The new government must remain focused on keeping the economic environment helpful for business, argues David Pierce
We all know how important foreign direct investment is to Ireland. Without it, our tax base would be dramatically smaller and our personal tax burdens significantly higher.
While European Union rule changes mean that the era of the Industrial Development Authority being enabled to pay substantial grants to multinationals to invest in all parts of Ireland is over, the incoming government can still do much to maintain our attractiveness to foreign companies. In doing so, the business environment in general will also be enhanced.
The regulatory environment in Ireland, and indeed within Europe, suffers from the paradox of being both intricate and crudely simplified at the same time. It is intricate in the sense that businesses often have to be compliant with multiple acts affecting a thematic area such as health and safety.
Our regime is almost naively simple in that regulatory compliance is a blanket requirement that applies to businesses of all sizes. Whether you are an Irish-based multinational or an indigenous small to medium sized enterprise, the same rules apply.
If Ireland can crack the nut of ensuring an appropriate compliance regime for all businesses, then we can further enhance our attractiveness for both foreign investment and SME business activities.
The recently published report of the Business Regulation Forum is a timely call to arms on the need for an appropriately applied compliance and administrative burden on all businesses. The recommendations of this document should be implemented over the lifetime of the next government if the success of the Celtic Tiger is to be maintained and developed.
The report's conclusions note that reducing the administrative burden on companies in Ireland has the potential over four to five years to benefit the economy by almost 2 per cent of GDP. The report also notes that "A focus on reducing the burden for smaller firms is likely to be most productive overall." This is a clear affirmation of the disproportionate impact of regulations on SMEs relative to larger businesses.
In human resources, there are currently 25 acts and eight bodies regulating the area. These apply to all companies irrespective of size. Small businesses are therefore required to bear disproportionately high compliance costs with a resulting loss in competitiveness.
At a time when all of our political parties are promising various types of "jam", a cost-free reform that would help all businesses would be to codify all of our employment and health and safety legislation using the Taxes Consolidation Act of 1997 (which amalgamated income, capital gains and corporation tax legislation into one) as a template.
An additional cost-free change would be to ensure that all regulations come into effect on two set days per year (May 1st and November 1st, for example). All businesses could then be prepared and sensitised to regulations. This change would also help speed up compliance.
While regulatory requirements can be absorbed by larger companies, many smaller firms are being pushed to the limit in an effort to meet criteria which, much of the time, are not relevant to their core activities. In Ireland the administrative burden of our compliance regime is costing Irish businesses an estimated €4.2 billion.
The fact that Irish-based SMEs are so dominant in the Irish economy coupled with the reality that regulation is aimed to cover the largest and most high-risk enterprises means that the high levels of regulation in business in the post-Enron era are hampering the majority of Ireland's businesses.
What we need is action on the agenda of implementing a risk-based approach to regulatory enforcement that would minimise the compliance burden on businesses operating in low-risk areas. Such a move would immediately enhance their competitiveness in both indigenous and international markets.
Given that Ireland's economic success has been built primarily on cost-competitiveness and its business-friendly environment, it is imperative that innovative public policy from the incoming government fosters prime conditions for continued economic development.
The absence of tiered, risk-associated levels of regulatory compliance and requirements means that many of Ireland's businesses - a potential 93 per cent in total - are losing their competitive edge with effectively no benefit accruing to the wider business community.
It is crucial that companies are allowed to concentrate on their core business with minimal interference from external factors. This was the environment that fostered an era of rapid growth for the Irish economy over the past 20 years. A similar approach will contribute to a thriving, cost-competitive business environment in the future.
Ireland needs regulation, but it must be appropriately applied. As we move towards more "normal" rates of growth, it is imperative that we continually question and revisit legislation to ensure its appropriateness to current trends regardless of what government comes to power.
The report of the Business Regulation Forum has been published. Let's implement its recommendations without delay. The wider economy will benefit as will our society. Increased profitability in our businesses drives enhanced tax revenues - revenues that we need to fund the social programmes that we all hold dear.
David Pierce is president of Chambers Ireland, the country's largest business organisation, with 60 member chambers representing over 12,000 businesses