Isme approaches the end of 2020 with most of the same policy issues as we started it, plus a global pandemic on top.
Back in the distant first quarter, we were looking for lower awards in personal injuries, a slow-down in current spending by government, and we welcomed an OECD Economic Survey on Ireland that told the government most of the same thing we had told them for the previous four years.
We also advised businesses in the second week of February about a little-known virus in China that had made no impact in Ireland, cautioning: “No cause for concern, but time to prepare.”
The hard lockdown announced in mid-March led us to make three key requests for government action: the provision of adequate working capital for SMEs; the formulation of a plan for reopening the economy; and the provision of access to an affordable examinership regime for SMEs.
Several reopening plans have appeared throughout the year, and we’re on the brink of another lockdown as we approach Christmas Eve.
The working capital issue has been patchy. The restart grant supports have been gobbled up by business as soon as they were made available, but distribution via local authorities has been variable in its effectiveness.
As of December 11, just over a quarter of the €425 million allocation for the Covid-19 Working Capital Scheme had been approved. Three quarters of the €30 million of MicroFinance Ireland’s Covid-19 loan fund has been approved. But the much heralded €2 billion Credit Guarantee Scheme announced in July has seen just €74 million in approvals out of applications worth €173 million. Debt finance is simply not attractive to banks or SMEs. This is a success rate below 4 per cent.
Progress on an affordable examinership process has been slow. While the practitioners involved in assisting the Company Law Group in its deliberations have been positively disposed towards a reformed regime, there is some official unease that small businesses might try to exploit as yet unidentified “loopholes”.
The notion that a small business would exploit a loophole in examinership which big business had not already found is amusing, but it is indicative of an attitude among some civil servants that small business owners view business as a permanent tax-dodge. This mindset must change in the New Year. On the positive side, the support from the largest group of business creditors, via the Banking and Payments Federation of Ireland, shows that our proposals are credible to the lenders.
Once government supports for enterprise end in the New Year, we expect to see a substantial number of our small businesses become insolvent. Just how many is difficult to estimate. Each 1 per cent increase in business insolvencies will produce an average of 2,700 business failures, costing 16,000 people their jobs. With a functional examinership regime, we could expect 10 to 15 per cent of those jobs and firms to be restructured and rescued. Those who obstruct reform of our examinership laws will bear a heavy burden of responsibility.
Covid-19 has absorbed 100 per cent of government attention. The executive should be able to multi-task, while leaving the heavy lifting of pandemic management to the Departments of Health, Finance and Social Protection. This has not occurred, and we saw a material slow-down in performance by some departments as Covid-19 hit. This must change in the New Year.
Legislative constipation and ministerial distraction by Covid-19 has meant we have made no progress on reducing the cost of insurance, no progress on tackling white collar crime, no progress on perjury, no progress on pensions equity for private sector workers, no progress on business costs or housing rents, no progress on tax reform, no progress on SME representation at governmental level. This must change in 2021.
Isme is normally fiscally conservative, but these are not normal times. Governments must spend counter-cyclically, and this is the time to spend. But we must spend wisely.
Every Irish person came into 2020 with €43,000 of Government debt per head. By New Year’s Eve, this will be closer to €50,000 per head. Debt servicing costs are historically low, but will increase. Escalating government debt is transferring wealth from our children to us. It is as unjust and immoral as it is unsustainable. And we have refused to deal with the unfunded liabilities of our public service pensions (€150 billion) and our social welfare pensions (€335 billion plus). These liabilities will not go away; they will exacerbate over the next 25 years.
Ireland must reassess its economic dependence on foreign multinationals. This has attracted negative attention from Brussels at the same time as changing corporation tax laws in the US have provoked a significant outflow of capital from Ireland. There is an increasing level of economic nationalism in Europe and elsewhere, of which Brexit is but a symptom.
US legislators may break up some of the internet giants using anti-trust laws. What will replace Ireland’s bumper corporation tax takes when this happens?
Ireland must pivot to domestic enterprise, and actively incubate and scale up the next Ryanair, Kerry Group, Élan Corporation, Stripe or Workhuman.
The optimism surrounding Covid-19 vaccine arrival is tempered by the knowledge that our relationship with our nearest trading partner will change fundamentally from January 1.
Brexit will result in costs to business and consumers we had eliminated with the single market. But it will also present opportunities. We have an English-speaking common-law jurisdiction with a stable political system. These things are no longer a given in the West. We must market them in Europe, the US and further afield.
A Biden presidency, an expansive China, a restive Middle East, shifting demographics in Northern Ireland, a border poll in the next decade and a UK adrift from the EU in search of a “global” role – we are already living the interesting times which our grandchildren will study in school.
Neil McDonnell is chief executive of Isme, the Irish SME Association