Will the ‘Jobs Budget’ get people back to work?

10 May 2011

While the new Irish Government’s Jobs Budget is aimed at getting people back to work across a broad front, what’s in it for Ireland’s innovation sectors?

The Jobs Budget by Finance Minister Michael Noonan, TD, makes for interesting reading and because the country has little money to be throwing at capital projects, you could regard many of the steps as creative nip-tucks with a few exciting measures ranging from boosting internships and infrastructure projects to a new regime that will mean State bodies will pay suppliers within 15 days of receiving an invoice.

The Department of Finance projects a 2.5pc increase in GDPO for 2012 with average growth of 3pc possible between 2013 and 2015.

Most serious of all for the tech sector, Noonan said he is committed to the 12.5pc corporate tax rate. “Our 12.5pc rate of corporation tax is here to stay. It is central to our industrial policy and an integral part of our international brand,” Noonan said.

In terms of R&D tax credits, Noonan said he intends to amend the R&D tax credit legislation and make it more flexible for companies in how they account for the credit above or below the line. This has been a major bugbear for start-ups who found the accounting rules didn’t allow for access to the cash when they need it most.

Noonan tackled the thorny subject of Employer PRSI charges by abolishing them because he reasoned the loss to the economy from this measure far outweighs any gain for the Exchequer.

He announced he is reducing VAT for the tourism sector from 13.5pc down to 9pc for a number of related goods and services to fix the country’s flagging tourism industries.

He said he is reducing air travel tax to zero, which should be welcomed by Ryanair’s Michael O’Leary.

In terms of taking on staff, Noonan introduced a novel new scheme for internships, where people receiving social welfare will receive an extra €50 a week on top of their dole if they secure an internship. This is expected to result in more than 5,000 work experience placements in the private, public and voluntary sectors.

He said he intends to provide an additional 6,000 specific skills training courses targeted at people who previously worked in hard-hit areas like construction.

Among the initiatives are:

·         3,000 Back to Education initiative places

·         1,000 post-Leaving Certificate places

·         5,900 places to be provided under the Third Level/Springboard Programme

·         There will be 20,900 places available at an additional cost in 2011 of €11m

In terms of public capital projects, Noonan reasons that up to 132 jobs can be created per €1m spent and the projects that he has earmarked are further investment in schools and roads, and the national energy retrofitting programme:

·         €30m will be made available for school works with investment to commence this summer

·         An additional €60m will be reallocated to invest in roads and repair 800km of local roads across Ireland

·         €19m will be spent on the national energy retrofitting programme

Noonan said the Government will move to provide greater procurement opportunities for SMEs to sell to the State.

Casting a shrewd eye on the opportunities for harnessing the diaspora to deliver investment opportunities for the country, Noonan said a new initiative will be piloted by IDA Ireland and will focus mainly on generating projects from SMEs who are not reached through IDA’s marketing and networking structures but who have the potential for rapid international growth.

A potentially unpopular measure is likely to be a temporary levy of 0.6pc on funded pension schemes and personal pension plans. This is expected to generate €470m a year over the next four years.

New loan scheme for SMEs

Fundamentally, one of the most important measures to be included in the Jobs Budget is a new loan scheme for small and medium-sized businesses to tackle the credit crisis.

Enterprise and Innovation Minister Richard Bruton this evening outlined how the scheme will work: “Firstly, a partial loan guarantee scheme will be in operation by the autumn. This measure, which operates successfully in most of the countries with which we are competing, will be of particular help to precisely the innovative companies which we are trying to encourage as part of our growth strategy. For every €400m that is guaranteed by the State, an additional 4,500 companies can get further credit that will in turn create more than 8,000 jobs.

“Secondly, a micro-finance fund will provide funding for small loans to start-ups. We recognise that the recovery will be driven, in part, by businesses which start up during the recession but many start-ups lack the small amounts of finance that can be the difference between success and failure. This commitment on a micro-finance fund is the Government’s contribution to filling this particular gap in the enterprise finance gap in the market.

“Third, it is clear that Government can also play a key role in improving cash flow to businesses, and from 1st July next, all Government bodies (excluding commercial semi-states) will be required to pay suppliers within 15 days of receipt of a valid invoice. Given that the public sector enters contracts with suppliers worth €15bn each year, the importance of such a policy for all the companies that do business with the State is clear,” Bruton said.

Will it get people back to work?

There is some exciting potential in what Noonan is proposing. The PRSI changes and the increased flow of credit will help already toughened and lean SMEs to have much needed breathing space and hopefully get them back to a place where jobs are secure and growth is possible.

The opportunities for internships should be snapped up by eager start-up companies and technology firms looking at addressing a skills deficit.

It is unclear what the changes to VAT in the tourism sector and the air travel tax will mean for the many online businesses that rely on serving this vital sector but surely it is a good thing.

The levy on private pension schemes could be very unpopular but if Noonan’s reasoning is correct that 132 jobs can be created per €1m spent, then it is vital the €470m a year over four years is spent not only on capital projects but on creating sustainable enterprises.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years