Employers' organisation IBEC has proposed a number of measures aimed at boosting spending in the domestic economy.
In a pre-Budget submission published today, IBEC says conventional policy responses will not be enough to deal with the unemployment and public debt problems the country faces.
It says governments have spent the past few years concentrating on the Budget problem, but must now urgently spell out an economic growth strategy.
IBEC says the commitments to economic reform contained in the EU-IMF programme should be regarded as the bare minimum necessary, and more ambitious plans are needed to address the cost of doing business, labour markets, social welfare, and public sector efficiencies.
While the export side of the economy is doing well, the domestic economy is still contracting, and IBEC proposes a number of measures it believes will boost spending in the local economy.
It calls for a strong Government communications strategy to counteract what it regards as inaccurate and misleading claims about the economy made by domestic and international commentators, which it claims are undermining confidence among consumers leading them to spend less and save more than is normal.
IBEC also wants pension law to be changed to allow people with personal pension plans or who have made significant additional voluntary contributions (AVCs) to be allowed to draw down up to 25% of their personal plan or AVC contributions to spend now. The money drawn down would be taxed only at the 20% standard rate.
This would give some money to the Government up-front, but would represent a long-term tax loss. It is hoped this would be somewhat offset by using the money now, either to pay down debts or to spend.
The measure would mainly relate to business people who have undergone changed circumstances as a result of the collapse. IBEC regards this as a way of using some of the large stock of national savings - around €70 billion in pension funds - most of which is invested outside of the State.
IBEC also wants to push more of the €2.2 billion of child benefit payments into the economy by encouraging the spending rather than saving of this money. It proposes the payment of child benefit through an electronic payment card that can be used only to buy goods and services. This means that many upper income families in receipt of the benefit cannot save it directly, but must spend. Because the card works only in the State, it reduces the amount repatriated abroad (only around €15m annually according to IBEC).
It says people who do not want to accept the electronic payment card could continue to receive cash transfers, but would have to take a 25% cut in the amount they receive. The value of the total child benefit sum paid by the state is approximately 3% of consumer spending, which is the biggest single component of the economy.
IBEC also wants a home improvement tax credit - a tax incentive for people to get improvements made to their homes, which is a labour intensive industry. As this is a tax-based measure, it would work against the development of the informal or black economy in home repairs (nixers) so could be revenue neutral.
IBEC claims a 30% increase in home improvements could generate 4,000 jobs and yield about €100m to the Exchequer. Using a similar scheme in Canada as a template, IBEC suggests a three-year tax scheme, giving a 20% refundable tax credit on works valued between €3,000 and €20,000 carried out by tax compliant contractors.
The employers' group also proposes a series of measures to stimulate property transactions, aimed at increasing the number of property sales, not increasing the price of property.
At the moment there are about 10,000 property sales a year, but the normal rate is about 40,000 a year, according to IBEC, a level of transactions it believes would generate about €600m for the domestic economy. To boost sales, it proposes a two-year window of opportunity by exempting homes bought before the end of next year from any new property tax for the following six years. For homes bought in 2013, the exemption would be for three years.
Other proposals include pre-announcing an increase in stamp duty on house purchases to 2% in 2013 and 3% in 2014, allowing a tax-free drawdown from pension funds of up to 10% of fund value for house purchase and immediately rolling out a national house price register.
On the public finances, IBEC is opposed to a Budget adjustment that goes beyond the €3.6 billion already agreed to in the EU-IMF plan. It says there is no need to impress bond markets, from whom we are not borrowing, by accelerating austerity. It says markets already accept that Ireland is implementing an austerity plan - the priority now is economic growth, and the Budget should be fine-tuned to deliver that.
IBEC says the bulk of the adjustment should come in the form of spending cuts, rather than tax increases. It wants to see cuts of €2.7 billion and tax rises of €900m - a three to one ratio. It says there should be no increase in income tax of any kind - instead the tax base should be widened by increasing the number of State services charged for, and through residential property tax.
For businesses it wants to see changes to the treatment of Research and Development tax credits, and the introduction of an "innovation box" regime for the taxation of intellectual property at a rate of 5%.
It would also like some changes to the income tax regime to make Ireland more attractive for key individuals who have to be recruited from abroad for firms based here, saying Ireland now has the fifth highest personal income tax regime in the EU for people earning above the average wage.
It says local authority charges are excessive and vary widely between local authorities. It wants to see local authority charges cut by 25%, with the shortfall recouped through greater efficiencies in local authorities, and secondly by local taxes and charges.
On employment and welfare reform, IBEC says it welcomes the recent reports from the Department of Social Protection on a single working age payment, and on the integration of employment and entitlement services (NEES), which includes a detailed timeline for implementation up to May of next year.
