Department blocked business credit plan, says Hanafin

A PROPOSAL by Government Ministers for a loan guarantee scheme for small businesses was blocked by the Department of Finance, Minister for Enterprise Mary Hanafin said yesterday.

Speaking at a breakfast briefing for business leaders, Ms Hanafin said both she and her predecessor Batt O’Keeffe favoured such a scheme, but it “would not wash” with the department, which was concerned about guaranteeing loans.

Her comments prompted Fine Gael’s Leo Varadkar to say that, if Fine Gael formed the next government, “the politicians are going to be in charge, not the civil servants”.

Asked for a response by The Irish Times, a spokesman for the department said the Government had set up the Credit Review Office to deal with the issue of credit for small businesses. “The most recent report by credit reviewer John Trethowan shows that the system was working very well,” he said.

A loan guarantee scheme would see the Government guarantee the loans advanced by banks to small businesses. Both employers’ group Ibec and the Small Firms Association are strongly in favour of such a scheme, which they say works successfully in other countries.

The Government first mooted the idea of such a scheme over a year ago. Then minister for enterprise Mr O’Keeffe outlined his support for the scheme in September, announcing that detailed work was under way. However, Taoiseach Brian Cowen appeared to row back on the proposals in October when he told the Dáil that “the issue of the State being further guarantor in respect of loans to business in addition to what security business is already providing is something that has to be very carefully considered”.

Fine Gael reiterated its support for a partial loan guarantee for small businesses yesterday, though Mr Varadkar warned that the model and design would be of crucial importance.

“We have already guaranteed all the deposits, which was the right thing to do, and we have guaranteed all the bonds which was the wrong thing to do. Now to guarantee the lending as well does potentially have serious risks and costs.”

Ms Hanafin, Mr Varadkar and Labour’s Ruairí Quinn addressed some 300 business leaders at yesterday’s event organised by Ibec and the Small Firms Association and chaired by Irish Times business editor John McManus.

Asked whether Labour’s policy of raising taxes for those earning more than €100,000 would disincentivise business and innovation in Ireland, Mr Quinn stressed that while the Labour Party had clearly stated its intention not to increase taxes for those earning less than €100,000, they had only outlined the possibility of introducing some tax changes to people earning above that threshold.

He said the policy of taxing high incomes may serve to recreate the black economy and encourage some of the dishonesty associated with non-resident accounts.

“We are not going back down that route,” he said.

All three political representatives strongly outlined their commitment to preserving Ireland’s corporate tax rate. Representatives from businesses as diverse as Smurfit Kappa, Peter Mark and the hotel industry voiced their frustration at the high cost of doing business in Ireland.

All three politicians said the issue of commercial rents would be addressed by broadening the tax base and reforming the financing of local authorities.

Ibec is calling for the introduction of a property tax to fund local authority services to enable a reduction in commercial rates.