The Irish Business and Employers Confederation (IBEC) has accused the Government of doing a U-turn on industrial policy, warning that increases in employers' PRSI will erode the competitiveness of Ireland's high-growth sectors.
From April 6th, 2001, employers will have to pay PRSI at 12 per cent on the full salaries of all employees, incurring additional costs of £159 million annually.
At the moment, employers pay PRSI up to a salary ceiling of £36,600; the removal of the upper limit means they will have to pay an additional £120 for every £1,000 they pay an employee over that figure. The ceiling had been expected to rise to £39,000 but its abolition by the Government took employers by surprise. Reacting to the move last night, IBEC director of social policy Mr Brendan Butler said the measure "flies in the face" of Government policy to encourage growth in the high-technology sectors of the economy and to create high-salary and high value-added jobs in the Irish economy. IBEC intends to seek a reduction in employers' PRSI in the Finance Bill to offset the costs.
"Firms in the high-tech sector are already experiencing difficulties in recruiting staff, while many small companies in this sector are paying very substantial remuneration packages to employees and will now incur extra costs," according to Mr Butler.
The abolition of the ceiling on employers' PRSI will be a major hit for companies such as Intel, IBM, Iona Technologies and Baltimore, which have rapidly expanded employment here and are offering high salaries. The financial services sector will also face higher employment costs from next year.
The Construction Industry Federation said the measure could have serious implications for manpower shortages in the industry and would affect the implementation of the National Development Plan. Director general Mr Liam Kelleher said attracting and retaining highly skilled personnel was vital for future growth.
The Institute of Certified Public Accountants noted the change was being announced on the same day that Motorola announced 750 job losses in Swords. Its president, Ms Bernadette McGrory-Farrell, warned the measure would be a serious disincentive to multinationals considering establishing in Ireland. The Chambers of Commerce of Ireland claimed the Minister had increased the cost of employing a highly skilled employee earning £60,000 by £2,500 and said it was bogus to counterbalance this tax against reductions in corporation tax.
Mr McCreevy suggests this is the case, reaffirming the Government's commitment to introduce a single standard corporation tax rate of 12.5 per cent by 2003. The Budget shaved another 4 per cent off the standard rate, reducing the tax from 24 per cent to 20 per cent.
While this will yield hefty cost savings for the bulk of the State's major employers, some analysts note that many of the high technology companies already pay the special low rate of corporation tax of 10 per cent and are, in fact, facing higher costs in corporation tax as well as PRSI.
The corporation tax burden for small and medium-sized businesses will ease considerably, though, as a result of the Budget, with more companies now eligible to pay the special 12.5 per cent rate.
Other positive developments for the business sector include the reduction of capital allowances for plant and machinery from seven to five years and the inclusion in the new time-frame of cars. The car value threshold for both new and second-hand cars will be increased to £17,000, helping businesses and the self-employed.
The Business Expansion Scheme and the Seed Capital Scheme have been renewed. The Government has once again stressed the importance of gainsharing, profit-sharing and share options to reward employees' work and effort.