IBEC told the Minister for Finance, Mr McCreevy, that the organisation's very credibility as a representative body was on the line if he did not reduce employer taxes in last month's Budget.
The employers' lobby group told the Minister that his unexpected decision - in the previous budget - to remove the ceiling on contributions to the Social Insurance Fund which employers must pay on behalf of employees had "made their negotiators look naive and had caused their members to question both the value of partnership and IBEC as a credible representative body".
Employers' PRSI is the biggest annual contributor to the €1.2 billion (£0.95 billion) Social Insurance Fund out of which the State pays unemployment benefit, statutory redundancy and other social welfare costs.
IBEC was particularly angry because only a few days before the 2001 budget it had agreed to a renegotiation of the pay terms of the national wage agreement, the Partnership for Prosperity and Fairness.
The warning about the organisation's credibility was given by a high-level IBEC delegation which met the Minister last July. The minutes of the meeting have now been released by the Department of Finance under the Freedom of Information Act.
The group included Mr William Burgess, head of IBM in Ireland and president of IBEC, and Mr Maurice Pratt, former managing director of Tesco Ireland and now managing director of C&C. Mr Pratt was vice-president of IBEC. The director general of the organisation, Mr Turlough O'Sullivan and head of economic affairs, Mr Brian Geoghegan, also met Mr McCreevy.
They told the Minister that his decision to remove the ceiling on employer's PRSI had a negative impact on the competitiveness of both the Irish subsidiaries of US multinationals and indigenous firms such as Cadbury and C&C.
IBEC asked for a reduction of the top rate of employer PRSI from 12 per cent of employees' annual salaries to 9 per cent in the 2002 Budget. The group emphasised that the Minister needed to reduce employer PRSI "both from a business perspective and with a view to IBEC remaining a strong and credible representative body".
IBEC representatives met Mr McCreevy again on November 22nd, just more than a week before the Budget, to press the case. The delegation was made up of Mr Geoghegan, Mr Burgess and Mr Pratt and they were joined by Mr Donal Byrne, the head of Cadbury in Ireland and also a member of the board of the Central Bank.
Mr Byrne pressed the case forcefully, saying his company was facing an extra £1.5 million (€1.9 million) in PRSI payments this year that it had not budgeted for and there would be problems going forward. He told the Minister that companies "cannot afford to pay [increases due under the PPF] in October but cannot afford anarchy if not paid", according to the minutes of the meeting.
Mr Burgess also pressured the Minister by telling him that many Irish multinational subsidiaries had explained the PRSI issue to their parent firms by saying that the removal of the ceiling did not matter because of the short tax year in 2001 and that the problem would be sorted out before the 2002 tax year started.
He said they had told their parents they had "assurance it would be OK next year, but if not delivered that will be problem", according to the minutes. He added that Irish multinational subsidiaries were "fighting to keep Irish jobs".
The Minister's response was not recorded, but Mr Donal McNally, a Department of Finance official, responded that the Department's assessment was that the PRSI changes had no effect on job figures. Mr Burgess countered that the full effect of the changes might be seen shortly. The Minister decided to reduce the top rate of employers' PRSI by 1.25 per cent in the Budget, saving business some €347 million per year.
The reductions were opposed by the Irish Congress of Trade Unions. It had met Department officials on November 8th and expressed concern that the rates of PRSI would be reduced without some matching concessions on issues such as redundancy payments and parental leave. ICTU subsequently wrote to Mr McCreevy, saying the €200 million annual cost to employers of the removal of the PRSI ceiling in the 2001 budget was more than offset by reductions in corporation tax announced in the same budget.
The ICTU calculated the 2001 budget produced a net gain of £55 million for employers.
