Wage increases will not only hinder the recovery, but they will also cost jobs, Small Firms Association (SFA) chairman AJ Noonan told an audience in Dublin yesterday.

Addressing the SFA annual conference, Mr Noonan said some regions have yet to feel the recovery, adding that the economy in money terms is still below its pre-crisis peak and that overall price levels are still below where they were in the summer of 2008. He said this needs to be reflected in wage expectations.

Instead of increasing wages in blanket fashion, the Government “should reduce income tax and capital taxes in the next budget, as this will boost consumer spending generally”, he said. Mr Noonan questioned how the government’s much-used phrase “it’s all about jobs” can be squared with increases in public sector pay and a Low Pay Commission.

He asked how small firms are expected to create wealth when capital gains taxes are among the highest in the Organisation for Economic Co-operation and Development, never mind the EU. He said the upcoming budget should encourage people to reinvest their gains, adding that a capital gains tax of 33 per cent does exactly the opposite and reduces the number of transactions.

‘No-nonsense’ tax rate

“What is needed is a simple, no-nonsense 20 per cent capital gains tax rate for existing companies,” he said. “History has shown that this is self-financing, as when the rate reduces, the net return to the exchequer increases”.

He added that it is critical that the Government now do the right things to secure Ireland’s future in the long term.

Also addressing the conference, Minister for Public Expenditure Brendan Howlin said the Government has created 104,000 new jobs since the launch of the first Action Plan for Jobs in 2012, which is 18 months ahead of target.

“In 2014, IDA Ireland and Enterprise Ireland together helped create 15,000 net new jobs,” he added.

He said improving public procurement practices by removing obstacles and encouraging the involvement of small and medium enterprises (SME) is a Government priority.

“Ninety-three per cent of the State’s expenditure is with firms in the Republic of Ireland, and 66 per cent of that expenditure is with SMEs,” he said. “By way of comparison, in the UK, 10 per cent of central government spending is directed at SMEs.”

Findings

The SFA released the findings of its summer business sentiment survey at the conference.

Almost two thirds (64 per cent) of respondents to the survey said they intended to take on new staff this year. However, just 41 per cent of small businesses expected to increase pay this year, with 56 per cent maintaining pay rates and 3 per cent actually reducing rates.

In the survey, 71 per cent of small firms stated that their business was improving.