SMEs with extremely
principal schemes the Government uses to encourage                                attractive conditions, including a super deduction of
R&D among businesses. As currently designed,                                      130% of qualifying costs for SMEs.45
however, it is failing to drive R&D among indigenous
businesses on the scale that Ireland requires. The
European Commission has advised that the emphasis                                 Recommendations
in Ireland’s R&D strategies for business should be to
build up research and innovation capability within Irish                          •    Allow an upfront claim of the R&D tax credit cash
SMEs, and has recommended that the R&D tax credit                                      refund for SMEs, instead of the three year lagging
scheme must be targeted at SMEs specifically.43                                        deferred cash-flow mechanism that currently
  Feedback from Dublin Chamber members indicates                                       exists. As this purely a cash-flow measure, it is
that there is a low take-up of the R&D tax credit outside                              would be cost-neutral over a three-year period,
the multinational sector at present. It is particularly                                with minimal exchequer impact.
low among firms founded in Ireland and among firms                                •    Increase the R&D tax credit rate from 25% to 30%
that are SMEs by the European Commission definition.                                   for SMEs, to compare better with the UK’s SME
The same study indicates that use of the Research &                                    R&D Relief. Cost: €30 million.46

41 European Commission Research & Innovation Observatory Country Report 2017: Ireland, pp.24-26
42 OECD Economic Survey of Ireland 2018, https://www.oecd.org/eco/surveys/economic-survey-ireland.html
43 European Commission Research & Innovation Observatory Country Report 2017: Ireland, p.26
44 Dublin Chamber Business Risk Outlook Survey Q2 2018
45 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
46 Dáil Éireann Debate Thursday 5 July 2018, Question No. 87, Reference No. 29777/18. Answered by the Minister for Finance Paschal Donohoe. The overall cost
of the R&D tax credit reached €553 million in 2014. Dept. Finance, Economic Evaluation of the R&D Tax Credit, October 2016., p. 6, https://igees.gov.ie/wp-con-
tent/uploads/2014/01/R-and-D-Credit-Evaluation-2016.pdf#page=6

20 | Pre-Budget Submission Budget 2019
4. Reduce income tax on dividends
  for entrepreneurs to 30%

  To succeed in developing prospering indigenous                                   be the only option that is encouraged. In many cases
  businesses on a large scale, it is critically important                          the scaling of Irish SMEs may be of greater long-term
  that Ireland provides a supportive environment                                   value to the Irish economy.
  for entrepreneurship throughout the life-cycle of                                  The Government’s updated enterprise policy
  a business, rather than merely during the start-                                 includes a commitment to ‘strengthen the
  up phase. Promotion of a start-up culture must                                   competitiveness of Ireland’s tax regime to support
  be combined with effective long-term rewards for                                 start-ups, small and medium enterprises (SMEs)
  entrepreneurs who choose to stay on and scale                                    scaling.’48 However, Ireland’s competitive position is
  their businesses rather than accept the allurement                               clearly wanting at present. In the UK, the effective
  of a short-term reward by selling the firm. Ireland’s                            total tax rate on share dividends at the higher rate
  present tax regime lacks this holistic and long-term                             is 32.5% compared with 52% in Ireland, a stark
  approach.                                                                        differential in the context of the Brexit.
    Under the current system of incentives, divestment
  is the only means by which entrepreneurs can
  extract large-scale value from their firm in a manner
  that is not subject to the full rate of income tax, as                           Recommendation
  Entrepreneur Relief only applies to CGT on the value
  of shares. Recent changes introduced by the Finance                              •     Tax entrepreneurs at a lower rate of 30% on
  Act 2017 have further increased the difficulty.47                                      income from share dividends to outmatch the UK
    The result is an ‘inefficient incentive’ that drives                                 offering ahead of Brexit.49 The qualifying criteria
  successful businesspeople to ‘sell up’ rather that                                     for this lower rate would be the same as those
  stay on and grow their business further. While                                         that apply to individuals and firms with respect
  divestment is an appropriate and desirable outcome                                     to Entrepreneurs Relief from Capital Gains Tax.
  for serial entrepreneurs, for example, it should not

47 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 stakehold-
ers 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.
48 Enterprise 2025 Renewed: Building resilience in the face of global challenges, p. ix, https://dbei.gov.ie/en/Publications/Publication-files/Enterprise-2025-Re-
newed.pdf#page=13
49 Revenue has 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 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.

21 | Pre-Budget Submission Budget 2019
Invest in Ireland’s Human Capital

Ireland’s people are its greatest resource. A large                              Table 7: GDA Businesses Experiencing
and skilled labour force will be crucial to facilitating                                 Skills Shortages Q2 2018
business growth and maintaining international                                    Are you currently looking for employees
competitiveness in the coming years. However, with a                             with a certain skillset, but having difficulty?
buoyant labour market approaching full employment,
and high accommodation costs in the GDA, the cost
and availability of skilled labour is a growing concern
for businesses. Whereas almost half (47%) of Dublin                                           37%
Chamber members were affected by skills shortages in                                          (NO)
                                                                                                                 63%
Q4 2016, this proportion has risen to almost two thirds
                                                                                                                 (YES)
(63%) in Q2 2018.50 The range of affected sectors and
business functions presently includes financial services,
ICT, engineering, construction, tourism and hospitality,
international trading, and sales and marketing.
  This challenge of access to skilled labour will continue
to mount in the context of strong economic growth.
The tightening supply of labour is already placing
upward pressure on wage costs, and making it diffi-
cult for SMEs to compete with larger firms for skilled
employees. As the OECD has recently noted, high Irish
labour costs threaten to slow business growth and
undermine economic competitiveness through infla-
tion.51 To maintain Ireland’s attractiveness as a location
for FDI and to support indigenous business growth,
Dublin Chamber recommends that the Government
take measures to attract, retain, and develop talent in
the Irish labour force.

50 Dublin Chamber Quarterly Business Trends Survey Q4 2016; Dublin Chamber Business Risk Outlook Q2 2018
51 OECD, Ireland Economic Forecast Summary, May 2018, https://www.oecd.org/eco/outlook/economic-forecast-summary-ireland-oecd-economic-outlook.pdf

22 | Pre-Budget Submission Budget 2019
1. Increase female labour market participation

While inward migration will continue to play a valuable                    other Northern European economies. It contrasts with
role in meeting business needs, population growth                          a differential of 2.7 percentage points in Sweden, 2.9
in the Greater Dublin Area carries its own challenges                      percentage points in Finland, 5.7 in Denmark, 6.7 in
in terms of managing overstretched infrastructure                          France, 7.7 in Germany, and 8.4 in Belgium, for example.53
and the inadequate housing stock. However, there is                        According to the latest figures, the differential in the
considerable untapped potential in the Irish labour force                  labour force participation rate between men and
that can be utilised without unnecessarily increasing                      women at all ages represents 254,500 women who are
pressure on the availability of accommodation through                      out of the labour force in Ireland.54
excess demographic growth. The room to expand                                There is clear evidence that Ireland’s gap in female
female labour force participation has been widely                          labour market participation is largely due to the burden
noted.52                                                                   of childrearing falling principally upon women in a
  The female employment rate in Ireland is 10.4                            context of high childcare costs.55 As Table 8 illustrates,
percentage points lower than the male rate. This                           the female rate of labour force participation diverges
gender gap is considerably higher than that in most                        sharply from the male rate around childbearing age

                          Table 8: Ireland: Labour Force participation rate by age group, 201656

52 E.g. ESRI Quarterly Economic Commentary Summer 2018, pp. 51-55, https://www.esri.ie/pubs/QEC2018SUM.pdf#page=62
53 CSO, Women and Men in Ireland 2016, Employment, Table 2.2, EU: Employment Rate 2016, https://www.cso.ie/en/releasesandpublications/ep/p-wamii/
womenandmeninireland2016/employment/
54 CSO, Labour Force Survey Q1 2018, Table 7 & Table 8, https://www.cso.ie/en/releasesandpublications/er/lfs/labourforcesurveyquarter12018/
55 Indecon Report on Support for Childcare for Working Families & Employment Implications, Nov 2013, pp.ii-iii
56 CSO, Women and Men in Ireland 2016, Employment, https://www.cso.ie/en/releasesandpublications/ep/p-wamii/womenandmeninireland2016/employment/

23 | Pre-Budget Submission Budget 2019
and fails to catch up until retirement. The result is that                          to work by a second earner following withdrawal from
amongst people of typical childrearing age, there are                               the labour force on account of parenthood, taking
135,000 fewer women in the labour force than men.57                                 full account of childcare costs. Business feedback
  Statistical evidence for the impact of childcare                                  suggests that, as presently structured, the labour
affordability on the labour market is strongly supported                            taxation system (USC, PRSI and income tax) is serving
by business community feedback. Three quarters                                      to discourage highly skilled people from returning to
(75%) of Dublin Chamber members now report that                                     the workforce.
the cost of childcare has a material impact on their                                   There are many variables affecting such situations,
business, affecting the cost and/or availability of                                 and this topic requires comprehensive study at an
staff. Meanwhile, almost one in five Dublin Chamber                                 official level. However, an initial exploratory analysis
members have specifically identified easing female                                  by Dublin Chamber suggests that an individual who
labour market participation as the solution to helping                              withdraws from the labour force to give birth and/
them access the skills they require.58                                              or care for an infant may only add marginally to net
  With this in mind, Dublin Chamber endorses                                        family income by returning to work. It is clear that the
recent IMF advice that ‘attention should be given to                                attractiveness of returning to work, even at higher
providing affordable childcare, reducing high second-                               salary levels generally expected by skilled employees,
earner marginal tax rates, and eliminating gender pay                               is weakened by the structure of the tax system and the
gaps.’59 Dublin Chamber supports the commitment                                     low level of childcare support currently available.
to ‘introduction of a robust model for subsidised                                      This is confirmed by stark findings from the
high quality childcare’,60 and we welcome the Single                                European Commission. Ireland has the second highest
Affordable Childcare Scheme introduced by the                                       participation tax rate (PTR) in the EU for potential
Department of Children & Youth Affairs last year as a                               female entrants to the labour force when out-of-pocket
first step. According to initial calculations, for 2018,                            childcare costs are taken into account.62 With a PTR of
the additional budget requirement for the Affordable                                94% in such situations, Ireland is second only to the
Childcare Scheme (over and above the 2017 budget)                                   UK in its penalisation of second earners with children.63
will be €44m.61 Dublin Chamber recommends a more
significant expansion of fiscal support for the new
Single Affordable Childcare Scheme in order to expedite
progress towards greater affordability.
                                                                                    Recommendations
   There is no one solution to the childcare affordability                          •   To ameliorate the childcare affordability problem
issue, however, and the Government must take a                                          in 2019, double the maximum universal childcare
broader approach. Specifically, it must examine the                                     subsidy under the Affordable Childcare Scheme
impact of the taxation system on the decision to return                                 from €80 per month to €160 per month for a child
                                                                                        in full-time care before the start of ECCE, with
                                                                                        a commitment to commensurate progressive
                                                                                        increases in subsequent years. Cost: €19m64
57 Comparison of men and women aged 25-59, CSO, Labour Force Survey Q1
2018, Table 7, https://www.cso.ie/en/releasesandpublications/er/lfs/labour-         •   Consider improving the targeted subsidy element
forcesurveyquarter12018/                                                                of the Affordable Childcare Scheme to better
58 Dublin Chamber Business Risk Outlook Q2 2018
59 IMF, Ireland Staff Concluding Statement of the 2018 Article IV Mission,              reflect the net income of the second earner in a
May 2018                                                                                family (not just combined parental net income)
60 Programme for a Partnership Government
61 Department of Children & Youth Affairs, Policy Paper on the Development              with a view to increasing labour force participation.
of a new Single Affordable Childcare Scheme, October 2016, p. 71                        More broadly, and in the context of the proposals
62 The participation tax rate (PTR) is a means of measuring the level of
incentive or disincentive for labour market entry that is inherent in the tax and       to reform income, PRSI and USC, undertake
benefit system.                                                                         a thorough examination of how these taxes
63 European Commission, DG Justice, Secondary earners and fiscal policies
in Europe (Rastrigina & Verashchagina), 2015, p. 54, https://ec.europa.eu/              discourage ‘second earners’ from returning to the
info/sites/info/files/150511_secondary_earners_en.pdf#page=54                           workforce, with a commitment to progressively
64 Department of Children & Youth Affairs calculation based on the forecast
cost of providing the universal childcare subsidy (CCSU) for the 2017/18                removing labour force participation barriers on the
programme year. July 2018.                                                              basis of the findings.

24 | Pre-Budget Submission Budget 2019
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