Irish business group Ibec has called on the Government to introduce a comprehensive package of new measures to "head off the worst consequences of Brexit and increased global uncertainty."
In a new report, Ibec said that an 18 percent fall in the value of sterling since the UK voted to leave the EU in June shows that "Brexit has damaged faith in the future of the UK." It warned that the fall in sterling will push up the cost of Irish goods going to the UK, increase the competition from UK goods, damage tourism flows, and drive Irish consumers across the border and online. "The potential loss of single market status from the UK will only intensify the existing currency pressures," it added.
Ibec urged that the Government "level the playing field in relation to the tax offering for indigenous businesses." It argued that potential trade restrictions post-Brexit and the UK's already favorable tax treatment of SMEs raise the possibility of Irish SMEs servicing the UK market from within the UK itself, rather than by exporting from Ireland.
According to Ibec, changes to the capital gains tax (CGT) entrepreneurs' relief in Budget 2017 did not go far enough, with effective rates still more than 15 percentage points higher than in the UK. It recommended that the taxation of stock options be improved by: reforming the operational constraints in revenue-approved schemes; reducing the income tax liability on unapproved schemes; removing the Universal Social Charge and Pay Related Social Insurance liability from revenue-approved schemes; and introducing an enterprise management incentive for smaller firms.
In addition, it said a pro-forma R&D tax credit should be introduced to help SMEs overcome the administrative costs associated with the current system.
Ibec also suggested that the earned income tax credit for the self-employed be brought into line with the PAYE equivalent in the next budget. It pointed out that Ireland has the highest marginal effective tax rate for average and median workers in the EU. At 50.6 percent, it is more than 15 percentage points higher than that for a similar worker in the UK.
Ibec Director of Policy Fergal O'Brien said: "The exporting industries most affected by the sterling fall are typically job intensive and deeply embedded in local economies. A review of the historical exchange rate and agri-food export relationship shows that a one percent weakness in sterling results in a 0.7 percent drop in Irish exports to the UK. This has already begun. Our most recent trade figures for the year to August showed the value of Irish food exports to the UK fell by 8.1 percent annually. This fall accelerated to 14.5 percent annually in the two months since the referendum and has hit all categories."
O'Brien added that Ibec expects further volatility "as markets react to the political twists and turns of Brexit negotiations."
"The Irish Government can't sit on its hands during these negotiations, while sustainable businesses fall prey to the already evident economic realities of Brexit. A comprehensive immediate response package is now needed to save jobs," he stressed.