The elimination of the ceiling on employers’ PRSI was inexplicable at the time, but today is completely at odds with the needs of the economy’ said the Irish Business and Employers Confederation (IBEC) in their pre-budget submission 2002. IBEC, which includes the Financial Services Association, is urging the government to rethink their stance on employers’ PRSI as the decision in last year’s budget has led to an increase in the cost of employment, particularly in higher value-added business.
With economic growth slowing considerably, IBEC sees it as vital that the budget and other policy instruments address competitiveness as a priority. They implore the government to ensure the 2002 budget marks a return to the consistent approach to taxation of employment, which IBEC sees as a coherent, stable and pro-enterprise industrial policy that has been an important factor in raising Ireland’s attractiveness to foreign investors. The submission states that the ‘unexpected and uncompensated’ increase in PRSI costs has dealt a severe blow to business in all sectors. When aligned with the sharp increase in wage costs previously negotiated under the Programme for Prosperity and Fairness, the damage to competitiveness is clear.
According to the report competitive gains in the last number of years have given rise to substantial output and employment growth. However, when relative unit labour costs in the total economy are viewed against euro bloc countries, the significant gains made in the early ‘90s are being quickly eroded. ‘This has been exacerbated in 2001 by the abolition of the employers’ PRSI ceiling.’
Also, for strategic reasons, IBEC stated that the burden of employers’ PRSI should be reduced in advance of the expected weakening of sterling against the euro. To compensate for the removal of the ceiling in last year’s budge, IBEC are calling on the government to reduce the rate of employers’ PRSI from 12 per cent to nine per cent.
IBEC estimates the abolition of employers’ PRSI ceiling will increase payroll costs by an average of 1.5 per cent, but will be much higher in strategically important sectors and companies with larger proportions of skilled employees. It also adversely affects the large amount of foreign companies that are located in Ireland, as many of these found the increase in wage costs difficult to explain to investors.
‘Given the adverse effect on those very businesses being targeted for development by government policy and agencies, it is inconceivable that a compensating measure would not be introduced before the additional costs really bite in the next tax year,’ IBEC states.
IBEC is not the first to express its stern opposition to the removal of the PRSI ceiling. In Finance September, many of Ireland’s leading economists called for the move to be rescinded, with Colin Hunt, chief economist at Goodbody saying, ‘Last year’s decision significantly increased the tax burden on those industries that Ireland is seeking to retain and attract. There is no logic in penalising companies for paying decent wages particularly at a time of heightened employment and investment uncertainty. The global economic situation has changed. So should the policy.’
Moreover, a recent report entitled ‘Opportunities for a broader based Institutional Asset Management business in Ireland’ produced by the IFSC Clearing Group, a sub division of the Department of Finance, highlighted the fact that industry members believe the removal of the employer PRSI ceiling could have a negative effect on Ireland’s ability to attract new companies. |
