Pre-Budget Submission Budget 2019

DUBLIN IS OUR BUSINESS

 Introduction
Dublin Chamber is the representative body for busi-
nesses in the Greater Dublin Area (GDA), the engine of
the Irish economy and Ireland’s largest population hub.
Our cross-sectoral membership base comprises 1,300
firms across the capital city region, employing 300,000
people nationally. This gives Dublin Chamber a keen in-
sight into the needs of both businesses and their em-
ployees, informing a holistic vision of the commercial
environment in which economic competitiveness and
quality of life are complementary. We are committed
to helping businesses succeed in a successful Dublin.
Budget 2019 comes at a pivotal moment. It will be
the first since the announcement of the National Plan-
ning Framework (NPF) and the accompanying National
Development Plan (NDP). It will also be the last before
the UK exit from the European Union. Budget 2019 will
therefore be crucial to demonstrating Ireland’s serious-
ness about business competitiveness vis-à-vis the UK
and its commitment to long-term planning and infra-
structure investment. Government must send a loud
and clear signal in both respects.
Ireland’s small open economy has continued to per-
form strongly despite rising international risks.
However, while the headline indicators are positive,
the underlying situation is more precarious.
With Government indebtedness equal to 260% of
General Government Revenue, Ireland remains acutely
vulnerability to external shocks.1 The potential causes
of these include Brexit, US tax reforms, EU pressure on
the Irish tax model, and global market downturns caus-
ing a sharp drop in Ireland’s corporate tax receipts from
the multinational sector. Dublin Chamber believes that
Budget 2019 should be developed with these challeng-
es in mind.
1 Department of Finance (SPU 2018, April 2018), quoted by NTMA, www.ntma.ie/business-areas/funding-and-debt-management/debt-profile/debt-projections/
2 Early signs of overheating have already been reported by the OECD. OECD, Ireland Economic Forecast Summary, May 2018, www.oecd.org/eco/outlook/eco-
nomic-forecast-summary-ireland-oecd-economic-outlook.pdf
1 | Pre-Budget Submission Budget 2019
Budget 2019 comes
at a pivotal moment.
It will be the first since
the announcement of
the National Planning
Framework (NPF) and the
accompanying National
Development Plan (NDP).
It will also be the last
before the UK exit from
the European Union.
At the same time, Ireland is experiencing robust eco-
nomic growth, low unemployment, a buoyant labour
market, and healthy consumer sentiment. In this con-
text, the challenge is to formulate fiscal policy in such
a way as to insure Ireland against current and future
threats to the extent that is possible without overheat-
ing the economy.2 This requires a distinction between
expansionary measures that are strictly necessary
to strengthen the fundamentals of the economy and
those that may be undertaken on a more short-term
basis to improve Ireland’s relative competitive position.
Additional fiscal expansion in 2019 should be under-
taken only to strengthen the productive capacity of
the Irish economy, i.e. in the areas of infrastructure,
Irish business productivity, and human capital. Target-
ed tax reliefs aimed at strengthening Ireland’s indige-
nous business base and increasing female labour force
participation would be the most prudent use of fiscal
space at this time.
 Dublin Chamber recommends
that the fiscal space should
be used to prepare Ireland
for the challenges ahead
by strengthening the
fundamentals of the economy

While Dublin Chamber highlights the growing diver-

gence in business tax competitiveness between Ire-
land and the UK, we argue that the business commu-
nity is more immediately concerned with the deeper
structural challenges facing Irish competitiveness. In-
ternal risk factors include the inadequacy of Ireland’s
economic infrastructure, the productivity gap between
Irish and multinational businesses, a pronounced reli-
ance upon tax receipts from a relatively narrow portion
of the economy, and a growing skills shortage. These
internal weaknesses leave Ireland’s highly globalised
economy vulnerable. Budget 2019 must take decisive
action to address them.
In this context, Dublin Chamber recommends that
the fiscal space should be used to prepare Ireland for
the challenges ahead by strengthening the fundamen-
tals of the economy. Government should:

• Invest in Ireland’s Infrastructure

• Grow Ireland’s Businesses
• Invest in Ireland’s Human Capital

Dublin Chamber has outlined four specific mea-

sures under each of these headings, detailed in sum-
mary overleaf. All measures have been costed where
appropriate and possible on the basis of official infor-
mation, while the overall package falls well within the
limits of fiscal space as outlined in the Summer Eco-
nomic Statement 2018.3 In developing this submission,
Dublin Chamber consulted with its membership base,
which includes firms of all sizes in a wide variety of sec-
tors. The recommendations were developed through
a series of surveys, workshops, briefings, one-on-one
meetings, and sessions of our Budget & Taxation Task-
force, and have been approved by the Chamber’s Policy
Council.

3 Department of Finance, Summer Economic Statement 2018,

June 2018, p. iii, https://www.finance.gov.ie/wp-content/up-
2 | Pre-Budget Submission Budget 2019 loads/2018/06/20180622-SES-2018.pdf#page=4
 Summary of Recommendations

Invest in Ireland’s Infrastructure:

Measures to prioritise productive investment
Deliver the National Development Plan effectively Ring-fence unexpected receipts for investment in
and on schedule infrastructure
• Meet the fiscal commitments outlined in the • Use tax windfalls to accelerate delivery of priority
National Development Plan, requiring €7.3 billion infrastructure projects under the NDP or, where
in exchequer funding for public capital expenditure, this is not practicable in a given year, to increase
and clarify which projects will receive the increased the size of the Rainy Day Fund.
capital expenditure.
• Allow an informed debate on investment choices
by publishing a breakdown of capital spending by
county and Metropolitan Area; publicly ranking
infrastructure projects according to their cost-
benefit ratio; and publishing the cost-benefit
analyses for completed projects.

Prioritise projects in the Greater Dublin Area

Projects to relieve the growing pressure in the capital
city region must be prioritised for progress and
investment by the Exchequer in 2019. Dublin Chamber’s
priorities are:
• MetroLink
• DART Expansion Programme
• BusConnects
• Eastern & Midlands Region Water Supply Project
• Social & Affordable Housing Construction in Dublin
and other high-demand urban areas

Use the ‘Rainy Day Fund’ as an insurance policy for

the NDP
• Permit drawdown from the Rainy Day Fund if
economic growth dips below the level required to
fund delivery of the NDP (minimum 2% growth), to
ensure stable and steady delivery of the planned
infrastructure investments.

3 | Pre-Budget Submission Budget 2019

 Grow Ireland’s Businesses:
Measures to encourage
entrepreneurship
& enterprise
Upgrade Entrepreneur Relief to surpass the UK.
• Raise the lifetime cap on qualifying gains for
Entrepreneur Relief from €1 million to €15 million
to send a strong signal that Ireland intends to
compete with the UK ahead of Brexit.

Introduce an Investor Relief to encourage investment

in Irish SMEs
• Introduce an Investor Relief along the UK model,
offering a lower 20% CGT rate on all investment in
unquoted trading companies where shares have
been held in excess of three years, with a lifetime
limit on qualifying gains of €10m.

Make the R&D tax credit work for SMEs

• Allow an upfront claim of the R&D tax credit cash
refund for SMEs, instead of the three year lagging
deferred cash-flow mechanism that currently
exists, and increase the R&D tax credit rate from
25% to 30% for SMEs.

Reduce income tax on dividends for entrepreneurs

to 30%
• Tax entrepreneurs at a lower rate of 30% on income
from share dividends to outmatch the UK offering
ahead of Brexit.

4 | Pre-Budget Submission Budget 2019

Invest in Ireland’s
Human Capital:
Measures to attract, retain,
and develop talent
Increase female labour market participation
• To ameliorate the childcare affordability problem,
double the maximum universal childcare subsidy for
children before the start of ECCE under the Affordable
Childcare Scheme from €80 per month to €160 per
month for a child in full-time care, with a commitment
to similar progressive increases in subsequent years.
• Consider improving the targeted subsidy element
of the Affordable Childcare Scheme to better reflect
the net income of the second earner in a family (not
just combined parental net income) with a view to
increasing labour force participation. More broadly,
and in the context of the proposals to reform income,
PRSI and USC, undertake a thorough examination of
how these taxes discourage ‘second earners’ from
returning to the workforce, with a commitment to
progressively removing labour force participation
barriers on the basis of the findings.

Allow SMEs to avail of the Special Assignee Relief

Programme (SARP) for new recruits
• Extend the Special Assignee Relief Programme to
new recruits for firms that are SMEs by the European
Commission definition.

Make the Key Employee Engagement Programme work

for SMEs
• Issue detailed guidance on valuations to provide
clarity for firms facing the compliance burden of
issuing share options at market value;
• The restriction of the value of share options granted
to any individual to 50% of the value of his/her annual
remuneration should be lifted.
• Allow qualifying individuals to make their services
available to other entities in a group, and reduce the
time required to work for a qualifying company to 30
hours per week.

Prevent taxation of employer-funded professional

subscriptions from taxation as BIK
• Amend Revenue guidance to make clear provision
for the exemption from Benefit-In-Kind taxation of
professional memberships that are commercially
necessary but not statutorily required.

5 | Pre-Budget Submission Budget 2019

 Invest in Ireland’s Infrastructure

Ireland has a major public infrastructure deficit due to noted that urban Ireland particularly suffers as a
historic underinvestment, compounded by the fiscal result of shortcomings in transport infrastructure, and
impact of the economic crisis. Large-scale and long- warned the situation will be further aggravated by rising
term investment is now urgently required in Dublin’s economic activity and population growth.8 Dublin has
infrastructure stock in order to redress past neglect, been ranked as the 5th most traffic-congested city in
protect Irish competitiveness, and enhance the Europe,8 with public transport usage by commuters in
productive capacity of the Irish economy. From a broad the capital standing at just 22%.10 Using a very narrow
perspective, there is strong evidence of a positive definition of congestion, the NTA has estimated that
relationship between public investment, aggregate traffic congestion in the GDA now costs the national
demand, and potential growth; and Ireland has been economy at least €350 million per annum, rising to an
identified by the OECD as a country that would annual cost of €2 billion by 2033.11
particularly benefit from a change in Meanwhile, the social cost of inade-
fiscal priorities from current spending Table 1: Business feedback on quate infrastructural investment con-
internal challenges to Dublin
to capital investment.4 competitiveness7 tinues to mount.
Economic infrastructure consis- Government should allocate
tently ranks as the most important national resources in a manner that
7% 5
policy issue affecting Dublin busi- % respects and reflects where Irish
nesses, with almost half (48%) of people actually live in their greatest
recently surveyed firms choosing numbers. Investment should be
investment in infrastructure as their 22% focused on urban areas, which
top priority for Budget 2019. The in-
5
generally offer the greatest return
adequacy of Irish infrastructure is in- in terms of cost-benefit due to
ternationally perceived as the most 65% higher populations. The National
important barrier to doing business Competitiveness Council has argued
in Ireland according to the World Eco- that enhanced city performance
nomic Forum survey;6 and the busi- What is the biggest problem has positive spill-over effects on
ness community in Dublin concurs, facing Dublin’s competitiveness? the country as a whole. Prioritising
with inadequate infrastructure identi- Bad planning investment and initiatives to develop
fied as the biggest problem facing the Inadequate infrastructure the competitiveness of our cities is
city’s competiveness. Poor governance therefore the most effective use of
The European Commission has Ineffective promotion of Dublin Exchequer funds.12

4 International Monetary Fund, IMF Country Report No. 17/333, Ireland Technical Assessment Report: Public Investment Management Assessment, November 2017, p.7
5 Dublin Chamber Quarterly Business Risk Outlook Q2 2018
6 International Monetary Fund, IMF Country Report No. 17/333, Ireland Technical Assessment Report: Public Investment Management Assessment, November 2017, p.7
7 Dublin Chamber Quarterly Business Trends Survey Q4 2017
8 European Commission, 2017, ‘Country Report Ireland Including an In-Depth Review on the prevention and correction of macroeconomic imbalances’, p. 53
9 TomTom Traffic Index, Full Ranking, Europe – All Cities, https://www.tomtom.com/en_gb/trafficindex/list?citySize=ALL&continent=EU&country=ALL, accessed 23.07.2018
10 CSO, Census 2016, Profile 6 Commuting in Ireland, https://www.cso.ie/en/csolatestnews/presspages/2017/census2016profile6-commutinginireland/
11 Dept. of Transport calculation, Dáil Question No: 346, John Lahart TD. Ref No: 1857/17, Proof: 348, Answered by the Minister for Transport Tourism and Sport Shane
Ross. This is likely a conservative estimate. Back in 1997 the Dublin Transportation Office estimated the cost at £500 million, or c. €1.2 billion today adjusted for inflation.
12 Forfás, National Competitiveness Council, Our Cities: Drivers of National Competitiveness, April 2009, p. 7

6 | Pre-Budget Submission Budget 2019

1. Deliver the National Development
Plan effectively and on schedule

Ireland requires a long-term approach to infrastructure
planning that accounts for future population
projections and supports the growth of city regions as
drivers of regional development.13 With this in mind,
Dublin Chamber welcomed the National Planning
Framework: Ireland 2040 Our Plan (NPF), Ireland’s
new spatial development plan, and the accompanying
National Development Plan 2018-2027 (NDP) for capital
investment. The NPF’s recognition of cities as the
drivers of regional growth throughout Ireland was a
particularly welcome change from previous approaches
to spatial planning. The co-publication of the NDP
and NPF represented a positive step towards proper
alignment of spatial and infrastructural development.
Budget 2019 will be the first since the launch of the
two plans. It is crucial that Government demonstrates
seriousness about its commitment to the infrastructure
investments needed to support long-term planning and
intelligent urbanisation. The first test of Budget 2019
will be whether it meets the Government’s own fiscal
commitments as outlined in the NDP and allocates
additional capital funds in an effective manner.
However, serious concerns remain about delivery of
the NDP and how projects will be prioritised in order
to make best use of public funds. The IMF has warned
that, while implementation of multi-year budgeting
has improved the allocation of resources for projects,
the planning process is still inadequately linked to
decisions on funding. It also notes that there is room
to improve the methodological rigor, sequencing, and
effectiveness of the project appraisal and selection
processes.14 Parliamentary efforts to secure early
clarity from Government about which specific projects
will receive extra funding from the increased capital
allocations in 2019, and how they will be prioritised,
have been unsuccessful.15
The debate about capital investment priorities
should be informed by clear and up-to-date data on
the relative costs and benefits of proposed projects.
In practice, however, there is a lack of transparency
both with respect to comparisons between regional
investment levels16 and comparisons between
specific infrastructure projects. To introduce greater
transparency to the decision-making process, Dublin
Chamber proposes that all infrastructure projects
under consideration be publicly ranked according to
their cost-benefit ratio. This can be done in the form of
a simple list, without publicly revealing an estimate of
cost in monetary terms. There would be no reason to
withhold such information on grounds of commercial
sensitivity; on the contrary, release of such data would
be clearly in the public interest.

13 Dublin Chamber, Submission on the Mid-Term Review of the Capital Investment Plan, April 2017
14 International Monetary Fund, IMF Country Report No. 17/333, Ireland Technical Assessment Report: Public Investment Management Assessment, November 2017, p.8
15 E.g. Dáil Éireann Debate Wednesday 11 July 2018, Question No. 490. Reference No. 31281/18. Deputy Barry Cowen. Answered by the Minister for Transport Tourism &
Sport Shane Ross. Question in relation to use of the additional €316m for the Dept. Transport capital allocation in 2019.
16 National Income & Expenditure Table 25: Central & Local Government – Details of Gross Physical Capital Formation is no longer published, meaning that it is no longer
possible to accurately compare the total level of capital formation in the GDA with that in other parts of Ireland.

7 | Pre-Budget Submission Budget 2019

Recommendations
Budget 2019 must meet the Government’s fiscal
commitments as outlined in the National Development
Plan. This will require €7.3 billion in exchequer funding
for public capital expenditure, accounting for 3.5% of
projected Gross National Income.17
The Government must clarify which projects it is
prioritising to receive the increased capital expenditure
under the National Development Plan over the 2019-
2022 period, with particular attention given to the €3.3
billion in additional capital allocations to the Dept. of
Transport, Tourism & Sport over the same period.18
17 Project Ireland 2040: National Development Plan 2018-2027, p. 19
18 Annex 1, Project Ireland 2040: National Development Plan 2018-2027, p. 104,
8 | Pre-Budget Submission Budget 2019
Government must allow an informed debate on capital
investment choices by:
• Publishing a breakdown of capital spending by
county and Metropolitan Area in its National
Income & Expenditure tables;
• Ranking all infrastructure projects under consid-
eration according to their cost-benefit ratio and
making this data available to the public.
• Publishing the cost-benefit analyses prepared for
completed projects to encourage learning from
past experience.
 2. Prioritise projects in the Greater Dublin Area

Analysis by Dublin Chamber demonstrates that,
far from being a favoured location for Government
spending, the capital city receives significantly
less investment in its productive and social
infrastructure than is required to support economic
competitiveness and quality of life. Despite the
demographic pressures on its infrastructure,
Dublin received the second lowest level of capital
investment per head from central government of
any county from 2009-2016. The combined four
Dublin Local Authorities received less than half of
the national average over the period, and less than
a third of the amount received by higher per capita
recipients, as illustrated in Table 2.

Table 2: Average Annual Capital Spending per capita 2009-201619

Kilkenny 718
Leitrim 633
Westmeath 596
Roscommon 557
Mayo 499
Kildare 492
Longford 484
Laois 478
Monaghan 472
Average 430
Tipperary 425
Clare 422
Kerry 419
Galway 404
Waterford 396
Limerick 386
Wexford 367
Donegal 350
Offaly 348
Cavan 345
Cork 343
Meath 317
Wicklow 280
Louth 270
Dublin 229
Carlow 203

€- 100 200 300 400 500 600 700 800

19 Includes 1) Income Received by Local Authorities for Capital Spending in Six Budget Service Categories including transport (37%), housing and urban regen-
eration programmes (34%) and general purpose grants (16%); 2) allocations from Transport Infrastructure Ireland for National Roads in each county. Does not
include: 1) One-Off Capital Spending on National Infrastructure Projects (such as Hospital Buildings and Primary Care Centres) that is difficult to geographically
localise and mainly takes the form of availability payments on PPPs.
19
Includes 1) Income Received by Local Authorities for Capital Spending in Six Budget Service Categories
9 | Pre-Budget Submission
including transportBudget 2019 and urban regeneration programmes (34%) and general purpose grants
(37%), housing
(16%); 2) allocations from Transport Infrastructure Ireland for National Roads in each county. Does not include:
1) One-Off Capital Spending on National Infrastructure Projects (such as Hospital Buildings a nd Primary Care
 Table 3: Capital Spending by Central Govt. in Local Authority 2009-2016

The underfunding of Dublin has been consistent
in recent years and it marks the continuation of a
broader pattern.20 Severe levels of underinvestment
have occurred in Dublin’s local infrastructure and
capital maintenance. This includes the categories of
Transport, Environment, Development Management,
Education and Employment Services, Recreation and
General Purpose Grants. Dublin also received below-
average current funding for local services and below-
average total spending by central government in the
2009-2016 period.
Perhaps the most egregious example of underinvest-
ment has been in the Housing category. Dublin is the
epicentre of the accommodation crisis; it has propor-
tionally the highest social housing waiting lists in Ireland,
and the highest number of households reliant upon
social housing supports such as Housing Assistance
Payment or Rent Supplement. Yet despite having the
greatest needs, Dublin received below average capital
investment in housing by the Central Government over
the 2009-2016 period, and less than half the amount
per capita received by the highest recipient county.

20 Edgar Morgenroth, The Regional Development Impacts of Transport Infrastructure, 2014, found that Dublin received the lowest level of capital investment in
public infrastructure per head of any Irish region. Data collected in 2009: Dublin per capita capital investment €1041 vs. national average €1543 (i.e. two thirds of the
national average).

10 | Pre-Budget Submission Budget 2019

 This analysis is based only on Dublin’s resident
population. It does not account for those living outside
of Dublin who use its infrastructure every working day.
A further 116,000 people commute into Dublin to work
on a daily basis, and many more travel into the city for
education and public services.21 Moreover, the capital
city is the reception point for the overwhelming majority
of Ireland’s tourist population, with Dublin Airport
receiving 82% of overseas visitors to the Republic
of Ireland,22 and 68% of holidaymakers spending
time in Dublin before travelling on to other parts of
the country.23 Taking these additional pressures into
account, it is clear that the abovementioned spending
figures are merely a conservative representation of the
inadequacy in funding for Ireland’s capital.
This anomaly is both socially inequitable and econom-
ically unsound. If sustained, it will exacerbate existing
social problems and undermine Dublin’s international
competitiveness as a city in which to live, work, invest,
and do business. Already, levels of life satisfaction are
lower in Irish cities than in rural areas, both among
high-income and low-income groups.24 Other research
has found that the capital city has one of the lowest
levels of self-reported life satisfaction in Ireland.25

Table 4: Total Housing Capital Investment per capita 2009-2016

21 Analysis of CSO Census 2016 data privately supplied to Dublin Chamber.

22 Dublin Airport, North Runway: Potential to connect, compete and grow, p.4, https://www.dublinairport.com/docs/default-source/North-Runway-Docs/po-
tential-to-connect-compete-and-growd6ad438b73386836b47fff0000600727.pdf?sfvrsn=0#page=4
23 Tourism Ireland, Facts& Figures 2016, p.4, https://www.tourismireland.com/TourismIreland/media/Tourism-Ireland/Press%20Releases/Press%20Releas-
es%202017/Facts-and-Figures-2016.pdf?ext=.pdf#page=4
24 Eurostat, Statistical Books, Urban Europe: Statistics on Towns, Cities & Suburbs 2016 Ed., p. 267
25 UCD Briefing Paper for Comhar, Clinch et al, Understanding & Measuring Quality of Life in Ireland: sustainability, happiness and well-being, p. 56

11 | Pre-Budget Submission Budget 2019

Recommendations
Projects to relieve the growing pressure in the capital
city region must be prioritised for progress and invest-
ment in 2019. Dublin Chamber’s priorities are:

• MetroLink
Dublin Chamber strongly supports the MetroLink proj-
ect. We have long advocated an underground rail line
to connect North County Dublin with the city centre,
including a stop at Dublin Airport. This line should also
serve the swelling commuter populations of North
and South Dublin, including Sandyford and other high-
growth areas.

• DART Expansion Programme

The DART Underground project will be crucial to the
development of an integrated public transport system
in Dublin. In the absence of developments on this, we
recommend that other elements of the Expansion Pro-
gramme, such as electrification, be progressed in 2019.

• Bus Connects
The NTA plan for new bus corridors and Bus Rapid
Transit in the capital has the potential to be a valuable
solution to mounting traffic congestion and should be
prioritised for funding where further progress on the
larger projects is not feasible.

• Eastern & Midlands Region Water Supply Project

Water systems in Dublin’s competitor cities typically
operate at c. 80% capacity, while in Dublin this figure
is approximately 98%. With Dublin expected to meet
capacity constraints by 2025, and water outages al-
ready a reality, construction of the Shannon pipeline is
an urgent priority.

• Social & Affordable Housing Construction

Government must shift from the counter-productive
policies of rental support and private home acquisition
to the construction of new purpose-built social and
affordable homes in high-density apartment develop-
ments in the capital. This is needed to relieve pressure
in the private market, address Dublin’s homelessness
problem, and protect quality of life in the capital city.

12 | Pre-Budget Submission Budget 2019

 3. Use the ‘Rainy Day Fund’ as an
insurance policy for the NDP
Steady investment in Ireland’s productive infra-
structure will be crucial to economic success in the
coming years, but achieving this will require learn-
ing from the lessons of the past. Ireland’s pattern of
capital investment in recent decades has been one
of the most volatile in Western Europe. During the
boom years, Ireland raised its capital spend to com-
pensate for generations of underinvestment and to
place itself on an even footing with competitors.
Table 5: General Government Gross Fixed Capital Formation, 2001 – 201526
26 Eurostat
13 | Pre-Budget Submission Budget 2019
But the investment surge was short-lived, and cap-
ital expenditure fell precipitously before these goals
were achieved; almost a decade later, it had failed to
recover. This highly variable pattern contrasts with
the more stable pattern in Ireland’s European neigh-
bours. Capital expenditure levels are now recovering,
but it is crucial that Ireland does not fall back into its
historical pattern of instability on account of an ex-
ternal economic shock.
Dublin Chamber acknowledges the Rainy Day Fund
as a prudent means of strengthening Ireland’s fiscal
resilience. The initial tranche of €1.5 billion from the
Ireland Strategic Investment Fund, combined with
annual €500 million contributions from 2019 to 2021,
will see the Fund reach €3 billion by 2021, providing a
substantial resource for economic stabilisation.
Recommendation
To avoid a relapse into volatility, drawdown from the
Rainy Day Fund should be legally permitted to ensure
stable and steady delivery of the planned infrastructure
investments, if and when economic growth dips below
the level required to fund delivery of the National
Development Plan (minimum 2% growth).27

27 4% over 2022-2027 period, based on 2% real and 2% inflation. Project Ireland 2040: National Development Plan, p. 19

14 | Pre-Budget Submission Budget 2019

 4. Ring-fence unexpected receipts
for investment in infrastructure

Ireland’s infrastructure deficit is the biggest internal

challenge to both economic competitiveness and
Recommendation
quality of life. Addressing this should be the country’s • Tax windfalls, whether from the activities of
most pressing priority. Delay in delivery of key multinationals or other sources, should be used
infrastructural programmes will constrain economic to accelerate delivery of priority infrastructure
growth in the years ahead, ultimately undermining projects under the NDP or, where this is not
Ireland’s fiscal position. The EU Commission has practicable in a given year, to increase the size of
indicated that Irish fiscal sustainability is not at the Rainy Day Fund.
short-term risk, while medium and long-term risks
are based as much on competitiveness concerns
as on the level of Government debt.28 Therefore,
Government should take all opportunities to
accelerate infrastructure delivery where possible
under EU fiscal rules.
In recent years, several categories of receipts
have generated more revenue than was expected
on the basis of initial estimates. Figures released by
the Department of Finance suggest that exchequer
returns for 2018 may be ahead of target, principally
due to buoyant receipts from tax on corporate
income. Cumulative corporation tax receipts by end-
June 2018 are 9.1% or €335 million ahead of target.29
Fiscal prudence demands that better-than-
expected revenues are not committed to the
expansion of current spending programmes, and
Dublin Chamber endorses the IMF’s recent warning
to avoid using temporary revenue gains to fund
permanent measures.30 Instead, they should be used
to enhance the productive capacity of the economy
through infrastructure investment.

28 European Commission DG ECFIN, Assessment of the 2018 Stability Programme for Ireland, 23 May 2018, p.16, https://ec.europa.eu/info/sites/info/files/econo-
my-finance/07_ie_sp_assessment_0.pdf#page=16
29 Department of Finance Fiscal Monitor (Incorporating the Exchequer Statement) June 2018, p.3, https://www.finance.gov.ie/wp-content/uploads/2018/07/
Fiscal_Monitor_2018_June-1.pdf#page=4
30 IMF, Ireland Staff Concluding Statement of the 2018 Article IV Mission, May 2018, https://www.imf.org/en/News/Articles/2018/05/14/ms051418-ireland-staff-
concluding-statement-of-the-2018-article-iv-mission

15 | Pre-Budget Submission Budget 2019

 Grow Ireland’s Businesses
Budget 2019 will be the last before the UK withdrawal
from the EU, a historic event that is likely to have major
implications for Ireland’s economic model. Brexit is
not the only external threat that Ireland faces. As a
small open economy, Ireland is highly vulnerable to
fluctuations in the international market, or even to
restructuring by a small number of multinational firms.
Meanwhile, US tax reforms have already blunted the
competitive edge of Ireland’s offering to FDI.
While Ireland must withstand external political
pressures on its corporation tax regime, and remain
attractive to international investors, it must also take
decisive action toavoid excessive reliance upon a
narrow number of highly mobile businesses.31 This
will require the strengthening of Ireland’s indigenous
business base, both to increase the size of the overall
economy and to increase the proportion of it accounted
for by Irish firms. Ireland must start to take a broader
view of industrial policy that places greater priority on
welcoming entrepreneurs and encouraging Irish SMEs
to scale.
The Government’s updated enterprise development
policy, Enterprise 2025 Renewed, acknowledges that
while some progress has been made towards updating
Ireland’s tax regime in recent years, ‘we need to take
account of our comparative position relative to the
offerings of our main competitors, and the reality that
Irish enterprises are mobile too.’32 The need for such a
comparison has never been more urgent than today.
With this in mind, Dublin Chamber has compared Ireland
31 National Competitiveness Council, Competitiveness Bulletin 18-2: Economic Concentration 2018, http://www.competitiveness.
ie/Publications/2018/Concentration-Bulletin.pdf
32 Enterprise 2025 Renewed: Building resilience in the face of global challenges, p. 13, https://dbei.gov.ie/en/Publications/Publica-
tion-files/Enterprise-2025-Renewed.pdf#page=29
16 | Pre-Budget Submission Budget 2019
and the UK in order to provide a competitive context
for our proposals on enterprise and entrepreneurship.
It is clear that the UK is focused on assisting new
British businesses to grow, thereby increasing both
the employment and revenue-generating potential of
these firms. As illustrated in Table 6, Ireland’s business
environment now compares negatively with its nearest
neighbour in numerous respects.
Dublin Chamber acknowledges that Government
must balance social and economic needs when
determining tax policy, and believes that this can
be achieved whilst improving the entrepreneurial
environment. For example, the Chamber has long
advocated fairer and equal tax treatment for the self-
employed, including raising the Earned Income Tax
Credit to the PAYE equivalent of €1,650, and removing
of the 3% USC surcharge on self-employed people
earning over €100,000. We would welcome progress
towards these goals in Budget 2019, while consideration
should also be given to gradually increasing the entry
point for the higher 40% income tax rate in order to
ease pressure on average income earners.
While progress on all fronts is not be feasible in
one fiscal year, there is scope within the fiscal space
as outlined in the summer economic statement
to send a strong signal that Ireland intends to
sharpen its competitive edge in an uncertain world.
Informed by comparative analysis and business
feedback, the following are Dublin Chamber’s priority
recommendations for 2019.
Table 6: Ireland-UK Business Competitiveness Table

Ireland UK / NI
(€1.1333 per £1 – 10/05/18 – www.ft.com)
(Budget 2018) (Budget Spring ‘18)

Investment in Critical Infrastructure

General Government Gross Capital Expenditure
2.00% 2.88%
as % of GNI (Current LCU) 2017
Income Tax
Salary at which rate changes to 40% 33 [€/£] €34,550 €52,528
Effective total tax rate on dividends at higher rate 52% 32.5%
Yes – 3% USC levy on
Different assessment for self-employed. income over No
€100,000
Yes – recent
Possible to defer income tax on share-options given to
introduction of KEEP Yes
specific key employees
for SMEs
Capital Gains Tax
Standard rate 33% 20%
10% on qualifying
Entrepreneur relief – CGT rate
assets up to €1m
Effective rate first ~€1m on exit after five years 10% 10%
Effective rate first ~€11m on exit after five years 31% 10%
Capital gains tax rate on disposal of shares in SMEs 33% 10%
Capital gains tax rate on Employment and Investment
33% 0%
Incentive Scheme qualifying investment or equivalent gains
Corporate Tax
Knowledge Development Box / Patent box income 6.25% 10%
Corporate Tax rate (UK’s by 2020) 12.50% 17%
R&D Tax Credit – upfront refunds for early stage/scaling
No Yes
companies
Capital gains tax business asset rollover relief No Yes
Value Added Tax
Standard Rate 23% 20%
Registration Threshold for SME providing services34 €37,500 €96,330

17 | Pre-Budget Submission Budget 2019

1. Upgrade Entrepreneur Relief to surpass the UK

Entrepreneur Relief from Capital Gains Tax provides for
disposals of qualifying business assets by entrepreneurs
to be charged at a lower 10% CGT rate up to a lifetime
limit on chargeable gains.33 To qualify, among other
conditions, an individual must own at least 5% of
the business and have spent a certain proportion
of their time working in the business as a director or
employee for three out of the previous five years, prior
to disposal. The aim is to encourage entrepreneurs to
found, operate, and dispose of businesses in the State,
and to build a reputation for Ireland as a country that
welcomes and rewards enterprise. Dublin Chamber
made the case for the revised Entrepreneur’s Relief in
2015, and welcomed its introduction in Budget 2016.
However, Ireland’s offering to entrepreneurs remains
starkly uncompetitive in relation to the UK’s, which
includes a lifetime cap of £10m (c. €11.2m in current
market prices) on qualifying gains for Entrepreneur
Relief. This compares with a modest €1m cap in Ireland.
A larger limit is required to encourage greater ambition
and scaling by entrepreneurs; and Ireland should send
a strong signal that it intends to compete with the UK
ahead of Brexit. Consideration could also be given to
given to amending the 5% share requirement to refer
to the point of investment, ensuring that entrepreneurs
who retain their initial investment are not penalised as
subsequent external investment is received.
The Department of Finance has acknowledged that
‘retention [of the relief] is important in the context of
possible Brexit impacts and other issues than may arise
as the UK exits the EU.34 Moreover, the Programme
for Government promises ‘We will reduce the rate of
Capital Gains Tax for new start-ups to 10% from 2017
(held for five years and subject to a €10 million cap on
gains).’35
The cost of bringing Ireland’s lifetime limit up to the
nominal UK equivalent of €10 million, as promised in
the Programme for Government, has been estimated
at €54 million using the non-dynamic costing model
employed by the Department of Finance. However, a
further increase in the limit to €15 million would incur an
added annual cost to the exchequer of just €2 million,
according to the same model, while positioning Ireland
at a very clear competitive advantage against the UK.36
Recommendation
• Raise the lifetime cap on qualifying gains for
Entrepreneur Relief from €1 million to €15 million
to send a strong signal that Ireland intends to
compete with the UK ahead of Brexit. Cost: €56
million.

33 Qualifying business assets include those in most productive businesses, excluding businesses involving land dealing or holding investments.
34 It has previously been argued that Ireland’s less generous scheme is compensated for by the existence of Retirement Relief, which can be claimed to values
ranging from €500,000 to €3 million. However, this ignores the reality of successful serial entrepreneurship today, which often takes place well before retirement
age. Moreover, the combined value of the current reliefs is still substantially lower than the UK equivalent. Department of Finance Tax Strategy Group – TSG
17/11, Capital & Savings Taxes, 25 July 2017, p.5.
35 Programme for a Partnership Government, p.38.
36 Department of Finance Tax Strategy Group – TSG 18/10, Capital & Savings Taxes, 10 July 2018, p.11, https://www.finance.gov.ie/wp-content/up-
loads/2018/07/TSG-18-10-Capital-and-Savings-Taxes-PL.pdf#page=11. Dublin Chamber notes the limitations of non-dynamic costing, and the fact that previous
reductions in Capital Gains Tax have had a stimulatory effect on economic activity, ultimately increasing revenue generation.

18 | Pre-Budget Submission Budget 2019

 2. Introduce an Investor Relief to
encourage investment in Irish SMEs

Growing Ireland’s indigenous business base will
require greater investment by SMEs. While the
Government’s enterprise policy commits to ‘ensuring
a competitive funding environment that provides
a range of options to support our enterprises from
start-up to growth’, in reality, the flat-rate CGT
regime undermines efforts to promote investment in
SMEs.37 There is no incentive to choose investment
in a home-grown start-up over investment in a
longer-established multinational. The ESRI recently
identified a significant investment gap in the Irish
SME sector in a joint study with the Dept. Finance,
calculating that the gap amounts to just over €1
billion for 2016 alone.38
Application of a flat 33% CGT rate on all capital
gains, irrespective of the level of risk taken and the
contribution to the Irish economy of the underlying
investment, is clearly inequitable. Investors pay the
same CGT on passive investments in large blue chip
foreign companies as they would on higher-risk Irish
companies. People providing angel investment,
people providing their services as employees, and
shareholders who do not meet the 5% threshold
to avail of Section 597AA (Entrepreneur Relief)
are therefore unfavourably treated. Moreover, the
distinction between large quoted companies, with
a liquid market for the sale of shares, and unquoted
firms, with a much less liquid market for the sale of
shares, is not reflected in the taxation regime.
The Irish CGT regime effectively incentivises
passive investment in larger foreign firms over
investment in higher risk Irish SMEs. This runs
contrary to the national interest, which clearly lies
in building up a greater indigenous business base
so as to avoid over-reliance on a small number of
highly mobile multinationals. With a similar concern
in mind, the UK introduced an ‘Investors’ relief’ from
CGT. It offers a lower CGT rate of 10% on lifetime
gains of up to £10 million from disposals of shares in
an unlisted trading company or the holding company
of a trading group.39
Recommendations
• Introduce an Investor Relief along the UK model,
offering a lower 20% CGT rate on all investment
in unquoted trading companies where shares
have been held in excess of three years.40 While
lower than the British rate of 10%, it would be an
important first step to encourage investment in
indigenous business.
• To keep the scheme open to small-scale
investors, there should be no minimum
percentage shareholding in order to qualify.
• Establish a lifetime limit on qualifying gains at the
nominal UK equivalent of €10m.

37 Dept. Business Enterprise & Innovation, Enterprise 2025 Background Report, p. xv

38 “The magnitude of this “investment gap” is economically meaningful and is estimated to be just over 30% (in 2016) relative to SMEs actual investment.” ESRI,
Measuring the Investment Gap & its Financing Requirements for Irish SMEs, 8 March 2018, https://www.finance.gov.ie/wp-content/uploads/2018/03/180308-
Measuring-the-Investment-Gap-and-its-Financing-Requirements-for-Irish-SMEs.pdf
39 HM Revenue & Customs internal manual, Capital Gains Manual, CG63500P, https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg63500p
40 The Dept. Finance has reported that it is unable to calculate the cost of introducing a version of the UK scheme in Ireland as tax returns do not identify the
amount of chargeable gains associated with unquoted shares. Dáil Éireann Debate Thursday 5 July 2018, Question No. 86, Reference No. 29776/18. Deputy
Pearse Doherty. Answered by the Minister for Finance Paschal Donohoe.

19 | Pre-Budget Submission Budget 2019

3. Make the R&D tax credit work for SMEs

Business Research & Development in Ireland remains
dominated by larger, foreign-owned MNCs, with only
1% of small firms engaged in R&D.41 This year, the OECD
Economic Survey has again highlighted the existence
of a two-speed economy in Ireland, confirming that
the productivity gap between the indigenous and
multinational sectors is actually widening rather than
narrowing.42 To address the growing productivity gap
between the indigenous and multinational sectors,
Government must take steps to improve the low levels
of innovation among Irish SMEs.
The Research & Development Tax Credit is one of the
principal schemes the Government uses to encourage
R&D among businesses. As currently designed,
however, it is failing to drive R&D among indigenous
businesses on the scale that Ireland requires. The
European Commission has advised that the emphasis
in Ireland’s R&D strategies for business should be to
build up research and innovation capability within Irish
SMEs, and has recommended that the R&D tax credit
scheme must be targeted at SMEs specifically.43
Feedback from Dublin Chamber members indicates
that there is a low take-up of the R&D tax credit outside
the multinational sector at present. It is particularly
low among firms founded in Ireland and among firms
that are SMEs by the European Commission definition.
The same study indicates that use of the Research &
Development tax credit is almost twice as common
among large firms as among SMEs, and is almost four
times more common among foreign firms as among
firms founded in Ireland.44
Many SMEs, and most start-ups, face cash flow
issues which make the 3-year deferred claim model
unattractive or impractical. Allowing an upfront
payment would make the R&D tax credit a more
realistic option for early stage firms with lower cash
resources. In the competitive context of Brexit, it is
also worth noting the regime in the UK, where there is
a special R&D Relief available to SMEs with extremely
attractive conditions, including a super deduction of
130% of qualifying costs for SMEs.45
Recommendations
• Allow an upfront claim of the R&D tax credit cash
refund for SMEs, instead of the three year lagging
deferred cash-flow mechanism that currently
exists. As this purely a cash-flow measure, it is
would be cost-neutral over a three-year period,
with minimal exchequer impact.
• Increase the R&D tax credit rate from 25% to 30%
for SMEs, to compare better with the UK’s SME
R&D Relief. Cost: €30 million.46

41 European Commission Research & Innovation Observatory Country Report 2017: Ireland, pp.24-26
42 OECD Economic Survey of Ireland 2018, https://www.oecd.org/eco/surveys/economic-survey-ireland.html
43 European Commission Research & Innovation Observatory Country Report 2017: Ireland, p.26
44 Dublin Chamber Business Risk Outlook Survey Q2 2018
45 HM Revenue & Customs internal manual, Corporate Intangibles Research & Development Manual, CIRD90000, https://www.gov.uk/hmrc-internal-manuals/
corporate-intangibles-research-and-development-manual/cird90000
46 Dáil Éireann Debate Thursday 5 July 2018, Question No. 87, Reference No. 29777/18. Answered by the Minister for Finance Paschal Donohoe. The overall cost
of the R&D tax credit reached €553 million in 2014. Dept. Finance, Economic Evaluation of the R&D Tax Credit, October 2016., p. 6, https://igees.gov.ie/wp-con-
tent/uploads/2014/01/R-and-D-Credit-Evaluation-2016.pdf#page=6

20 | Pre-Budget Submission Budget 2019

 4. Reduce income tax on dividends
for entrepreneurs to 30%

To succeed in developing prospering indigenous
businesses on a large scale, it is critically important
that Ireland provides a supportive environment
for entrepreneurship throughout the life-cycle of
a business, rather than merely during the start-
up phase. Promotion of a start-up culture must
be combined with effective long-term rewards for
entrepreneurs who choose to stay on and scale
their businesses rather than accept the allurement
of a short-term reward by selling the firm. Ireland’s
present tax regime lacks this holistic and long-term
approach.
Under the current system of incentives, divestment
is the only means by which entrepreneurs can
extract large-scale value from their firm in a manner
that is not subject to the full rate of income tax, as
Entrepreneur Relief only applies to CGT on the value
of shares. Recent changes introduced by the Finance
Act 2017 have further increased the difficulty.47
The result is an ‘inefficient incentive’ that drives
successful businesspeople to ‘sell up’ rather that
stay on and grow their business further. While
divestment is an appropriate and desirable outcome
for serial entrepreneurs, for example, it should not
be the only option that is encouraged. In many cases
the scaling of Irish SMEs may be of greater long-term
value to the Irish economy.
The Government’s updated enterprise policy
includes a commitment to ‘strengthen the
competitiveness of Ireland’s tax regime to support
start-ups, small and medium enterprises (SMEs)
scaling.’48 However, Ireland’s competitive position is
clearly wanting at present. In the UK, the effective
total tax rate on share dividends at the higher rate
is 32.5% compared with 52% in Ireland, a stark
differential in the context of the Brexit.
Recommendation
• Tax entrepreneurs at a lower rate of 30% on
income from share dividends to outmatch the UK
offering ahead of Brexit.49 The qualifying criteria
for this lower rate would be the same as those
that apply to individuals and firms with respect
to Entrepreneurs Relief from Capital Gains Tax.

47 Finance Act 2017 introduced the new Section 135(3A), TCA 1997, as an anti-avoidance mechanism. In practice it serves to convert many genuine transactions
from distributions that are subject to CGT into distributions subject to income tax. E.g. management buyouts are a traditional mechanism to allow key stakehold-
ers to exit or retire from their businesses. But making these transactions subject to income tax undermines their attractiveness; it pushes businesses towards
sales to third parties or liquidation if a CGT exit is to be achieved.
48 Enterprise 2025 Renewed: Building resilience in the face of global challenges, p. ix, https://dbei.gov.ie/en/Publications/Publication-files/Enterprise-2025-Re-
newed.pdf#page=13
49 Revenue has tentatively estimated the total cost of a 30% income tax rate on dividend income from Irish resident companies (replacing all income tax, PRSI,
and USC currently collected) applied universally at €95 million. Restriction of the scheme to qualifying entrepreneurs would limit the cost to a fraction of this
figure. Dáil Éireann Debate Thursday 5 July 2018, Question No. 85, Reference No. 29775/18. Answered by the Minister for Finance Paschal Donohoe.

21 | Pre-Budget Submission Budget 2019

 Invest in Ireland’s Human Capital

Ireland’s people are its greatest resource. A large Table 7: GDA Businesses Experiencing
and skilled labour force will be crucial to facilitating Skills Shortages Q2 2018
business growth and maintaining international Are you currently looking for employees
competitiveness in the coming years. However, with a with a certain skillset, but having difficulty?
buoyant labour market approaching full employment,
and high accommodation costs in the GDA, the cost
and availability of skilled labour is a growing concern
for businesses. Whereas almost half (47%) of Dublin 37%
Chamber members were affected by skills shortages in (NO)
63%
Q4 2016, this proportion has risen to almost two thirds
(YES)
(63%) in Q2 2018.50 The range of affected sectors and
business functions presently includes financial services,
ICT, engineering, construction, tourism and hospitality,
international trading, and sales and marketing.
This challenge of access to skilled labour will continue
to mount in the context of strong economic growth.
The tightening supply of labour is already placing
upward pressure on wage costs, and making it diffi-
cult for SMEs to compete with larger firms for skilled
employees. As the OECD has recently noted, high Irish
labour costs threaten to slow business growth and
undermine economic competitiveness through infla-
tion.51 To maintain Ireland’s attractiveness as a location
for FDI and to support indigenous business growth,
Dublin Chamber recommends that the Government
take measures to attract, retain, and develop talent in
the Irish labour force.

50 Dublin Chamber Quarterly Business Trends Survey Q4 2016; Dublin Chamber Business Risk Outlook Q2 2018
51 OECD, Ireland Economic Forecast Summary, May 2018, https://www.oecd.org/eco/outlook/economic-forecast-summary-ireland-oecd-economic-outlook.pdf

22 | Pre-Budget Submission Budget 2019

1. Increase female labour market participation

While inward migration will continue to play a valuable
role in meeting business needs, population growth
in the Greater Dublin Area carries its own challenges
in terms of managing overstretched infrastructure
and the inadequate housing stock. However, there is
considerable untapped potential in the Irish labour force
that can be utilised without unnecessarily increasing
pressure on the availability of accommodation through
excess demographic growth. The room to expand
female labour force participation has been widely
noted.52
The female employment rate in Ireland is 10.4
percentage points lower than the male rate. This
gender gap is considerably higher than that in most
other Northern European economies. It contrasts with
a differential of 2.7 percentage points in Sweden, 2.9
percentage points in Finland, 5.7 in Denmark, 6.7 in
France, 7.7 in Germany, and 8.4 in Belgium, for example.53
According to the latest figures, the differential in the
labour force participation rate between men and
women at all ages represents 254,500 women who are
out of the labour force in Ireland.54
There is clear evidence that Ireland’s gap in female
labour market participation is largely due to the burden
of childrearing falling principally upon women in a
context of high childcare costs.55 As Table 8 illustrates,
the female rate of labour force participation diverges
sharply from the male rate around childbearing age

Table 8: Ireland: Labour Force participation rate by age group, 201656

52 E.g. ESRI Quarterly Economic Commentary Summer 2018, pp. 51-55, https://www.esri.ie/pubs/QEC2018SUM.pdf#page=62
53 CSO, Women and Men in Ireland 2016, Employment, Table 2.2, EU: Employment Rate 2016, https://www.cso.ie/en/releasesandpublications/ep/p-wamii/
womenandmeninireland2016/employment/
54 CSO, Labour Force Survey Q1 2018, Table 7 & Table 8, https://www.cso.ie/en/releasesandpublications/er/lfs/labourforcesurveyquarter12018/
55 Indecon Report on Support for Childcare for Working Families & Employment Implications, Nov 2013, pp.ii-iii
56 CSO, Women and Men in Ireland 2016, Employment, https://www.cso.ie/en/releasesandpublications/ep/p-wamii/womenandmeninireland2016/employment/

23 | Pre-Budget Submission Budget 2019

and fails to catch up until retirement. The result is that
amongst people of typical childrearing age, there are
135,000 fewer women in the labour force than men.57
Statistical evidence for the impact of childcare
affordability on the labour market is strongly supported
by business community feedback. Three quarters
(75%) of Dublin Chamber members now report that
the cost of childcare has a material impact on their
business, affecting the cost and/or availability of
staff. Meanwhile, almost one in five Dublin Chamber
members have specifically identified easing female
labour market participation as the solution to helping
them access the skills they require.58
With this in mind, Dublin Chamber endorses
recent IMF advice that ‘attention should be given to
providing affordable childcare, reducing high second-
earner marginal tax rates, and eliminating gender pay
gaps.’59 Dublin Chamber supports the commitment
to ‘introduction of a robust model for subsidised
high quality childcare’,60 and we welcome the Single
Affordable Childcare Scheme introduced by the
Department of Children & Youth Affairs last year as a
first step. According to initial calculations, for 2018,
the additional budget requirement for the Affordable
Childcare Scheme (over and above the 2017 budget)
will be €44m.61 Dublin Chamber recommends a more
significant expansion of fiscal support for the new
Single Affordable Childcare Scheme in order to expedite
progress towards greater affordability.
There is no one solution to the childcare affordability
issue, however, and the Government must take a
broader approach. Specifically, it must examine the
impact of the taxation system on the decision to return
57 Comparison of men and women aged 25-59, CSO, Labour Force Survey Q1
2018, Table 7, https://www.cso.ie/en/releasesandpublications/er/lfs/labour-
forcesurveyquarter12018/
58 Dublin Chamber Business Risk Outlook Q2 2018
59 IMF, Ireland Staff Concluding Statement of the 2018 Article IV Mission,
May 2018
60 Programme for a Partnership Government
61 Department of Children & Youth Affairs, Policy Paper on the Development
of a new Single Affordable Childcare Scheme, October 2016, p. 71
62 The participation tax rate (PTR) is a means of measuring the level of
incentive or disincentive for labour market entry that is inherent in the tax and
benefit system.
63 European Commission, DG Justice, Secondary earners and fiscal policies
in Europe (Rastrigina & Verashchagina), 2015, p. 54, https://ec.europa.eu/
info/sites/info/files/150511_secondary_earners_en.pdf#page=54
64 Department of Children & Youth Affairs calculation based on the forecast
cost of providing the universal childcare subsidy (CCSU) for the 2017/18
programme year. July 2018.
24 | Pre-Budget Submission Budget 2019
to work by a second earner following withdrawal from
the labour force on account of parenthood, taking
full account of childcare costs. Business feedback
suggests that, as presently structured, the labour
taxation system (USC, PRSI and income tax) is serving
to discourage highly skilled people from returning to
the workforce.
There are many variables affecting such situations,
and this topic requires comprehensive study at an
official level. However, an initial exploratory analysis
by Dublin Chamber suggests that an individual who
withdraws from the labour force to give birth and/
or care for an infant may only add marginally to net
family income by returning to work. It is clear that the
attractiveness of returning to work, even at higher
salary levels generally expected by skilled employees,
is weakened by the structure of the tax system and the
low level of childcare support currently available.
This is confirmed by stark findings from the
European Commission. Ireland has the second highest
participation tax rate (PTR) in the EU for potential
female entrants to the labour force when out-of-pocket
childcare costs are taken into account.62 With a PTR of
94% in such situations, Ireland is second only to the
UK in its penalisation of second earners with children.63
Recommendations
• To ameliorate the childcare affordability problem
in 2019, double the maximum universal childcare
subsidy under the Affordable Childcare Scheme
from €80 per month to €160 per month for a child
in full-time care before the start of ECCE, with
a commitment to commensurate progressive
increases in subsequent years. Cost: €19m64
• Consider improving the targeted subsidy element
of the Affordable Childcare Scheme to better
reflect the net income of the second earner in a
family (not just combined parental net income)
with a view to increasing labour force participation.
More broadly, and in the context of the proposals
to reform income, PRSI and USC, undertake
a thorough examination of how these taxes
discourage ‘second earners’ from returning to the
workforce, with a commitment to progressively
removing labour force participation barriers on the
basis of the findings.
 2. Allow SMEs to avail of the Special Assignee
Relief Programme (SARP) for new recruits
Access to skilled labour in Dublin is a problem affecting
firms of all sizes, but SMEs particularly struggle to
compete for the talent they require to expand.65
They face not only a tight labour supply, but intense
competition for specialists from multinational firms
with a broader international scope and a much
greater capacity to offer attractive remuneration.
For overseas recruits, moreover, employment by a
multinational is often considered a ‘safer bet’.
SMEs typically do not have sufficient international
presence to allow them to recruit high-skilled staff
globally or assign an employee from a foreign business
branch. For this reason, the Special Assignee Relief
Programme for mobile employees is generally not
an option available to SMEs, being effectively a tax
benefit that is restricted to multinational firms and
offering no accompanying benefit to the indigenous
sector.
SARP is an income tax relief on a proportion of
income earned by an overseas employee assigned
to work in the State for their employer. Under the
65 While Local Enterprise Offices offer Business Expansion Grants of up to €150,000 in value which may be used to cover salary costs, these are restricted to
micro enterprises with 10 employees or less. https://www.localenterprise.ie/Discover-Business-Supports/Financial-Supports/Business-Expansion-Grant/
25 | Pre-Budget Submission Budget 2019
programme, the employee can claim to have 30% of
their income over €75,000 disregarded for income
tax purposes for five consecutive years from the
beginning of their qualification.
In order to assist SMEs in attracting the skilled staff
required for business expansion, the playing field
should be levelled between the indigenous and FDI
sectors. Dublin Chamber recommends adjusting the
SARP by allowing it to apply to new recruits in cases
where the firm in question is an SME under the EU
Commission definition.
Recommendation
• Extend the Special Assignee Relief Programme
to new recruits for firms that are SMEs by the
European Commission definition. The salary
requirement would remain the same to restrict
the programme to high-skilled employees.
3. Make the Key Employee Engagement
Programme work for SMEs
The Key Employee Engagement Programme (KEEP)
is a tax incentive introduced to make share-based
remuneration more attractive and workable for scaling
businesses. Under the scheme, gains arising on the
exercise of a share option by qualifying SME employees
are not subject to Income Tax, PRSI or Universal Social
Charge at the date of exercise. They are only subject to
CGT (33%) on a subsequent disposal of the shares.66
Dublin Chamber welcomed the introduction of KEEP in
Budget 2018, having campaigned for the measure to
help SMEs retain talent and compete with larger firms;
and the Chamber is keen to ensure that KEEP proves
successful.
However, business feedback suggests that certain
aspects of the scheme are making it impractical for
most SMEs and that the legislation is proving to be
inoperable. As a result of these practical constraints,
Dublin Chamber does not expect a significant uptake
of KEEP in its current form. While Government has
committed to progress on improving ‘mechanisms
through which SMEs can reward key employees with
share options in a tax-efficient manner’,67 reform of
KEEP will be required in Budget 2019 if this goal is to be
achieved under the present Government. The principal
areas of concern are as follows:
1. Valuations
The obligation to issue share options at market value
creates a compliance burden and a legal risk for SMEs
that can discourage them from issuing KEEP options.
Guidance was promised on the topic but only a para-
graph was included in the published guidance.68  This
66 Revenue Tax & Duty Manual, Share Schemes Manual, Chapter 9, Key Employee Engagement Programme (KEEP), April 2018, https://www.revenue.ie/en/
tax-professionals/tdm/share-schemes/Chapter-09.pdf
67 Programme for a Partnership Government, p. 38, https://www.merrionstreet.ie/MerrionStreet/en/ImageLibrary/Programme_for_Partnership_Government.
pdf#page=38
68 Revenue Tax & Duty Manual, Share Schemes Manual, Chapter 9, Key Employee Engagement Programme (KEEP), April 2018, p.7 https://www.revenue.ie/en/
tax-professionals/tdm/share-schemes/Chapter-09.pdf#page=8
26 | Pre-Budget Submission Budget 2019
is giving rise to uncertainty for businesses wishing to
avail of the relief. The burden could be alleviated some-
what if some practical rules of thumb were set, such as
being able to utilise valuations set in third party trans-
actions (e.g. fundraisings within 12 months of the issue
of a KEEP option where there is no evidence of a mate-
rial change in valuation).
2. Restrictions on the value of share options granted
to an individual
In the start-up scene, the market practice for cash-
strapped scaling SMEs is often to offer high equity
rewards and comparatively lower salaries. Under KEEP
rules, the total market value of all shares upon which
qualifying share options are granted cannot exceed the
value of 50% of an employee’s annual remuneration.
This restriction is counterproductive for the typical
scaling SME that would be likely to use KEEP to attract
and retain employees who might otherwise work for
larger enterprises where they take on less career risk
and are likely to receive higher remuneration.
3. Restriction of qualifying individuals to full-time
employees in the service of one company.
The requirement for the individual to be an employee
of and carrying out duties for a single company is overly
restrictive. Employees are often employed by one
entity in a group but make their services available to
other group entities. Part-time employees are also very
important for many scaling SME which need to access
particular skillsets but which may not be able to afford
or gain fulltime access to important employees.  This
tendency is particularly pronounced in the tech sector.
Reducing the requirement to work 30 hours a week for
a qualifying company would expand the ability of SMEs
to attract part-time employees.
Other concerns highlighted by Dublin Chamber
members include:
4. The requirement that the shares be newly issued,
which is restrictive as, in practice, companies will set
aside a particular amount of shares at the establishment
of a scheme or re-use shares when employees leave.
5. The restrictions around connected parties and the
requirement that these be maintained over the relevant
period.
6. Under the current legislation, a company must
retain the status of unquoted company throughout the
entire ‘relevant period’ during which the option can be
exercised. The only exception is if a company becomes
quoted on the Enterprise Securities Market of the Irish
Stock Exchange or on any similar or corresponding
stock exchange in an EEA country or a country with
27 | Pre-Budget Submission Budget 2019
which Ireland has a double taxation agreement. This
disqualifies share options if the company becomes
quoted on a full stock exchange.  E.g. if, after eight
years, an SME has successfully scaled and decides to
list on the Irish Stock Exchange, all KEEP options that
are not exercised prior to the IPO will cease to qualify
for the KEEP regime. Precluding the ambition of
companies to scale successfully to list on a full stock
exchange represents an unnecessary restriction.
Recommendations
• Detailed guidance should be issued on valuations
to provide clarity for firms facing the compliance
burden of issuing share options at market value;
• The restriction of the value of share options
granted to any individual to 50% of the value of
his/her annual remuneration should be lifted.
• Qualifying individuals should be allowed to make
their services available to other entities in a
company group and the time required to work for
a qualifying company should be reduced.
4. Prevent taxation of employer-funded
professional subscriptions from taxation as BIK

New Revenue guidance threatens to discourage the
development of an educated and skilled workforce by
subjecting employees to Benefit-In-Kind taxation on
employer-funded professional membership fees. This
represents a departure from previous practice, and
does not account for the realities of modern business.
Today employees, and particularly senior employees,
are engaged in work at any waking time in their day. They
access services online from the professional bodies
of which they are members, using the information
for their employment. They operate in a knowledge
economy where they are unable to perform the duties
of their employment without access to information.
The revised guidance suggests that the interpretation
and application of tax deduction rules has tightened,
narrowing the circumstances in which professional
subscriptions can be paid by an employer without
giving rise to a BIK charge for an employee. While it
still states that BIK need not be operated where the
expense has been incurred “wholly, exclusively and
necessarily” for the purposes of an individual’s duties
of employment, the practical examples that are given
imply that Revenue now takes an extremely narrow
interpretation of the application of these provisions.70
This policy effectively restricts a tax deduction to
professional subscriptions that are statutorily required
for the exercise of the employee’s duties. It now
appears that an employee can hold a qualification that
is relevant and important to his or her role, but still be
subject to BIK taxation on that expense. In a country
that strives to promote a knowledge and skills based
economy, the restriction is very inappropriate.
This has caused concern among employers, and
particular alarm in the professional services sector
where maintaining a base of critical skills will be vital
ahead of Brexit. It also has wider implications.For
commercial reasons, many employers will have no
choice but to incur higher costs. In other cases, it
will create an increased tax burden for employees,
and could likely lead to a reduction in professional
qualifications and memberships in Dublin’s labour
force. Provision must be made for the exemption from
BIK taxation of professional memberships that are
deemed commercially necessary, even if they are not
statutorily required for the exercise of the employees’
duties.69
Recommendation
• Reinstate the pre-2018 guidance with respect to
qualifying criteria for the exemption of profes-
sional membership fees from BIK taxation. Alter-
natively, the new guidance should be amended
to make clear provision for the exemption of
professional memberships that are commercially
necessary but not statutorily required.

69 Revenue Tax & Duty Manual Part 05-02-18, Deduction for expenses in respect of annual membership fees paid to a professional body, January 2018, https://
www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-05/05-02-18.pdf
70 Dublin Chamber Policy Statement re Tax Treatment of Professional Subscriptions, May 2018, https://www.een-ireland.ie/eei/assets/documents/uploaded/
general/Dublin%20Chamber%20Policy%20Statement%20re%20Professional%20Subs.pdf

28 | Pre-Budget Submission Budget 2019