Thank you Ceann Comhairle. I move the motion. I wish to share time with Deputy’s McGuinness & Fleming.
This motion aims to confront severe problems with the commercial rates system in Ireland and put forward alternative mechanisms that will alleviate the financial burden on struggling businesses. The ultimate goal of this motion is to protect and create jobs in the heart of villages, town centres and cities throughout Ireland.
In introducing this motion there are three areas I want to address. Firstly, government inaction, secondly, the scale of the problem and thirdly, the specific problems with the system and alternative solutions we can use to address it.
There is a paradox at the heart of the Program for Government laid out by Fine Gael and Labour. A contradiction between what it says and what the government actually does. In stirring words it sets out a vision of economic growth and job creation that I quote “the government will get our economy moving, restore confidence and support the protection and creation of jobs. The success of our economic plans will lay the foundation for the rest of our agenda for change”. However, what lies behind these words is what the government has actually done. It has not put forward any clear ideas for generating job creation; it has not provided a real way to protect vulnerable jobs through the country. The Program for Government is entirely silent on the issue of commercial rates which are crippling businesses the length and breath of Ireland.
This is a silence echoed by Fine Gael and Labour in their respective 2011 election manifestos and it is a silence continued by the Minister for the Environment, Community and Local Government in his ongoing refusal to confront the issue. The legislative agenda put forward by the government offers little hope to hard pressed rate payers who are barely keeping their heads above the waters of recession. It only proposes an accelerated re-valuation program that will result in few effective re-valuations that will not materialise effect until 2013 at the earliest. By then it will be too little too late. Bolder action is needed by the government if we are to help small and medium enterprises around Ireland, to protect and create jobs, and get the economy moving again.
But rather than helping business the government is hindering it with damaging measures. At a moment when businesses need support the government is considering what amounts to a “sick leave tax” on employers and a crippling 2% VAT increase that will drive shoppers up North and supress demand. At a moment when the government should be tackling fundamental problems such as business costs it is instead imposing fresh burdens on hard pressed employers. This is the sharp disconnect between the reality of the economy that people are faced with on a daily basis and the rhetoric of the government. Issues like curbing and reforming commercial rates should be at the forefront of government efforts to generate economic activity.
The lack of action undertaken by the government on this issue reflects the broader national failure of the government parties at a local level to confront the problem. Since 2009 Fine Gael and Labour have dominated Local Authorities in the state. Fine Gael has singular control of 3 of the 34 local authorities. Combined with Labour they control a total of 22 of the 34 LAs. They exert equal sway over Town councils with rating powers, a total of 88 rating authorities. The Local Election manifestos of these parties rightly recognised the need to address failing businesses and the impact this has on the vitality and viability of towns and villages in Ireland. Unlike there General election manifesto and Program for Government they specifically earmarked commercial rates as being badly in need of change. But once more, words did not translate into action.
Labour promised a breakdown of how the annual rates of businesses were spent which would be provided as a kind of receipt along with their rates bill. It also put forward a rate increment scheme that would allow new businesses to pay a lower rate. Behind these words however there has been no action. The national lethargy on the issue reflects the local failure to act. Labour did not address the actual need to freeze or reduce rates preferring instead just to tell people what the money was being spent on in the hope that it would assure them while their own businesses went to the wall.
Fine Gael promised to freeze commercial rates. The impact of the recession since then, the deepening of international malaise that we see in the Euro zone crisis presents an even graver threat than we imagined in 2009. Yet despite this, Fine Gael dominated councils across the 88 rating authorities have oversaw a measly 0.64% reduction nationally over the past two years. Like their jobs budget which was watered down into a damp squib jobs initiative, the real impact of Fine Gael efforts on this issue have been meaningless for businesses on the ground.
Commercial Rates represent 27.9% of Local Government Finance which relies on an increasingly small, hard pressed base. If we continue to inflict an inflexible system upon rate payers that base will be further whittled away by financial pressure. In my own county of Limerick rate payers funded Local Government to the tune of just under €23m in 2009. Yet they had to write off €2.6m. This has no doubt increased since then due to the impact of the international crisis and depressed consumer demand. The Local Government Efficiency Review Group has earmarked €510m in savings in the sector. It is imperative that we make the structural reforms necessary to create a streamlined local government and use these savings to reduce the burden placed on the shoulders on businesses.
The financial strains on retailers, pubs, hotels and companies across the country are immense but these businesses are not taking this wilful neglect lying down. The failure to address this critical issue is being met with constructive resistance by the thousands of small and medium sized enterprises across the country. They are pointing out the sheer scale of the problems they face, the impact of the rates system on business on the ground and what needs to be done to solve them.
ISME, representing some 8,500 members across the country, has bitterly criticized the inaction of the government. They estimate that 40% of SMEs are under threat from the burden of commercial rates. Approximately 86,000 small businesses employ more than 700,000 people and generate €90 billion in annual turnover. These SMEs represent some 95% of all businesses in Ireland, with the vast majority of them micro businesses which employ between one and ten employees. Based on these figures, in the worst case scenario if ISME’s concerns are legitimate, means that up to 172,000 jobs are at stake if we do not move swiftly in tackling commercial rates.
From a national perspective SMEs are a major contributors to the national finances, paying 37% of total income tax receipts and collecting more than 50% of gross VAT. If 40% of the businesses underpinning these vital contributions to the exchequer fall the repercussions for the public purse will be profound.
Chambers Ireland, representing 60 Chambers of Commerce in Ireland covering some 13,000 business has consistently criticized local authority charges that fall on the shoulders on businesses already struggling in the wake of a sharp international downturn. The Ratepayers and Local Government Council that drive the policies of Chambers Ireland in relation to local government has highlighted the impact of rates on business and the heavy reliance of local authorities on businesses to finance their services.
RGDATA represents around 4,000 family owned shops throughout the country. The independent retail sector provides about 90,000 jobs in local communities all around the country. Many of these shop owners are battling for survival in the economic downturn. Stringent commercial rates are a central feature of the difficulties facing these small retailers. These local shops are hubs of activity in their areas providing jobs, goods, services and a centre point for the community. They do not simply have a commercial role in their local areas but also play a pivotal social role. The collapse of these shops tears asunder an integral part of the fabric of community life and deprive the national economy of €2.02 billion in wages and a €358m contribution to the exchequer.
From the other end of the retail spectrum Retail Excellence Ireland have urged swift action by the government in addressing the local authority rates problem facing their members. This group covers 700 leading retail companies who operate over 9,000 stores in the Irish market. They represent a significant section of the retail industry and reflect the deep anxiety seeping into Irish businesses. The concerns that these businesses have of the viability of their stores is at the heart of this motion.
Only last week the Vintners Federation of Ireland staged a protest outside the Dáil. A prominent concern voiced by their members is the status of Local Authority rates. Specifically they called for a clause in the Valuation Bill coming before the Dáil that will allow an appeal on rates based on “a change in economic circumstances” of a business. The Federation estimates that 5,000 jobs are at stake in their industry. These pubs are like the local shops, they are as much social entities as they are commercial enterprises. Their pivotal role as the central hub of social life and an essential part of the fabric of the community is under threat. Outside of the devastating direct impact on those who will lose their jobs the closure of local pubs inflicts immense damage to the social bonds that holds communities together.
The Irish Hotels Federation (IHF) undertook a survey earlier in the year where 8 out of 10 properties cited local authority rates as having a serious negative impact. The IHF and the Restaurants Association of Ireland represents almost 1,600 hotels, restaurants and guesthouses nationwide that employ over 121,000 people. The IHF went as far as calling for the scrapping of the 2001 Valuation Act citing the onerous burden of funding €90m of local authority finance. The slow rate of re-valuation progress made by the Valuation office is a major issue for hotels attempting to stay in business during a very challenging time.
It’s clear from these representations by businesses that employ hundreds of thousands of people, that there is a very real problem with the commercial rate system. Economic growth is the key to resolving our current financial difficulties. Creating a framework for businesses to develop and thrive is a central task of government. Protecting the jobs and livlihoods of workers must be a top priority for this government. It can start here with a complete overhaul of the Valuation process which is clearly strangling Irish businesses.
The current regime suffers from a number of fundamental deficiencies, namely the arduous slow pace of re-valuation and the failure of the process to recognise economic circumstances. The Valuation office is moving at an excruciatingly slow pace and it may take an additional 10 years to complete an overall review of rates in all authorities. An entire decade!.
We cannot condemn Irish businesses to a struggle for survival in a hostile economic environment while being saddled with a rates system that is failing them.
Even if the government hastens this process with the 2001 Valuation Act amendment due next year it may be 2013 or 2014 by the time revaluations are complete.Looking at the low ebb of consumer confidence in the country, the crisis that the Euro is mired in, the austerity measures being put forward by the government over this period it is not is too hard to predict that it will be a very difficult period for Irish business. For many struggling to suvive, time is not on their side. Promises of future relief means little to those who will not be around to benefit from it.
This is why factoring into account ability to pay is a core part of any meaningful reform of the commerical rate system. The financial strength of innumerable businesses has diminished in light of the recession. Their capacity to pay rates has suffered as they struggle to make ends meet, pay wages, fund bills and buy stock. We need to develop a system that reflects this fundamentally changed reality. Economic conditions must be at the heart of any future overhaul of the commercial rates system.
The 1970 Local Government Rates Act currently includes the possibilty of a waiver for some or all of the rates due by ratepayers. This scheme is a reserved function of the Local Authority members and also requires the consent of the Minister, therefore the government. The costs incurred must be met by the Council. This scheme has proven to be unworkable in practise. Many businesses do not even know about it and in my meetings with employers they were generally surprised to hear about it. The need for a council vote by members, the financial repercussions and then the need for government approval means that this scheme has had little, if any, impact on the burden of rate paying.
The Irish Employers for Affordable Rates, IEAR, an umbrella group representing Irish rate payers on a whole, has put forward a series of worthwhile measures to address the problem. Economic conditions and “Ability to pay” are key to their proposals. Specifically, they have requested that Dáil Eireann insert an Economic conditions clause into the 2001 Valuation act. This would allow employers appeal a rates valuation due to a change in economic circumstances. They rightly argue that this amendment would alleviate the pressure.
The UK model offers an alternative way forward for the rates system. Economic conditions and the ability to pay of the business is factored into account. Councils have the power to exempt struggling businesses from paying rates and rural businesses have a 50% mandatory exemption on rates. The money collected is put into a central pot that is then distributed to councils on the basis of need.The comparative inflexibility of the the current rates system here could be adapted to draw from the best elements of the UK model. This more inherantly responsive system offers an opportunity to give businesses much needed breathing space.
Surveying the economic landscape of Ireland today we face immense challenges. We are faced with the choice of standing still and hoping that things turn out for the best or we can take strong decisive action to spark our economy back into life. We must look at the structral reforms we can make that will protect and generate jobs. The commerical rate system is one such example. Reforming the Commerical rate structure will do more for employment than a dozen damp squib jobs initiatives.
The government was elected on the basis of promised jobs. This is an opportunity for it to take real action to live up to those promises and not add it to the ever growing mountain of confirmed broken promises and u-turns. I urge them to support this motion and take the first steps in giving Irish businesses a fighting chance in these difficult times.