Author Archives: kittyharburn

Small Businesses: How Hidden Price Increases Arise from Seemingly Nowhere

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Kitty Harburn

Following the recent closures of some favourite local spots, including Kale+CoCo, All My Friends pub and many more, the future is undistinguished for small businesses across the country. With January nearly behind us, the landscape for these SMEs seems to be filled with nothing but ever-rising costs, as business owners face constant uncertainty with price volatility. In 2023, the SME count in Ireland was approximately 309,000 with 91% of these accounting for micro-sized businesses, employing between 1 and 9 people. Yet, according to a survey by PwC in the last quarter of 2023, approximately 650 businesses are expected to close this year due to “market disruption” and rising running costs. 

The ICOB (Increased Cost of Business Grant) for 2024, which entails once off payments to 193,000 businesses, has increased to €257 million following the release of Budget 2024. However, even with these grants, businesses are still struggling to meet ends when it comes to covering the many bills they incur. 

Dublin’s “All my Friends” pub, based in Smithfield is a prime example of the struggles associated with running a small, independent business in the current Irish, commercial environment. The pub opened its doors in the summer of 2022, and less than 2 years following, closure was announced due to the ‘punitive tax system’ as described in their statement, highlighting the ever-increasing costs of running an independent small business in Ireland. Kale + CoCo, another favourite in the Stoneybatter area, closed its doors in December due to similar financial constraints. As reported in the Irish Independent, “Nowadays, it’s not enough to just be a cafe”, with “so little reward”. 

Following the Government debate on 14th February, these increasing costs were noted as Accountancy Ireland recommended a limited increase in the minimum wage due to the increased costs of doing business and inflation. The increasing financial pressure on SMEs is hard to narrow to one specific area. The issue is not unique to Ireland, with many global geopolitical factors at play: shocks to supply chains following Brexit and the crisis in Ukraine are namely impotent, with global circumstances taking their toll on markets across the globe. 

SMEs facing financial difficulties are inevitably raising consumer prices to meet ends’ need, but naturally the overall inflation rate is taking its toll on the economy. The public are now much more aware of their spending habits and their role in keeping businesses flowing, yet increased selling prices are taking their toll on demand. As a college student, a notable change we can all vouch for is the costs of a cup of coffee and a pastry. Two years ago, friends and I would regularly treat ourselves to some of our favourites, most often comprised  of small, independent coffee shops. In the last few months however, this has not been so economically feasible. These small, generally family-run businesses have unfortunately had no other choice but to hike up prices, and the tangible impacts on daily expenses, like the rising cost of coffee, underscores the urgent need for comprehensive solutions to sustain the vital ecosystem of small, independent businesses in Ireland. 

The precarious landscape for small businesses in Ireland mirrors global inflationary challenges, and while the ICOB grant increase offers some relief amongst other actions taken by the government, it falls short of addressing the broader economic issues to which are harder to control. Geopolitical factors, supply chain disruptions, and inflation are just some of the difficulties for SMEs in Ireland today, prompting price hikes that impact consumer habits.

Increasing Corporation Tax: A Glimpse into the Future of FDI in Ireland. 

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Kitty Harburn

It is no secret that Ireland is an attractive tax refuge for multinational corporations. Since 2003, when the corporation tax rate was reduced from 40% to 12.5%, Ireland has seen a huge influx of foreign direct investment. Now the home to over 1,000 internationally recognised MNCs, a favourable corporation tax is one of, if not, the leading factor in Ireland’s corporate attractiveness. 

The Current Stage of Foreign Direct Investment in Ireland

ICTs (Information and communication technologies) are among the leading players in corporate tax revenue, with pharmaceuticals holding a top position in the last couple of years. In 2022, pharmaceutical companies and those in the chemical sector paid 46% more tax than those in the tech sector. Slightly more than three years after the onset of the COVID-19 pandemic, the income of pharmaceuticals has noticeably declined due to the diminishing sales of vaccines. Taking a closer look at  2022 tax receipts, it reveals however that 86.5% of the revenues stream came from foreign-owned MNEs. 

Following the release of the 2024 Budget, there is room for speculation about the future of Irish corporation tax revenues. International regulations set out by the OECD conclude that the minimum corporation tax rate will increase to 15%, from 12.5% currently, in line with the BEPS Pillar two. Following this policy release it is important to think about how might this increase in corporation tax affect the tax revenues obtained by the Irish government? Will MNCs continue to develop and expand in Ireland? With this change, it is important that Ireland stays attractive as a destination for FDI. Not only are there revenue advantages attached to these players in our market, but also socioeconomic benefits, including job creation.  

A quantified expectancy in tax receipts has not yet been speculated, however if Pillar 1 is implemented then the possible increase in net tax may be mitigated by this execution of legislation OECD proposal. 

Looking Ahead

Looking at Ireland’s position in 2023 in relation to corporation tax, Ireland has the third lowest rate in Europe. The increase to 15% will still leave the country in a favourable position, compared to the rest of Europe which has an overall average of 21.5%. However, Ireland relies on CT receipts a lot more than the OECD median, and in the last 10 years alone this reliance has almost doubled. Hence, any departure or decrease of the big players will have a significant effect on many areas, primarily tax budgeting and government expenditure financing. The “€2bn loss to be reached” speculated by officials is nonetheless a cause for concern in Ireland’s current economic environment. 

Although there is a loss of competitive advantage, overall the country still stands in a promising position for FDI and business growth. Aside from Ireland’s favourable tax system, other factors such as the evolved financial sector and skilled workforce are only a small few that make Ireland a desirable destination for business. Brexit has also seen an increase in the number of companies who have begun expansions to Ireland as a gateway to European operations, Stripe being one of the few. Ireland has EU member state benefits, while also being an English-speaking country, breaks down potential barriers and potentially offsetting a rise in corporation taxes. On top of this, Ireland has been ranked 1st In Europe for the ease of paying taxes per PWC’s paying taxes report 2020, highlighting the maintenance of the tax refuge status. 

Innovation has also been a key driver in the country in recent times, with tax policies introduced to support and promote this cause. Per the Budget 2024, the R&D (Research & Development) tax credit which will be increased from 25% to 30%, ensuring that Ireland stays attractive and competitive for FDI. Following reports from Silicon Republic who highlighted that “80% of companies in Ireland plan to increase R&D spending over the next 3 years”,  this tax legislation will ensure adequate benefits to companies who qualify for the credit and will be affected by the Pillar two that otherwise may have seen an increase in their net tax bill, easing concerns for the future of FDI.