Election 2024: Small business — Firms struggling against a raft of cost increases need long-term strategy
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As this election progresses, the three Government parties will continue to tout their achievements while in office. As it stands, the economy is in a good position, inflation is under control, and unemployment is low but behind all of this, the issue of high costs continues to be a problem for households and businesses alike.
Small and medium-sized enterprises (SMEs) in particular have had to deal with a raft of cost increases over the last year — from rising wages, to rising input costs, to an end to the reduced Vat rate, among others — with little wiggle room to absorb them.
In terms of support to businesses, the outgoing Government has implemented some measures — including the Increased Cost of Doing Business Scheme as well as the recently announced Power Up scheme — but they’ve been seen as providing very little in the way of support to some businesses which have been struggling, with many demanding more be done.
Over the coming weeks, various business interests will be putting pressure on and seeking assurances from political parties to help their members, but rising costs will be front and centre.
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Wages are one of the main cost increases businesses have had to deal with over the last few years which have been driven by successive hikes to the national minimum wage combined with a tight labour market.
The yearly increases to the national minimum wage have also been an issue of contention for many firms, particularly in the hospitality sector as well as the broader tourism sector. From January 1, 2025, the minimum wage will go up by 80c to €13.50.
The representative group, the Irish Tourism Industry Confederation, is seeking a moderation of additional labour cost increases in line with inflation as well as reform in excise tax, insurance, and retail tax thresholds.
The outgoing Government has committed to setting the minimum wage at 60% of the average hourly median wage by January 2026 which means another increase could be coming down the line if the coalition is returned. Other, more left-leaning parties, would also be inclined to raise the minimum wage should they get into office — so on this point businesses may just have to deal with the raises as they come.
The Small Firms Association (SFA) has suggested that an incoming Government could implement a temporary PRSI rebate for SMEs which can be targeted at particular sectors. The SFA said that this measure can be aimed at those most affected by the rises to the minimum wage for instance, adding that it would be an efficient way of helping businesses most in need.
The sector which has been most vocal about the costs they are facing has been the hospitality sector whose long campaign for the return of the reduced 9% Vat rate fell on deaf ears in the lead-up to the budget last month. However, this campaign offers them a second chance to hit home this message and try to get some concessions out of politicians.
A number of political parties have already signalled a willingness to move on this issue with some implementing a smaller Vat cut while others saying they’ll return to the 9% outright.
However, politicians promising this move and it being followed through on are two different issues. The Department of Finance has long been against the reduced 9% Vat rate saying that it would cost €764m a year if it was applied to the entire tourism sector or €545m a year if applied to just the food and catering services sector.
Outside of direct business-related costs, associations representing SMEs are also seeking further investment in infrastructure, housing, as well as upskilling workers in areas such as digitisation and decarbonisation.
However, one of the barriers to upskilling workers is the time and costs it takes to send people on training courses.
There have been calls for a cost reimbursement scheme of some sort which would give employees the capacity to send people on courses to improve their skills without the businesses being too negatively impacted.
The SFA also believe that giving staff more access to upskilling opportunities will also help with recruitment and retention problems that are plaguing so many SMEs.
Through no real fault of its own, the Government’s handling of the SME sector over the last four years has been largely reactionary between the onset of the covid pandemic and the subsequent invasion of Ukraine which caused the surge in inflation.
These crises forced the Government to intervene with support to keep many companies alive but as things settle back into something akin to normality, SMEs will now be looking to political parties for a longer-term strategy for the sector in order to ensure they can continue to trade.
Whether SMEs see that in the current political establishment or in some new coalition is yet to be seen.