Irish small and medium-sized businesses are more positive about their future than they were this time last year, a survey showed.

However companies continue to be hit by rising costs, such as wage bills, rent and energy prices, the survey said.

ISME chief executive Mark Fielding, whose organisation carried out the survey, said that, with rising wage bills the main concern of small businesses, it was "unbelievable" that the Government had approved a further 9 per cent increase in the minimum wage.

He also said the Government needed to address tightness in the labour market. Of the companies questioned, 10 per cent cited labour shortages as their biggest concern, almost double the number concerned about labour supply last year.

To avoid soaring wage costs, Ireland must set up a "comprehensive immigration policy" to attract appropriately skilled workers and ensure that gaps in the labour market are filled, he said.

Of the 400 companies questioned by ISME, 36 per cent were more optimistic about their future business prospects than they were 12 months ago, while only 12 per cent were less optimistic.

On employment, 34 per cent currently employ more people than they did a year ago and more than a third plan to take on more staff in the next 12 months, the quarterly survey showed.

Only 5 per cent of companies, the lowest number for five years, expect to shed jobs in the next 12 months.

More than half of those questioned expect to increase investment, an 11 percentage point rise on the same period last year.