Energy costs are now posing a significant threat to the viability of many firms in Ireland, the employers' organisation Ibec has warned.
The body said some businesses will see their energy bills rise this year by between four and five times the level they paid last year, Fergal O'Brien, Ibec's director of lobbying and influence, said.
"From what may be relatively large but could be quite tight margin manufacturing businesses right down to the SME sector, energy costs are now posing a significant threat to viability to many, many firms," Mr O'Brien said at the launch of Ibec's pre-budget submission.
"This needs to be absolute priority for Budget 2023," he stated.
Mr O'Brien cited a real-world example of a large manufacturing company whose energy costs will rise from €20m last year to €100m this year.
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He said in another case a small retailer is facing a hike in their energy bills from €50,000 in 2021 to €200,000 this year.
"This is clearly an energy affordability crisis," he claimed.
Mr O'Brien said Ibec is also concerned about the direction of travel on energy regulation policy and costs.
"We are not convinced from a broad business perspective that those regulatory tools, particularly the ones that are under consultation by the energy regulator at the moment are the right policy response," he said in reference to proposals to increase tariffs on large energy users at peak times.
"And we are also concerned about the additional network charges that have now been shifted onto the business sector," he stated.
Ibec said there is now clear accelerating evidence of a turning point in the Irish economy in recent months.
Mr O'Brien said that at sectoral level and globally, Ibec is seeing a softening of operations among its members and across the economy as a whole.
Despite this he added, many sectors - like life sciences for example - remain incredibly resilient and continue to be ambitious in their hiring and investment.
Fiscal policy would have to play a much more significant role in dealing with the current situation, Mr O'Brien said.
But given that the country is still emerging from the pandemic, Ibec does not think it realistic or sensible that the Government would be expected to address the full cost of living situation across the economy through fiscal policy measures.
"So we do support a prudent but agile response from a fiscal policy perspective," he said.
Ibec also urged the Government to quickly use the EU temporary state aid framework that has been agreed with the European Commission to deliver supports for businesses to help them deal with energy costs.
"At the very latest that needs to be done by budget day, if not sooner - that is of extreme urgency," Mr O'Brien said.
He also said that the Government may be called on long after the budget to do more to assist with the energy affordability crisis.
Mr O'Brien said Ibec's members will be keeping a close eye on the outcome of the public sector pay talks because it would be incredibly important when it comes to private sector expectations.
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But he added that there is no way that private sector employers can compensate employees for the full costs of living increases.
"We know from relatively recent economic history that if we start chasing down inflation with excessive wage increases then that’s where we are going to undermine our competitiveness," he claimed.
However, Ibec also said that while one eye needs to be focused on the short-term challenges, another needs to be kept on the longer-term, amid growing concern about investment shortfalls in the economy.
Among the budget measures that the organisation has suggested is use of the money in the National Training Fund to assist SMEs that are struggling with energy costs, through breaks on the payment of the levy that pays for the fund or rebates via vouchers for the most hardest hit.
It is also seeking up to €400m to be allocated for direct grants for energy efficiency measures for businesses through existing Sustainable Energy Authority of Ireland schemes.
Ibec is also urging that Government to use new EU rules that allow for the zero rating of VAT on energy efficiency equipment like heat pumps, insulation and retrofitting, which would cost €10m in the short-term rising further in the long run.
The organisation is also seeking super deduction style capital allowances for energy efficiency measures.
€400m in investment is also needed in education, skills, childcare, research and innovation next year to maintain Ireland as an attractive location for talent, it said.
This includes €180m to extend the housing Help to Buy scheme, and €100m each for core funding of third level education and for research and innovation.
On personal tax, the employers' group favour the widening of the tax band to reduce the numbers of people paying at the higher rate, rather than the introduction of a new middle rate of around 30% as had been suggested by the Tánaiste.
Meanwhile, economic and social analyst with Social Justice Ireland Colette Bennett has said people on fixed incomes in particular are struggling with the cost-of-living increases.
She told RTÉ's Today with Claire Byrne that the priorities that people have are the roof over their head, their lighting, heat and food and anything for their children.
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The increase that have been seen across the board on utilities, is having a severe impact on those who are on lower incomes.
She said data shows that 7% of the population were in arrears on a utility bill - 350,000 people - before recent increases had come into effect.
Ibec's Director of Lobbying and Influence also told RTE's News at One that some businesses, particularly in the materials and engineering sectors, will be forced to reduce working hours and cut shifts due to increasing energy costs.
"Some of the sectors we’re talking about are probably sectors that are fairly low margin businesses where we have high scale production. A lot of companies in materials and engineering for both the export and the domestic market could face significant viability challenges," Mr O’Brien predicted.
"For some of them it may not make sense to have full production capacity at those energy costs. Hence, they will need to be supported in terms of their long-term viability as businesses," he said.
"Food is a very high energy user as well but obviously given the importance of food supply and security, most companies would prefer not to have to dial down their production," Mr O'Brien stated.
"I think some of them will be faced with no choice but to reduce production days and production hours as energy costs remain volatile in the months ahead," he said.
He added that Ibec "would like to see a stronger whole of government response" on the energy issue.
