The Irish economy relies heavily on small and medium sized businesses. It is estimated that these ventures employ 70 per cent of private sector employees in Ireland – an amount approaching one million jobs. Our legislators profess to recognise the importance of the entrepreneurs who back bone these businesses and the role they continue to play in growing our economy, creating jobs and contributing to society. But are they just paying lip-service to these individuals and are they doing enough to reward their contribution to the economy and society? Are they adequately rewarded for the risks they take and is the price of failure too big?
Take our tax code, for example. The self-employed, which includes sole traders, partnerships and company directors with controlling interests, are subjected to higher effective tax rates than those who are in employment. The contributing factors are inequities in the tax credit system and a special (higher) USC rate for the self-employed. Where is the fairness here? Why, within an already penal tax system, are those who seek to take risks and create employment forced to pay more tax than other tax payers?
It is often said that Governments cannot create jobs, rather their role is to create the conditions in which jobs can be created. One of the main tools at their disposal to create the necessary conditions is the tax system. I fail to see how provisions within the Irish tax code that discriminate against our main job creators fulfils the Government’s role here.
Both the Taoiseach and the Minister for Finance have indicated that the overall income tax burden on individual taxpayers will be eased over the next number of budgets. This, of course, is to be welcomed, but for the business men and women who run small and medium sized businesses, their tax rates following the reductions should be aligned with other tax payers of comparable income levels.
In addition to our tax system inequities, there is a mismatch in how our entrepreneurs are treated by our social welfare system when compared with others.
Businesses fail; that is just the way things are. No matter how strong the economy is, there will always be instances in which businesses do not work out.
For many, this can be a traumatic experience, both personally and financially. A trauma which can be exacerbated when the realisation hits that our social welfare system has left them marooned with limited benefit entitlements when their income dries up. It is extremely unfair that those who have contributed to the State coffers through income tax, personal PRSI and, in many cases, employer’s PRSI do not have the same entitlements as others when they lose their income source. This is another inequity which must be addressed if the Government is really serious about recognising the important role our entrepreneurs play in our economy and in society overall.
Both the Government and our business persons have similar economic objectives: a strong economy in which businesses are given the opportunity to prosper. This will in turn create jobs, increase tax revenues and reduce social welfare costs. Our tax and social welfare systems should therefore be constructed so that our job creators are not at a disadvantage. How they are currently constructed is a disincentive to entrepreneurial risk. Therefore, not only are the conditions unfair, they don’t actually make that much sense.