Businesses don’t run on air. Right now, it’s Government-backed costs that are weighing them down. These include increases to the minimum wage, suggested increases to statutory sick payments, plus the arrival, in September, of the auto-enrolment retirement savings scheme, in which the employee, employer, and Government will all pay a certain amount into the employee’s pension fund.
These come on top of the increase in the employers' pay-related social insurance (PRSI) rate, which went up by 0.1 per cent from 1 October 2024, with a further 0.1 per cent rise expected from 1 October 2025, and more to come thereafter.
“All of these costs burdens must be funded by the companies at a time when many are facing pressure on already tight margins,” says Aileen Stephens, family enterprise tax partner at Deloitte.
The professional services firm believes Government needs to drive innovation in Ireland through simple taxes, supporting thriving businesses to create a sustainable future.
“It is imperative that the Government provides a framework to ensure that Ireland remains a competitive location in which to invest and grow businesses from a domestic business perspective, particularly as our private companies continue to navigate a sea of changes spanning matters such as EU regulatory changes, potential US tariffs and supply chain costs in a backdrop of geopolitical uncertainties,” says Stephens.
Deloitte has made a number of key recommendations to the Government, including encouraging it to reduce top personal tax rates that are among the highest in the EU as a way to attract key talent.
It believes the Key Employee Engagement Programme should be enhanced to provide SMEs with an easier to implement and more cost-effective way to offer shares to employees. It also proposes reducing capital gains tax, currently 33 per cent, for entrepreneurs who remain with their business to scale it up.
“Additionally, we would welcome both an increase to the lifetime limit applicable to the Entrepreneur Relief as well as a reduction in the rate from 33 per cent to 20 per cent for investments in unquoted domestic companies, as this would provide a valuable funding stream for these businesses,” says Stephens.
Many businesses spent 2023 and 2024 cutting costs, David Broderick, director of the Small Firms Association (SFA), says. Now, with pandemic-related government supports gone and margins eroded, “the big concern is, where do they go next?” he adds.
By their nature business owners are “a resilient, optimistic bunch,” in Broderick’s view. “But there is an element of tiredness and exhaustion. What they are calling for now is time and space to breathe,” says Broderick, whose family confectionery business, which today employs more than 100 people, was started by his mother Ina at her kitchen table in the 1980s.
The SFA is calling for a temporary PRSI rebate, which would assist struggling small businesses, and a clear strategic roadmap for the sector, to enable business owners to plan better. “Going from budget to budget, not knowing what’s coming, and then having to adapt their whole strategy based on next year is just not feasible. We need to give them security so they can plan for success,” he says.
Right now the next challenge is auto enrolment. “While they know this is an issue to be addressed, it is also just another cost coming down the line for small businesses,” says Broderick.
Auto enrolment is designed to provide a safety net for all those without pension provision. But unintended consequences are already beginning to emerge, as SFA members speak about staff who have current pension provisions in place “asking, where is our 1.5 per cent increase?” he says.
Just as increases to the minimum wage add to wage pressure up along the employee value chain, the risk is that auto enrolment could too.
Aidan McLoughlin, group managing director of Independent Trustee Company, which specialises in the provision of retirement and investment structures and related advisory services to financial advisers and their clients, has wider concerns.
Auto enrolment aims to resolve fears over the coming “pensions time bomb”, as the number at work reduces relative to the number in retirement. In fact, McLoughlin says, it will not.
“Because you still have the problem with social welfare pensions in that the number of people that are going to be paying in is going down, and the number of people claiming it is going up,” he points out.
The only way to correct the shortfall that will continue to occur is either to increase the amount of PRSI contributions going in to the social welfare system or reduce the benefits coming out. Auto enrolment does neither.
Moreover, there are three demographic cohorts that currently have low pension coverage: young people, the low paid and the self-employed. “The auto-enrolment system we are implementing in September excludes the young under 23, it excludes the low paid, those earning less than €20,000, and it excludes the self-employed,” says McLoughlin.
That’s not all. “The notion that there would be a shortfall in social welfare was recognised several decades ago and we created a National Pension Reserve Fund to finance it. It was to cover both public sector pensions and social welfare pensions. During the financial crisis it was one of the first things that disappeared out the door, to pay for the banks,” he adds.
“We needed it decades ago and we need it even more now. But we’re not recreating it. You’d wonder why there isn’t an urgency to create it – unless somebody regards the auto-enrolment system as a new pension reserve fund for social welfare pensions?”
