Dáil Éireann debate -
Thursday, 26 May 1994

Vol. 443 No. 3

Task Force on Small Business: Statements.

Minister of State at the Department of Enterprise and Employment (Mr. S. Brennan)

I welcome this opportunity to bring this report before the House. The debate is particularly timely and I look forward to the views of Deputies as to how to move forward from what I am confident is a well argued, documented and, indeed, historic report.

The task force on small business was a novel venture in a number of ways. It was the first comprehensive official review of the small business sector undertaken since the foundation of the State. The fact that so much time elapsed before such a review was undertaken is a testimony to the relative neglect of small business by policy makers until now.

The task force was unusual also in that its membership was not made up of officials and professional representatives of business associations and interest groups. All 14 business members of the task force were involved full-time in running and managing a small business.

I took this decision quite deliberately. I wanted people who were busy, in a hurry to get the job done, and who would bring to our work the qualities of tenacity and single-mindedness that had helped to make them successful in business. I wanted the authentic voice of small business to be heard, loud and clear.

A technical group of officials from Government Departments and State agencies was established accordingly to provide information and advice to the task force and to consider and cost its proposals. The task force also met with senior representatives of the banks, insurance companies and other bodies.

The fruits of the discussions and exchanges between the business people and officials are, I think, apparent in the report. The dialogue which took place between the two sides was also, in my view, valuable in itself. The business people were brought face to face with some of those who drew up and enforced the legislation, regulations and schemes with which they had to comply and cooperate. Officials were brought face to face with some of the people who had to live with the consequences of the regulations and schemes they devised. Plain, and sometimes strong, speaking was the order of the day.

Officials learned at first hand of the constraints and problems faced by small business—constraints and problems that are often less visible or compelling when viewed from the vantage point of a Government Department. Business people learned of the complexities that officials have to take into account, complexities that are often less visible or compelling when viewed from the vantage point of someone running a small business.

For the first time, however, the report of the task force gives estimates of such vital indices as the number of businesses in Ireland, the level of start-ups and closures and the proportion of small businesses that go on to become medium-sized or large enterprises. The estimates for this country are compared extensively throughout the report with figures for both other member states of the European Union, the United States and Japan.

As Professor Lee pointed out in the debate on the task force report in Seanad Éireann, had we proposed measures on small business a couple of years ago based on assumptions and statistics that have now been shown to be incorrect or suspect, a great deal of effort and resources might have been expended on ill-informed and mis-directed policies. The resources available to us to help small business are obviously finite. It is essential that they are applied in an informed and targeted way.

On the basis of its analyses, the task force concluded that there was considerable scope for small businesses to make a greater contribution to the economy and to employment in Ireland.

At present, this country falls between two stools in comparative terms. We enjoy neither the benefits of the above-average contribution made by large enterprises to employment in the economies of northern Europe nor the above-average contributions made by small enterprises in the economies of southern Europe.

The critical importance of small business for job creation has been underlined by figures contained in the recently published second annual report of the European Network for SME research. This found that between 1988 and 1993 SMEs in the European Union generated a net employment increase of 2.6 million jobs. Large firms by contrast although creating a million net new jobs between 1991 actually shed them again in 1992 and 1993. The most striking finding of all was that the best employment performance was registered by micro-businesses with fewer than ten employees. These showed an annual employment growth of more than 1.5 per cent over the period from 1988 to 1993. This compares to a growth of under 0.5 per cent per year in enterprises with between ten and 100 employees and a static or declining employment performance in medium-sized and large businesses.

On the report, there is no better way to get this debate under way and to impress on this House the importance of the issues which this report has highlighted, than to quote the first sentence which is: "The moment has come to give small business a central place in the making of public policy in Ireland so that the sector can realise its full potential for contributing to economic development and job creation". This is what we are seeking to achieve.

The task force report is a benchmark in that for the first time we have sought to get a "feel" for what constitutes the small business sector. In so doing we have established that companies coming within the defination of small businesses — £3 million turnover and under 50 employees — are, in fact, the embodiment of enterprise and represent the greatest potential for job growth. Added encouragement to the potential for employment generation is the fact that 80 per cent of small businesses are engaged in the provision of services which the ESRI mid-term review identified as being the sector with the greatest employment growth potential to the end of the millennium.

The primary objective of the task force was to redress the anti-small business climate that we, by default, have constructed. We need to allow small companies to grow and prosper with resultant employment consequences. We need to capitalise on the drive and determination of entrepreneurs and to grow more small companies into medium-sized companies.

Underlying all of that is the admission that we, in Ireland, have never developed and implemented consistent policies supportive of small business. This is now being addressed as a priority with the report of the task force acting as the agenda for action.

The Small Business Division in my Department, which I recently set up, will be the driving force behind the preparation of proposals to be put before me, before the Government and before this House. The division, like the task force, will conduct its affairs in a systematic and reasoned fashion and I look forward to introducing a small companies Bill in the Oireachtas later this year.

The dynamism of the small business sector must also be reflected in the agenda for action and lines of communication are being kept open to a range of interests and practitioners who will participate in a small business forum. This House should also have a role to play in the process. The report proposes the establishment of an Oireachtas joint committee to "small-business proof" legislation so as to ensure the legislative burden, once reduced, is not subsequently reimposed. The committee would also bring more transparency into the system as all the issues hindering the growth of small business could be discussed openly and in detail.

Fundamentally we must think small. Our competitor economies have consistently prioritised small business development with resultant success. The case for so doing here is all the more compelling especially as our emphasis must, of necessity, be on small business due to the structure of our economy. We must develop consistent policies. We have never sought to differentiate between enterprises by way of size but merely differentiated between services and manufacturing. This must change and with the concentration of policy development for small business and services within a single division in my Department, it will change. This division will champion the cause of small business and report annually to this House on the state of small business in Ireland.

I wish to record the nation's indebtedness to my fellow task force members and our technical support team who, in delivering this report in such a short time, produced a well argued, concise and indepth look at the state of small business in Ireland. The report is brimming with almost 100 recommendations some of which are already being implemented while others are being given serious consideration. Action has been a keynote in so far as this task force is concerned and it is my intention that action remains the keynote. What drives this imperative for action is the realisation that 75 per cent of all new jobs in the EU arise in the small business sector.

I would like to put the main thrust of the report's recommendations before the House so that Deputies may have an opportunity to respond. The problem of raising money is a key concern and I make no apologies for having brought this issue to the fore. The task force report set the agenda for the debate on this issue, a debate of such importance in which, while only getting underway, both I and my colleagues in Government will be participating closely.

The task force found that personal savings are the main source of finance for new enterprises and retained profits are a key source of finance for expansion. High personal taxation constrains the ability to save, while low profitability in Irish companies constrains the ability to reinvest. Though there is no indication of an overall shortage of finance in Ireland, the majority of available funds is channelled towards a limited range of relatively low risk projects. However, there has been an encouraging increase in the number of funding sources for small business. There should be a shift away from grants towards loan support as the main form of State aid to small business. There is, perhaps, too a sharp dividing line between enterprises that are eligible for State financial support and others. Eligible firms qualify for the full range of State supports. Ineligible ones qualify for little or nothing. A threefold categorisation of eligibility for State supports should be introduced — noneligible, partially eligible and fully eligible. More service activities should qualify for at least partial eligibility.

Recommendations in this area include the repeal of section 115 of the Finance Act, 1986. This section gives the Revenue Commissioners priority of payment over all other creditors. Banks state that should this section be repealed they would be in a position to increase their lending to small business. The county enterprise boards were established to stimulate and support enterprise in their local areas, particularly small start-up businesses. It is recommended that the original allocation for 1994 be reinstated. Greater representation on the boards and evaluation committees of persons with practical business experience should be considered. The development of more initiatives like First Step and the Enterprise Trust should be encouraged. These entities provide seed-capital on a commercial basis, but without an emphasis on high rates of return. A register of investors should be developed which would bring together potential investors and investees. The huge differential between AAA — big business — and AA — small business — interest rates requires examination. At 4 per cent at present, this is a major source of concern. This whole area of differentials plus the bank margins is at present under examination. Banks should introduce a code of practice governing relations with their customers similar to one in operation by the banking institutions in the UK. Banks should also set up fora for their small business customers which would enable senior bank personnel to meet representative groups of these customers from time to time to discuss matters of mutual concern. Banks should be encouraged to commit substantial additional resources to lower interest rate schemes. The ICC scheme was a first step in this direction. They should also be encouraged to remove the family home from the collateral required of small business customers.

Rewarding risk was a clear message from the task force where the stated preference was for lower taxation rather than increased grants — entirely consistent with the underlying principle of getting the climate right rather than creating an artificial environment. Many detailed proposals have already been acted upon in this year's Finance Bill.

The task force feels there is a need to shift the balance between risk and reward for small business. The tax system is the main tool available to the Government to do this. A number of the taxation proposals in the task force's pre-budget submission were accepted. For example, the £800 PAYE allowance is to be extended to the children of proprietary directors and the self-employed working full time in the family business. Wide ranging changes are recommended in the areas of income tax, corporation tax, capital taxation, value-added tax and commercial rates. Among them are: the development of a scheme whereby employers would be given personal tax credits for additional jobs created by them; the reintroduction of a scheme of dividend relief for small manufacturing and international service companies and the introduction of a small service companies rate of corporation tax of 25 per cent on profits of up to £80,000 for companies with a turnover below £3 million per annum.

Cash flow is the life blood of all business and the State, as the major purchaser of goods and services from small businesses, has a critical role to play in ensuring that it pays its bills on time. It is self-defeating for the State, through its development agencies, to assist small business on the one hand while at the same time hindering it through late payments from the State. Late payment is a serious problem for Irish small business. It causes cash-flow problems, results in additional borrowing and involves a large proportion of scarce management time. Consideration is being given to the introduction of legislation to require public sector bodies to settle their accounts by the end of the month following issue of an invoice. Should they fail to do so, interest would be payable.

The cost of complying with the State's regulatory and administrative requirements is higher for small businesses than for large ones. The task force felt that the most appropriate methods of reducing the administrative burden on small business would be to introduce new size thresholds or increase existing ones in order to exempt many small enterprises from regulations or requirements, to reduce the frequency of reporting requirements so that a form once required on a monthly basis might be made a bi-monthly, quarterly, bi-annual or annual requirement, to consolidate forms so that, for example, two, three or even more related forms would be redrafted and merged into one and to introduce shorter, simpler versions of forms for small business.

The task force also recommends that the requirement for a statutory audit should be abolished for companies with a turnover below £100,000 and new small business should be able to avail of a simple, inexpensive procedure for registering as companies during the first two years of their existence.

Apart from finance, the task force recommended that small business should receive assistance with business information, management skills and access to markets.

A new business information system should be established to provide basic information and advice on State supports and programmes, official regulations and requirements and funding. FÁS should take a number of initiatives designed to make training and development programmes more relevant and accessible to the owner managers of small business. Each company negotiating State support should have a single contact point for its dealings with State agencies as a whole. Expansion of market opportunities on the home market should be a critical priority for small business. In particular, linkage and sub-supply to overseas plants operating in Ireland, public procurement and purchases of goods by private consumers should be addressed. It recommended that a new, integrated market development programme is needed, to be headed by a results driven company bringing together the resources of both Forbairt and An Bord Tráchtála. The Mentor Programme should be extended. A condition of receiving financial support from the county enterprise boards should be that a mentor is allocated.

Action by the task force has already resulted in some key decisions by State agencies and we negotiated with both Telecom Éireann and the ESB to drop the requirement for deposits and personal guarantees for start-ups. I think both bodies for agreeing to my request. In addition, the NSAI agreed reduced rates for small business to achieve ISO 9000, and I also thank that body.

Systems and structures need to be put in place throughout the policy-making process to ensure that the small business sector is considered in all future Government policy. It must never again be overlooked as a very crucial sector of the economy, particularly in its potential to create employment. As well as recommending that a small business division be established within my Department — now established — to promote and develop small business the task force recommended that a small business forum comprising small business practitioners should be established to advise Government; a joint Oireachtas committee should be established and Departments and agencies proposing legislative or other measures likely to have a significant effect on small business should be required to undertake a systematic analysis of their impact on small firms before the measures proceed to final consideration and decision.

In the past, Government may have paid insufficient attention to the specific needs and circumstances of small business, but this is no longer the case. The establishment of the task force last June was a turning point in this respect. A number of the recommendations made by the task force in its pre-budget submission have been incorporated in whole or in part in the budget and given effect in the Finance Bill, offering practical testimony of the Government's commitment. I thank the Minister for Finance for readily agreeing to these proposals. They are: interest subsidy of 3 per cent on the ICC small business expansion loan scheme of £100 million, an interest rate of under 7 per cent and loan duration of ten years — that is now in place; £100 million payment to health boards will help speed up payment to suppliers, thus improving the cash flow position of small firms; £800 PAYE allowance to which I have already referred; employer PRSI contributions reduced from 12.2 per cent to 9 per cent on incomes up to £9,000 per annum; VAT thresholds increased from £15,000 to £20,000 for service business and £32,000 to £40,000 for business supplying goods, thus taking a sizeable number of small business out of the VAT net; small business with a turnover of up to £250,000 per annum given the option of acounting for VAT on a cash receipts basis, with consequential benefits for cash flow; rate of capital gains tax reduced from 40 per cent to 27 per cent on the disposal of shares held for at least five years in unquoted Irish companies with a market value below £25 million; new capital acquisitions tax relief involving a reduction in the market value of business assets for the purposes of the tax, making it easier for family businesses to be passed on; single tax registration form for all new business; single tax clearance certificate for all public bodies and ceiling for BES relief for investments by proprietors in own companies to be raised from £150,000 to £250,000.

The ICC small business expansion loan scheme originated, as I said, as a Government response in the budget to the task force pre-budget submission. The emphasis of the scheme is on stimulating investment and creating-maintaining jobs in small businesses. The rationale behind the eligibility criteria relates to the need to maximise the impact of the limited funds available under the scheme. In this context, while there is only £100 million available for this scheme, at the end of April there were some 1,200 inquiries-applications for amounts totalling £210 million and these two figures are still growing. Clearly the demand is there.

Since the publication of the report dialogue has got underway with the banking community on the question of the provision of finance for indigenous industry and in particular for small and medium sized enterprises. This is a direct follow-on to the task force report wherein the availability of long term finance was seen as a key factor to survival and sustained growth. The task force was of the view that the availability of fixed rate long term finance would put small business in a position to consolidate and grow on the basis of predictability and certainty. The ICC scheme, to which I have already referred, is a valuable pilot as the scheme shows that the demand is there and it will encourage, I hope, the development of further products on the part of other leaders.

As Deputies will have noted, the task force directs a range of recommendations at the banks and my Department in seeking to give effect to the recommendations is entering into a series of contacts which will be ongoing, regular and task oriented. Such a dialogue will, of course, be a two-way process with the objective of ensuring a responsive financial regime.

Having given an overview of the report, I shall now give other Deputies an opportunity to contribute. In conclusion, I beg the indulgence of Deputies Richard Bruton, Harney and De Rossa as I must leave for a period to attend the funeral Mass for a relative. I regret this as I had intended to sit through the entire debate but, unfortunately, I must be present at the Mass. I will get a full report of every point made by the three Deputies opposite in particular. I apologise for any discourtesy, it is not intended, and I will return as soon as possible.

I thank the Deputies for listening to my statement on the task force report, about which I am extremely excited. A number of the items are already in place and if we see through the agenda of over 80 recommendations, we will create a new climate for small business.

Mr. R. Bruton

I welcome the publication of this report which addresses a critical issue in Ireland's future economic development. I welcome the work put into the report by the Minister of State and his team in bringing it forward. However, there is an enormous bias against small business and not sufficient recognition of this area by the Government, in its actions as opposed to words. I will give examples. On reading the latest IDA figures for grant allocations, the amount given to a foreign company is 66 per cent higher than that given to an Irish company. The amount given to a large or medium company to create one job is double that given to a small company. We have built into our grant allocations system a huge bias against small business.

Not only do these businesses create jobs with a much lower level of assistance from Government, if you examine their spending patterns, you will see that those companies purchase Irish materials and are high employment sectors. They generally do this on very low profit margins, yet they are hit at every level. They are given less State assistance to start up, they are affected by the bias in the tax system, particularly if they are in the service sector, and by having to comply with Government tax and other regulations.

These problems are touched on in the report but there is no sense of urgency on the part of the Government in addressing them. In the past few months a major report was published on the service sector and the need to change the tax and grant regime to promote it. We now have this report on the small business sector but the Finance Act did not address the fundamental issues. It skirted the edges of some of the issues but these were essentially trivial items compared to the major issues addressed.

The special loan scheme, introduced by the Government to deal with the fact that it had failed to do what had been set out in the Moriarty report, was ignored by the Minister in his statement. That scheme excluded small to medium enterprise, set a minimum level of £50,000 which excluded many of the small businesses we are trying to support and excluded the service sector which, as the Minister said, constituted 80 per cent of the small businesses from whom we are now supposedly removing the yoke. Other elements have been equally biased and unworkable. The tax relief introduced in last year's budget, for example, was intended to give new entrepreneurs the opportunity to claim back their tax for the previous three years, thereby giving them a nest egg to start up their business. The latest information is that the number of people who successfully availed of that scheme to set up business was minimal. It was not a question of people not coming forward; the Department of Finance had strangled the scheme with so many regulations it simply did not work.

In the past number of weeks the Minister for Enterprise and Employment abolished the enterprise allowance scheme which was designed specifically to assist unemployed people to set up a small business. Having completed a ten week course on how to set up a business, they could then set up their business and receive a supplement for the first year of operation. Without any formal announcement the Government abolished the scheme saying the money had run out. That is no way to treat the small business sector. Many people had plans to the point where they were about to take advantage of that scheme, only to find that the shutters had been slammed on them. If a multinational company or a large business had been involved, that would not have been the case.

We must also examine our competition law. The point of having good competition law is to remove barriers so that small businesses can be set up. The Department of Enterprise and Employment made a commitment in the Moriarty report that by the end of 1993 it would bring forward a programme of proposals to relax controls and licences which restrict entry of suitably qualified people or firms into business. That has not been done and no proposals have emerged. The Minister occasionally appeals for better competition rules and a proper competition Act but nothing happened. We have the worst Competition Act in Europe, it contains no enforcement capacity for dealing with third party complaints about abuse of dominant position and there is no capacity for the Competition Authority to investigate cases where unfair barriers to entry are put up against small businesses trying to get off the ground. There is a Competition Act but it is unworkable and the Government, despite commitments made in the Moriarty report over a year ago, has done nothing to address that.

The issue of the banks and access to funds is important. In the Moriarty report the Government stated it intended to promote new arrangements that would bring private equity into small business but it did not. There has been some slight modification in the business expansion scheme but none of the new arrangements that were promised.

The lack of seed capital is a huge problem in relation to small business and the banks must also bear some of the responsibility. The report correctly points out there is a wide gap between the small and prime business rates but there is also a great deal of hypocrisy in the way the Government handled this issue. It criticised the banks for excessive margins but what did the Government do about that? It is now offering to take some of the risk from the banks thereby increasing their margins and shunting on to the taxpayer the risks involved in lending to small businesses. The Government must make up its mind. It cannot proclaim in banner headlines to the taxpayers that it will go after the banks while it is asking the taxpayers to shoulder the risk element in small business. What will the return be for the taxpayers? A three card trick is being played by the Government on this issue and it cannot be divorced from the fact that an election is in the offing.

There was an opportunity in the Finance Bill to take effective action to promote small enterprise but the Government failed dismally in that regard. Those who have special deposit accounts pay tax at the rate of 10 per cent. We expect the service sector, which accounts for 80 per cent of small business, to pay not only 40 per cent corporation profits tax but 21 per cent VAT on what they sell and 21 per cent PRSI when they employ people. These burdens are killing the goose that has the potential to lay the golden egg.

I recently spoke to a prominent restaurateur in the city who explained that out of every pound he takes 60p goes to the Government in taxation between PAYE, PRSI, VAT and company tax and 3p comes back to him to keep his business going. How do we expect to have a thriving small business sector with that kind of tax regime? We have serious biases against services and employment built into the tax system and these were not addressed. The two reports provide the basis on which they could be addressed. Bringing in thresholds for company tax is long overdue. Britain is the prime competitor for the small business sector in the Irish market. There are substantial thresholds for British businesses before they pay any corporation tax and when they do it is at a low rate. We have no thresholds and pay a 40 per cent rate. A recommendation was made in the report but it was not addressed in the Finance Bill.

The report on the service sector shows where we stand on PRSI. Even after the change made by the Government in bringing in a 9 per cent rate for the low waged, we pay twice the rate of PRSI at lower levels and, at higher levels, we pay 20 per cent more than our British competitors. Small businesses are put at a competitive disadvantage with their main rivals in Britain. It is not accidental that we have heard recent reports of companies moving to Britain — it is largely tax induced.

A strong recommendation was made on tax on employment in the EU White Paper. Figures produced showed that by reducing tax on employment by 1 to 2 per cent of GDP we could reduce unemployment by 2 to 4 per cent. These are clear signals from the EU that there is great capacity to create employment through tax reform measures aimed at reducing taxation on employment. Sadly, when I raised this with the Taoiseach he would not commit himself to going along with that proposal. We hear Governments talking about reducing the burden on small businesses but their actions are hopelessly wanting.

Under recent legislation traders are obliged to have tax clearance before they can continue to trade. Their licence to trade will be withdrawn if they do not have tax clearance. This development has not been seriously thought through from the small businesses point of view. Are they to be told that if their tax is £1,000 in arrears they can no longer trade? The Revenue Commissioners have been given enormous powers and rightly so to pursue those who do not honour their tax obligations but it is an unhealthy development to say that if one is a few hundred pounds in arrears on their tax payments they will be put out of business.

The report shows that compliance costs are enormous and I was disappointed that a proper audit of those costs was not carried out. The only figure given was for PAYE which shows that the cost of compliance is 4 per cent of their liability. That would work out at an additional 2 per cent employment tax for small companies on top of existing PRSI. It is an additional burden they cannot afford. It is worse with VAT. By the sound of it, small businesses must use 5 to 10 per cent of their turnover to comply with Government regulations. Perhaps a central bureau should be established which would cut the cost of compliance.

As regards the success of small businesses in recent years the report is slightly misleading. In October 1993 I asked the Minister the number of small business industrial start-ups in the past five years. The figures are grim and depressing. They have fallen by 50 per cent. In 1988 there were 305 industrial start-ups but the figure had fallen to 168 in 1992. There was a continuous uninterrupted slide during those years. These were the years during which we had the Programme for Economic and Social Progress and the National Development Plan. The Government never answered why those plans failed so dismally and we have only to look at the trade figures to see that they did do so. According to their targets, the Irish percentage share of EC imports was to be doubled. It was to go from 1.2 per cent of EC imports to 2.4 per cent but instead the Irish share fell over the years 1988 to 1992. It was 1.41 per cent at the beginning and declined to 1.39 per cent. The targets were hopelessly missed.

There was also a target in relation to the value of sales from Irish owned small and medium enterprises. They were to increase by £2 billion but they only increased by £600,000. Not even one-third of the target was met. Under the new national plan the same amount of money is to be given to trade and marketing and other schemes. There is no reference to the fact that under the previous plan when it had hundreds of millions of pounds at its disposal the Government failed to achieve the targets it set. Were small businesses consulted about why things went so wrong or what changes were needed? It is clear they were not. We must rethink our policy if we are to give small businesses a fair deal.

Government policy on the service sector has gone seriously wrong and there is a hint that it recognises this area is not a pariah that should be ostracised, denied any grant or support and given the highest tax burden. We must look again at this strategy. During the lifetime of the last national development plan the service sector created four times as many jobs as the industrial sector. The patterns of market services are very impressive when compared to those of manufacturing. For example, the wages in market services are double those in manufacturing — in other words, for every pound spent twice as many jobs are created in the service sector as in the manufacturing sector — and 80 per cent of inputs purchased by market services are scourced in Ireland compared to less than 50 per cent for industry. The proportion of Irish sourced inputs purchased by foreign industry is much lower. Despite all the talk about linkages, we have not succeeded in building an effective linkage policy for our small businesses. The progress made in increasing the amount of Irish materials purchased by foreign industries has been disappointingly slow, and I have figures to back this up. We need to look again at the service sector.

The task force referred to the introduction of a new tax regime for certain elements of the service sector and said that Forbairt, Bord Fáilte and other bodies would select the industries, services and companies which would qualify not only for grants but also for the low tax regime. Such an approach is fraught with danger, and I question whether it is permissible under EU law to select certain people for preferential treatment. More importantly, it would be unhealthy if administrators in some bureaucracy could decide which companies should be the white horse gladiators and which companies should be left floundering around with all the heavy tax burdens. I would much prefer the Fine Gael proposal under which the burden on the service sector would be reduced in broad sweeps across the board and not on the basis of an agency deciding who are the winners and who are the losers. This is a dangerous approach and totally contrary to the recommendation in the Culliton report that we should reduce dependency. We need to make broad, sweeping changes which will reduce the tax burden on key areas of the service sector which clearly have the capacity to realise foreign earnings. I do not need to go into these in detail as there is an unanswerable case in many areas of the service sector, including tourism, etc., for reducing the differential between the 40 per cent rate for services and the 10 per cent rate for manufacturing and for moving steadily towards a 25 per cent rate for key areas.

While the decision to set up the county enterprise boards was welcome in that economic power should be devolved to counties and regions, the system designed by the Department is totally wrong — it is another grant giving, form filling body. We are back to the old dependency culture which Culliton said was not the future direction for business. Even though the decision-making has been moved from Merrion Street and Wilton House to local level, it is still the same concept of doling out grants to people who meet the requirements of regulations designed by the Department. As a community we have advanced beyond this approach. We should be telling county enterprise boards that they will have access to funds to support any sensible development plans and they should encourage the investment of local money, sums between £1 and £50,000. Local people should have a share in these developments.

There is no evidence that representative boards of the nature we have designed are the right vehicle for creating enterprise in our communities. It would be much better to let communities develop their concepts, identify their strengths and encourage the investment of much more loan and equity capital, the approach to enterprise which Culliton said we should foster. We had a major opportunity to develop this approach under the county enterprise board network, but all we have done is decentralise a culture which will not really transform the performance of small Irish business. The concept of local economic decision-making is very important, but we are not fulfilling the potential in localities and regions by establishing an office which will dole out grants. We need to move away rapidly from this approach.

This report contains a very interesting menu of the changes needed to help small business. The Government must set out a schedule for the implementation of these proposals. The Moriarty report was welcome in that it secured a commitment from the Government that it would act on various recommendations in the Culliton report. It set out a schedule for doing this but unfortunately the Government almost totally forgot it once the report was published. The Government should set out a schedule for the repeal of section 115 of the Finance Act and reform of corporation tax and the system of PRSI for small business.

All the economic indicators suggest that we will have high growth. However, the Government has totally overlooked the crucial warning in the ESRI report that under present policy long term unemployment will be higher at the end of five years of record economic prosperity than it was at the beginning. If the Government lets slip through its fingers the opportunity to transform employment performance it will be a major blot on its record. It must take advantage of low interest rates, EC transfers which, according to today's newspapers, may not survive, and high economic growth to do something worthwhile for small business and people who are unemployed. The Government will be harshly and rightly judged if by 1997 when it again is seeking votes from the public it has failed to take advantage of this opportunity. Sadly, the indicators are that the Government is not going to reform policy in any radical way during its remaining years in office.

Miss Harney

I am pleased that we are discussing this report as it was my party and I in particular who raised with the Taoiseach the need for such a discussion. It is a pity that neither this House nor committees have an opportunity to discuss the findings of many of the worthwhile reports that are published. I said recently that we suffer from paralysis of analysis — we have had so much analysis of the problems that sometimes we have been paralysed into inaction. One of the key ways to ensure that the Government is forced to respond to the worthwhile work done by the ESRI, by a task force of this kind, is to force a debate in the House, when at least the Minister responsible and the Government in general will examine and consider the recommendations. The report of the Commission on Taxation, a blueprint for the reform of our taxation system, was never discussed in the Dáil or in a committee; it was never formally responded to by the Government. When enormous amounts of public money, accompanied by the commitment and energy of so many people who have a lot to contribute to the development of public policy, are put aside in that way it casts a poor reflection on legislators and the Oireachtas in general.

Over the next few years £10 million will be spent on improving facilities in this House — which I support because they are needed. Members who operate across the road know how difficult it is to function properly with very inadequate facilities. However, the most important change we could make in the Oireachtas is in its procedures, the manner in which we conduct our business, making it more relevant. One cannot get answers to very simple questions in this House. Likewise no committee of this House acts as a watchdog, scrutinising legislation emanating from Europe and its implications for us and directives or statutory instruments are not discussed in advance. Since this Dáil was elected there has never been a discussion, even within the Joint Committee on Foreign Affairs — which in theory has responsibility for monitoring developments at European level — of such matters, unlike Denmark where the implications of directives affecting them are discussed before votes are taken at the Council of Ministers. In a small country like ours, with so many politicians, we should put them to work, and I include myself in that. In so far as a debate is welcome on the Task Force on Small Business it is only the beginning of what needs to be debated throughout the Oireachtas, the various committees, the Dáil and at Government level.

About two and a half years ago the Culliton report — established by my predecessor and the former Government to review industrial policy in Ireland — advanced many fine recommendations. First, it drew attention to the problems for industry and recommended what needed to be done. One of the strongest recommendations was the need for less bureaucracy and streamlining of Government agencies, so that companies generally — and entrepreneurs in particular — would not be constantly dragged down by the plethora of State agencies with which they had to deal. Instead of implementing the findings of the Culliton report, instead of having fewer State agencies this Government has presided over more bureaucracy and red tape and put more obstacles in the way of business than was the case even before Culliton.

Is it any wonder that one of the recommendations of the Task Force on Small Business was that every company should have a senior executive to deal solely with State bureaucracy? Why would it have felt it necessary to deal with that aspect? What is our level of bureaucracy? We have Forfás, Forbairt, Forbairt's regional boards and An Bord Tráchtála. We also have An Bord Bia — which did not even incorporate An Bord Iascaigh Mhara — FAS, the county enterprise boards, the Western Development Agency, the Industrial Credit Corporation and a plethora of other agencies. Recently I heard of a county enterprise board which had never created a job.

I wonder if we are serious about helping business. For example, 50 per cent of the jobs in our economy are in the multinational manufacturing sector. Despite being grant aided and the 10 per cent corporation profits tax applicable to them, those companies are mobile and do not necessarily have a strong commitment to Ireland. With lower wages in Central and Eastern European countries and in the Far East, many of them could transfer their business overnight. Real growth in this economy in terms of jobs will come from the small business sector and in this connection I agree with many of Deputy Richard Bruton's comments. Ninety per cent of companies here employ fewer than 50 people. If we really want to provide opportunities for entrepreneurs to generate jobs, business people investing in business will do so. Therefore, all of the aid must go in that direction.

While the promise by the Minister of State of the introduction of a new small companies Bill later this year is welcome he had very little to say about the climate for enterprise here. For example, he took on board some of the recommendations about State companies paying on time and so on, with which I agree, but much more needs to be done. In particular, the attitude to business needs to change. The Minister of State, when Minister for Education, made a worthwhile suggestion about the possibility of including enterprise in the schools curricula. I agree, much of the debate on education at present centres on who controls the schools and who does the teaching. The output of education and what is taught is much more important — devoting all our time to who does the teaching or controlling would be like Jack Charlton expending all his energy worrying about who will drive the bus to take the football team to the World Cup rather than on the strategy of the play. Despite the high cost of our education system and its high quality — academically our students emerge with very high qualifications — we are not turning out students who are self-reliant, independent-minded or potential entrepreneurs because that culture does not exist at any level in society. The State is much too involved in the economy, and that percolates throughout our society.

In addition to the recommendations of the Task Force on Small Business, which I welcome, one of the most fundamental things we need to do in our economy is, first, lessen the number of regulations and bureaucracy with which businesses must deal daily. When dealing with the compliance costs of PAYE I note that the Task Force on Small Business said that, in the case of companies with 25 employees or fewer, the compliance costs comprised 4 per cent of PAYE liability, whereas in the case of companies with in excess of 400 employees, they comprised 1 per cent. They went on to say, that, in the case of VAT, the position would be even worse.

Our tax system really hits people in small business very hard. For example, there is a 20 per cent tax on work, an employer pays over 12 per cent in PRSI and an employee nearly 8 per cent, constituting a 20 per cent tax on every job. I know some changes were effected recently in the case of those in receipt of a salary of less than £9,000 per annum, but they were so minimal as not to warrant comment. Indeed a person earning £9,100 is much worse off than someone on a much lower income.

Unless we tackle the fundamental problems of our anti-work taxation system in so far as it applies to employers and employees, the tax on work, on the number of people employed, we will not generate jobs in our economy. Donal de Butléir, the former Secretary of the Commission on Taxation said, in the course of an interview about which I read on Sunday last — which I mentioned in the course of the debate on the ESRI medium-term report — that if we took the growth figures forecast by the ESRI over the next few years they would generate, in 1994 price terms £950 million in additional revenue. We could do a number of things with that. No doubt we could spend it on many worthwhile services, we could control public spending, maintain it at present levels or use it to reduce the burden of taxation. If we choose to do that we could either reduce tax on work by 25 per cent, that is the standard and higher rates, by a full 25 per cent, or reduce employers' and employees' PRSI by 40 per cent. Choosing one of those options would do an awful lot more for employment and enterprise and the overall culture of business in our economy than incurring increased public spending.

As the ESRI and many commentators said, indeed as I maintained, no doubt we could spend Structural Funds on what would be regarded in the short term as worthwhile projects; we could fritter the benefits of the £5.9 billion on worthwhile activities from the short term point of view, or apply it to deal with the structural problems in our economy, which might have less impact in the short term, but a more lasting impact in the medium and long term. For example, the ESRI referred to the £700 million the Government intend investing in telecommunications from Structural Fund moneys. Indeed it asked if it would not be better to tackle the fundamental problems confronting Telecom Éireann in that they owe £1 billion, need investment and are grossly over-staffed. Unless we deal with that fundamental problem now Telecom will make Aer Lingus appear very small in five or six years' time. Rather than deal with these problems, which are adding costs to industry every day, we delay the evil day and hope the problem will go away but it will not. Because Telecom were forced to compete in their foreign business with competition they had no alternative but to reduce their costs. Instead of looking at the fundamental problem they simply switched those charges to the householder and to the domestic consumer.

Irish business has higher telecommunications charges, higher energy costs and higher postal charges because the State dominates these sectors. The State is over-manned in many of these companies and expects industry generally, but small industry in particular, to carry the burden of these additional costs. If we are to encourage the growth and development of our small business sector it has to compete in an ever-competitive world. One of the opportunities of the Single Market is that it gives us a much bigger market from the business point of view. We do not have a sustainable internal market in the Irish economy; we have merely 3.5 million people. We need that bigger market that can be so rewarding and can offer so many opportunities. Our business people will only be able to compete in that market in respect of 70 per cent of our produce if they can keep their costs down. They will not be able to do that if they have to pay the higher costs of many of the services supplied by the State. I recommend that Irish business should not have to pay more for energy, telecommunications and postal costs than the average payable throughout the European Union. That is not an impossible request.

The tendering procedure is a cause of concern to many business people. They feel strongly they do not have a fair chance of competing for State work. First, the tendering procedure either for local authority work, semi-State work or Government work is not an open, transparent procedure. Tenders are not opened in public, they are opened privately. Second, the lowest tender which is not always the best is generally accepted provided they can get a bond. Many companies tender below cost in order to get the work and make special claims as they go along to make the contract profitable. That is common practice, particularly in the local government service. I know many efficient privately-run companies who literally cut the tender to the bone and yet were way above the lowest tender awarded on the day. They knew that that company could not do the work at that price, yet the contract was awarded and as the tender proceeded they made up 40 per cent additional costs. That is unfair and it is current practice for many public tenders. I want more transparency and openness and the average tender accepted rather than the lowest. That is common practice in many EU countries.

There is much sharp practice in the tendering procedure. A company which recently owed the Revenue Commissioners £11 million had a C.2 certificate, yet a small bus operator in my constitutency who was running a bus to special schools and owed the Revenue Commissioners £4,000 which he could not pay, has been denied the opportunity of doing State work and no longer has a C.2 certificate. It is grossly unfair that a small operator, an ordinary man who was made redundant a couple of years ago, put his redundancy money towards the purchase of a small minibus and took students to special schools, should be put out of business simply because he owed £4,000 and was an honest and compliant taxpayer. He could not raise the money because he had remortgaged his house a few years ago to sustain his business, yet he can read in the newspapers that a large company which owed £11 million had its C.2 certificate and was capable of doing State work. When he came to visit me he said, "This country is not fair, they do not want people like me. I do not have clout, I cannot get to the Taoiseach or to Ministers and have special concessions granted for my situation". I feel strongly that many business people do not have fair play and a fair chance to compete because the State is so dominant in this economy.

I can give another example. A company signed a contract in January with a private operator to do the freight for two years. The State said it would buy certain products from the company over the next two years provided the company cancelled the contract with the private operator and gave the business to the State. The man in that business won his case in court and will be compensated for the cancellation of that contract. That is not the point. The State came in with all its might, all its purchasing power and all its clout, put that small operator aside and had a contract, signed in January, cancelled by a private sector company on the basis that the State would buy an enormous amount of products from them over the next two years. I do not intend to name the company in question, although I intend to table questions about it as soon as the litigation is completed.

Many State companies are engaging in unfair competition. I take the view that they should not be involved in any of these sectors. I see the role of the State as a last resort. The State should provide the services which nobody else can provide but should not be involved in activities which can be provided by the private sector. Many State companies involved in freight and activities of that nature use their enormous marketing budgets to put small companies out of business. If one looks at the advertising campaigns of some of the State companies one wonders how any small operator could respond. One cannot run a commuter bus service in Dublin unless it is a State service. No matter how good one is at transport you do not have the opportunity to provide that service because the State does not allow it. Is that sensible in 1994?

We need to ask ourselves a number of fundamental questions about the role of the State in the economy. The State must be the servant of the people, not as their master. It is there to serve us. If it is not doing so we should be quick to disengage the State from many areas of activity where it is no longer necessary and is adding costs through over-staffing and inefficiency. People may smile when I say that but it is a fact. Many local authorities who have contracted out the provision of services have found that the services can be provided to the householder more efficiently and rapidly and at a lesser cost. We need to examine all these areas if we want to create a dynamic economy where small business can flourish and generate the necessary jobs.

I agree with Deputy Bruton who referred to the different tax rates which apply to the manufacturing sector and the service sector. Many of the multinational manufacturing companies have come to Ireland mainly because of the tax regime, not necessarily because of the grant aid. The 10 per cent corporation profits tax is a major incentive to locate in Ireland. It is interesting to note that the service area where the 10 per cent tax rate applies has been successful. The International Financial Services Centre, which is subject to a 10 per cent corporation tax, is extremely successful. Many of the software developments which have been subjected to a 10 per cent tax have been successful. Where a low tax regime applies to corporation profits tax, companies will locate here. It is an old fashioned concept to have such a difference between the corporation profits tax rates that apply to the manufacturing and the service sector.

In the report the task force recommends that there should be a 25 per cent rate of corporation tax on profits of up to £80,000 and that it should be phased in over three years. If such a rate was introduced on profits of up to £100,000 it would cost approximately £9.3 million in year one and £28 million when fully in force. It is interesting to note that in the United Kingdom a rate of 25 per cent will apply from this year to small firms in the service sector on profits of up to £300,000 with marginal relief on profits of up to £1.5 million. As our companies have to compete with these firms we need to reconsider the rate of corporation profits tax that applies to the service sector. A lower rate would encourage many new service companies — like the many multinational manufacturing companies — to locate in Ireland.

I am not a great believer in the grant-aid philosophy but it is interesting to note the differences between Irish and foreign entrepreneurs for this purpose. An Irish entrepreneur will have to provide more equity, pay back the money he receives from the IDA over a shorter period and is considered to be a second class citizen. According to a recent commentary, he will also receive up to £4,000 less per job than his foreign counterpart. What is the reason for this? We believe we need to do this as the multinationals have to be attracted while it is assumed the Irish person has no alternative but to locate here. This is not fair. This is not the kind of grant-aid philosophy which convinces people in business that they are wanted or appreciated.

Patrick Campbell said recently that the Revenue authorities have more powers to deal with business people than the Garda Síochána has to deal with criminals and drug pushers. He wondered whether business people are considered the real suspects in the Ireland of today. He stated:

The Government is over managing the economy through the introduction of restrictive regulations. This has undermined competitiveness and draconian measures have caused many ordinary business people to feel threatened and alarmed. Today in Ireland the Revenue have more powers of entry and search than the gardaí have to fight criminals and drug dealers. Today in Ireland the self-employed taxpayer is the suspect.

Many people in business believe that they are not being encouraged or rewarded. Labour law, and the manner in which pay bargaining is conducted, does not suit those involved in business. During the currency crisis it was evident that smaller companies which where very exposed were not able to meet the commitments contained in the Programme for Economic and Social Progress in terms of pay increases. Shortly before the Government decided to devalue our currency one firm agreed a 10 per cent decrease in salaries with its workforce in order to maintain jobs.

Our system of central pay bargaining does not allow for the flexibility that is commonplace in any free market, such as the United States and Japan and many of the most successful economies in the world. There is a 2 per cent level of unemployment in Japan and 6 per cent in America and they are worried. In many parts of the world people work for much less than what some of our social welfare recipients receive. Many Members would say that they are being discriminated against and exploited but I do not take that view. Many people in those countries, in the Far East for example, would not give up their job or salary to become a social welfare recipient in Ireland as they have hope, dignity and self-esteem and an opportunity to participate. They believe they have some worth and value and this is very important to every citizen. Many people here do not have this and do not believe they have a contribution to make. What is the reason for this? We say to them that because they cannot get a job at the Programme for Competitiveness and Work level which the Government negotiated with the social partners — only the employers and the trade unions who represent the employed were represented; the unemployed were not at the table — they cannot be given a job as they might be exploited.

We need to change the way we deal with pay and taxation policy. In the past two budgets the Government increased spending by 17 per cent. If this money had been used to fund tax reductions we would have done much more to generate employment in the economy.

In addition to the recommendations made in the report I wish to make the following recommendations which may help small business. On the question of the corporation tax regime, I strongly believe we need to deal with the differentiation between the manufacturing and service sectors for this purpose. We also need to develop a more neutral corporate tax regime so that the combined corporate and personal tax on company dividends does not exceed the equivalent tax on income. We need to do this urgently if we want people to invest in their company.

We need to deal with the conflict between the county enterprise boards and the regional offices of Forbairt in promoting and monitoring indigenous company employment growth. This is causing confusion for many people in business. Business needs assistance in kind rather than in cash. Many smaller companies need premises. The IDA, for example, does not have any suitable premises for industry in the Dublin area. They need expertise in marketing, preparing business plans, language skills and quality consultancy services rather than grant aid.

The payment of grant aid should be linked with the number of jobs created and not with capital invested. The people involved in Government agencies responsible for job creation should receive a significant bonus linked to the realisation of job creation targets. The conflict between the roles of Forbairt and An Bord Tráchtála in providing business support for indigenous industry remains unresolved and must be tackled as a matter of urgency. In relation to the BES, the size of the fund should be linked to the number of jobs created within two years and retained for five years.

The monopoly suppliers of infrastructural services, such as telecommunications and postal services, should provide their goods and services at a cost which is not above the average in other European Union countries. Enterprise units need to be developed, particularly in disadvantaged areas. The organisations which operate such units should obtain the same taxation benefits as those involved in initiatives such as Enterprise Trust and First Step. On leases for industrial premises, there should be a five year opt out clause, particularly in designated areas where developers already have more than sufficient incentives.

Our labour law acts as a major disincentive for employers to increase employment. They should be given special training and information on matters relating to labour law. On the question of the burden of proof, the task force made certain recommendations and I support what it had to say in that regard.

We should allow for greater flexibility and encourage new company development, particularly in disadvantaged areas. The high level of crime and the perception of certain areas make it more difficult to attract industry and for small business to operate. Estate agencies, which have the power to acquire land, should be allowed to offer additional incentives to encourage enterprising people to locate in those aeras.

The apprenticeship schemes should be widened to provide training for production technicians and operators who are required by high-tech manufacturing and service industries. If we implement the fine recommendations contained in the report of the task force — some of which I mentioned — we will do much to help small business but we need to adopt an attitude that respects those who take risks and invest in business rather than leaving their money in financial institutions which may often be more beneficial for many people.

I did not deal with the banks but I support much of what has been said about them. Our interest rates are higher than those in other European Union countries. The State must use its powers, through the Competition Authority and the Central Bank, to ensure there is no collusion between the big two in relation to the interest rates and the rates they apply to business people and ordinary consumers.

Proinsias De Rossa

The report of the Task Force on Small Business is an impressive and comprehensive treatment of a complex subject. Traditionally, a low policy priority has been given to small business, although there has been a high level of verbal support for what is referred to as the "small man", in other words, the small business. Consequently, statistics on small enterprise are available only on a limited and piecemeal basis. The report states that, "it is difficult, if not impossible, to formulate adequate policy for the small business sector in the absence of the proper data base on matters such as the number of small businesses, their sectoral distribution, their employment levels and their start-up and failure rates".

The interest shown in small business at official level is comparatively recent. In reviewing the position in other countries the report notes that policies for small business have been in existence for decades in other countries. Since the beginning of the 1990s in the countries of the European Union only businesses with fewer than ten employees have proved capable of additional employment creation, the majority of which are in the building industry, trade and services. It is those micro-enterprises which have registered the strongest growth in employment in the last four years and it is now estimated they account for approximately 27 million jobs.

In Ireland, enterprises in which fewer than 10 persons are engaged comprise more than 90 per cent of the total number of businesses and enterprises with fewer than 50 persons comprise more than 98 per cent of the total. The report highlights that contrary to popular belief there is no evidence to suggest that the level of new business start-ups here is markedly below that in other countries. If anything, it has been above the average for European Union states over the past decade. However, the number of business closures has been high in the same period. By 1992, 40 per cent of new grant-aided manufacturing and international service establishments set up in 1983 were still in existence. It appears that the rate of business failure tends towards the higher end of the EU range.

It is clear that, on a comparative basis, there is not an innate lack of enterprise among people here. Many people are prepared to take risks but, as the report highlights, there is no room for complacency. While our performance is about average, our need for additional enterprise and increased employment is well above average. We badly need a higher rate of business success and a greater number of fast growth enterprises. The recommendations of the task force are grouped based on three main pillars, namely, raising money, rewarding risks and reducing burdens. It is clear that much can be done in the area of public policy development and institutional reform which would do much to improve the environment for the small business sector.

The recently published ESRI Medium Term Review 1994-2000 paints a bright prospect for our economy over the next few years. There is potential for growth and job creation and, obviously, the small business sector could play a dynamic role in this process, but this potential must be turned into actuality. In its concluding summary the ESRI warns that "solutions will not be found if the economy is left on autopilot". There is no evidence so far that the Government has either the imagination or vision to grasp the nettle of reform in this area, despite the excitement this morning of the Minister of State at the Department of Enterprise and Employment, Deputy Brennan, at the contents of the report.

Four years ago the NESC in its report, A Strategy for the Nineties, concluded that while Ireland had put in place credible macroeconomic and incomes policies, this was not yet true for development policy to promote structural adjustment and enterprise. Such a deficiency might have been made good by the rigorous implementation of the Culliton report, but it is now obvious that key elements of that report have been buried. In his preface to the report, Culliton argued "we need to foster a spirit of self-reliance and determination to take charge of our future". Unemployment is the major social crisis of our times and it cannot be tackled by leaving the economy on autopilot. Neither does the solution lie in the artificial creation of workfare schemes. The fostering and development of enterprises which are likely to survive, prosper and create wealth and employment is essential.

The task force is correct in indicating that if it were ever realistic to depend exclusively on large firms for the amelioration of our unemployment problem, that is certainly no longer so. The small business sector must get the recognition it deserves. There is no such thing as a typical small business; they can be involved in manufacturing or in services, traded or non-traded. They can be involved in low-tech manufacturing for small niche markets or high-tech industries using the latest methods of computer-aided design. If small business is to flourish it needs the right infrastructure. At the developmental stage there is often a need for seed capital so the venture can be properly investigated and planned. If more seed capital was available from a variety of sources it would do much to reduce the overall levels of business failure.

The provision of start-up capital in sufficient amounts and at reasonable terms is vital for the small business sector. The provision of long term loan finance at affordable rates needs to be greatly extended. The task force believes that relations between the main banks and the small business sector need to be dramatically improved. Instead of the somewhat adversarial relations that exist at present, banking and business should be brought together so they can develop a more fruitful partnership. That could be done through the creation of local development forums.

Needless to say, the subject of taxation looms large in the report. The task force believes there is an over-riding need to give greater recognition and reward under the tax system to those who take the risk and show the enterprise involved in setting up a new business or expanding an existing one. It is acknowledged that most of those tax proposals would involve a cost to the Exchequer. While I would not agree with all of the proposals, it is time to make some bold and radical moves on the taxation front. The task force is correct in believing that the long term stimulus to the economy that properly targeted tax reform would provide would justify the short term costs. It is time the Government took risks to get greater rewards in terms of the number of people who could be back at work.

What is poorly understood at Government level — or perhaps it is understood and ignored — is how the tax system functions as a system of incentives and disincentives. It is vital that the incentive structure of taxation is geared towards the attainment of the needs of society and how effectively tax revenue is spent. Ireland has fallen down badly in terms of using the tax system as a way of encouraging certain types of activity while discouraging others. Professor Kieran Kennedy of the ESRI cited previous research which identified a plethora of tax incentives to investment in housing, property and financial assets. The difficulty is that those are essentially rent-seeking activities which encourage the redistribution of wealth rather than its creation. Professor Kennedy believes that a decisive approach needs to be taken to reducing the range of tax and other incentives applying to that type of rent-seeking activities.

We need to have a more dynamic vision of the role of the small business sector. New information and computer-aided design technologies enable Irish enterprises to compete internationally and deliver a product that will be in demand. It is now possible for small Irish firms located virtually anywhere in the country to link up with major companies abroad and carry out specific tasks. With the development of information networks it is possible for people to remain in their communities and carry out high quality work.

We hear much about the importance of competition for a flourishing market economy, but there must also be a recognition of the value of an enhanced form of co-operation which can exist alongside competition. Small firms can and should be encouraged to pool resources to help each other where possible. That type of approach has created flourishing regional economies, based on small scale enterprises, in the central regions of Italy. Those companies concentrate on their areas of excellence and by assisting companies in related fields, which have other spheres of excellence, they produce products capable of competing in bigger markets.

There is a strong argument that the small business sector needs a more powerful voice in Government. A Minister of State for small business should be appointed. The recommendation to establish users councils in the Revenue Commissioners, the Department of Social Welfare and the Companies Registration Office should be implemented. It would provide a means of consultation on the regulatory and administrative requirements to be met by small firms.

I had some experience in the small business sector. Before I became a TD, I managed a small family firm and I was able to increase the number of jobs in it from six to 20. People involved in small business know that one may work 18 to 20 hours a day, but that input will not have an appreciable effect on its profitability and success unless the work is structured and enhances the quality of the product and the capacity of the company to produce goods that can be sold. Given the current emphasis on the importance of small business, it is equally important to bear in mind that small businesses other than the one man or one woman business depend on their employees. Without the goodwill of employees who are willing to work it is unlikely a business will succeed. Too many owners of small businesses seem to view their employees as instruments to be used in pursuit of their goals. They fail to recognise that if proper working conditions, including, wages and social protection are not provided they will not get the participation and co-operation from their employees needed to make the business a success. That is as important as removing some of the restraints placed on businesses to ensure that small businesses are enabled to comply with environmental legislation and provide for their employees in terms of PRSI, redundancy, health and so on. There is no value in creating a small business sector based on the exploitation of labour. Such exploitation creates an underclass of low paid who are not provided for in terms of health, safety at work, waste disposal etc. Far too many small businesses consider the way to make a success of their business is to find ways to get around the laws protecting the community, environment and people who work for a living. It would be preferable if small companies were assisted to meet the necessary requirements in those areas rather than pursuing policies which encourage some companies to seek ways around the law and put others out of business.

A number of areas need to be addressed in the small business sector. Credit is one of the main difficulties for small companies as they inevitably have a small capital base. Regardless of the relationship between a small business person and his or her bank manager, borrowing money is expensive. Some means of assisting small companies to overcome the gap between their small capital base and the credit they need would help ensure their survival. That would help companies who have business deals with other companies which go bust. An outstanding amount of £20,000 is merely a pinprick to companies like Superquinn or Quinnsworth, but it could cause a small company to go out of business. Steps should be taken to offer protection against such loss. I accept it is not possible to provide total protection, but the implementation of imaginative initiatives to deal with the problem, such as tax write-offs and cheap insurance, should be considered.

The development of one's business is another area of difficulty. It may be difficult to gain access to research and time constraints may pose problems in investigating new developments. State agencies and others insist on being paid for the services they provide for small businesses. It costs a company to have its product tested in the market. If we are serious about enabling existing companies to expand we must find ways to facilitate them to do that without crippling them financially.

In promoting small businesses we must create a new culture to encourage enterprise and avoid putting obstacles in their way. We must promote a new philosophy among those who seek to establish small businesses by assuring them they can make a success of their business without the need to exploit their employees. There is too much exploitation of employees. There cannot be real co-operation between employees and new entrepreneurs if a good relationship does not exist between them and protection is not afforded to the employee, whose only benefit from the company is the wage he or she receives at the end of the week.

Mr. D. Wallace

I warmly welcome this excellent and timely report. The Minister and his team have comprehensively examined the problems facing small enterprises. The early adoption of many of the task force's recommendations by Minister Ahern in his 1994 budget has been a source of great encouragement to everyone with an interest in the welfare of small businesses. Overall management in this area is a clear reflection of the urgent priority being given by the Goverment to the need for indigenous business development. Highly competent bodies are being established to analyse the situation and their considered opinions are subsequently being given prompt attention so that policy change is almost immediate. It is vital that such development in the formulation and implementation of policy be encouraged.

I will now turn to some aspects of the report which I find particularly interesting. The rate of start-up businesses here is equivalent to that of many of our European Union partners which illustrates that a large number of our people are willing to take the risk of setting up their own enterprise and that there is no shortage of creative thinking among the Irish population. However, it is equally important to note two less encouraging aspects of small business. There is evidence to suggest that over half of all newly established small businesses may fail or disappear over a ten year period. These statistics may be the result of formidable challenges facing any new enterprise in the current highly competitive marketplace. This should not, however, be simply accepted as a fact of life. Rather a far greater amount of research should be carried out into the reasons behind business failures. Feedback on the reasons for failure can be as important as feedback on success as such feedback indicates the pitfalls to be avoided. I have no doubt that many researchers are currently working in this area, but there is a need for greater co-ordination of existing research. Key findings from such research should be circulated directly or indirectly to those involved in the promotion of indigenous small industry. If we do not learn from our failures we are doomed to repeat them.

Another key observation in the report is that only a small percentage of our small businesses develop into substantial enterprises in the medium to long term. If Irish owned industry is to develop into a serious force in the international marketplace, it is vital that we overcome this problem. A breakthrough in this regard is certain to require substantial effort over a number of years. However, it is possible to identify certain conditions which are likely to influence a company's potential for substantial growth. The initial enterprise must be based on sound and realistic plans from the outset. As the business grows it is vital that the owner make every effort to complement his or her own skills by employing people with specialist knowledge in areas such as planning, management, marketing and financial control. Similarly it is vital that the developing enterprise critically assess both its overall strategy and its detailed operation on a regular basis. Then, when an opportunity arises, consideration can be given to becoming involved in a favourable merger. This is only likely to occur when the business owner maintains close contact with fellow entrepreneurs. Too often the small business owner becomes totally absorbed in his or her own enterprise and opportunities for expansion are either missed or ignored.

Raising finance is, without doubt, a major problem for small buiness owners. A number of factors militate against the easy availability of venture or equity capital funding for the unproven business. Personal savings are limited and conservatively invested. Similarly indigenous industry works on a very small profit margin. In this regard the gap between the 24 per cent profit earned by overseas companies and the estimated 4 per cent reported for Irish owned enterprises is worth noting. Although practices such as transfer pricing probably exert a major influence on this difference, they also indicate a certain scope for more effective trading by our indigenous sector. The ICC bank's £100 million small business expansion loan scheme is certain to make a major difference to a number of our companies as they strive to grow and develop.

The low rate of take-up of tax refunds under the new enterprise scheme, with only six applications approved in the first six months, is worrying. Comments in the report regarding excessive red tape should be noted and heeded across the range of official administrative services. It is important that the capital needs of the county enterprise boards be met to the fullest possible extent.

There are three basic requirements for the success of new job creation structures. The objectives must be clearly defined and realistic, the operational procedures to be adopted must be explicitly clear, and adequate funding must be available. Limitations in any of these areas will only lead to futile recriminations later. Private sector initiatives such as the First Step programme and the Enterprise Trust are to be welcomed. However, we have few genuine venture capital finance houses. From time to time a promising venture capital facility is launched. Frequently, however, one sees an increasing tendency towards more secure conservative investments once some early successes have been achieved and openness to the smaller riskier business sector disappears. Our ongoing programme of tax reform may be able to make a positive contribution in this regard.

The report explores other elements of fund raising which affect small businesses. I note in particular its support for so called campus companies located within universities and other third level education institutions. I strongly support the development of such enterprises since they have three particular contributions to make: they help establish a much needed bridge between the world of business and commerce and the third level education sector; they provide invaluable business experience to the participants in our leading educational institutions; and they have the potential to seed succesful and significant mainstream industrial enterprises.

I also strongly support the idea of encouraging individuals to purchase equity in our smaller indigenous companies. The more resources invested in our energetic entrepreneurs the more likely we are to create a substantial number of secure new jobs for our young population.

There is little doubt but that there is significant room for improvement in the level of support to new business by the banking sector. For too long much of the risk-taking has been outside this country while most of the profits have been earned on the domestic market. This is not acceptable and should not continue. On the other hand, it is important to acknowledge that there has been an increased willingness on the part of the banks to provide a certain level of unsecured lending on the home market. If this trend continues and keener interest rates are made available to the most vulnerable businesses, the banks will regain their rightful position as a key element in the development of our national economy. The responsible behaviour of many banks during the currency problems last year must be acknowledged.

I strongly urge that emphasis be placed on identifying the common interests of the banking and small business sectors. We can then develop legislation and guidelines which will help exploit in a positive manner such common interests. It may be possible to structure taxes or levies on banks in such a manner as to encourage a greater degree of participation by these institutions in the funding of small ventures. Similarly our corporate laws should minimise the scope for individuals to walk away from substantial bank debt accumulated through abuses of limited companies. Such practices ultimately penalise the upright, hard working small business owner since the banks, both at central and local policy levels, inevitably respond to such bad experiences by adopting more conservative lending policies.

I agree in principle with the report's observation that the tax system should reward the risk-taker. The report acknowledges that many of its recommendations will involve increased State expenditure. Nevertheless it anticipates that such money should be recovered to a certain degree as a result of increased revenue from expanding and healthier companies. It also accepts the need to phase in certain proposals over a reasonable period of time in order to avoid the requirement for a major once-off State investment.

The authors make a strong case for improving certain aspects of PAYE regulations for those involved in small privately owned businesses. The recommendation to further expand the PAYE concession to directors and participating spouses deserves consideration. Similarly the anomaly regarding PRSI payments also seems worth reconsidering.

I have some reservations about the recommended tax credit in the area of job creation. There is the danger that the introduction of a range of competing incentives might result in confusion for the potential creator of jobs. It is probably desirable that the support made available to such people is channelled through a modest number of pathways which allow for a high degree of control and audit. A diverse range of incentives and grants to small businesses may be neither in the interest of such enterprises nor of the State.

The report's recommendations on reintroducing the scheme of dividend relief and reducing small service companies' rate of corporation tax also have merit since their implementation would increase such companies' ability to retain profits to a far greater degree than is currently the case.

While the report does acknowledge the substantial improvement in capital gains tax introduced by the Minister, Deputy Ahern, in the 1994 budget, it recommends further concessions in this regard along with major changes in the capital acquisitions tax for family owned businesses. These extra demands may be excessive. They tend to ignore to a certain degree the fact that successful small businesses must make a fair contribution to the funding of State services, as does the individual PAYE worker.

In our anxiety to provide maximum incentives to a very promising sector in our economy, we cannot totally ignore the rights and needs of the rest of society. However, there is merit in the report's proposals on the timing of VAT payments, instalment payment of tax for the self-employed and some reform in the operation of withholding and relevant contracts taxes.

On face value there seems to be grounds to support the abolition of the surcharge on undistributed income. Small businesses cannot expand without building some cash reserves. While I have some reservations on the linking of commerical rate changes with the consumer price index without taking into account possible improvements in services, the proposed two year exemption for start-up companies is a small but practical way to encourage such enterprises at a time of maximum scarcity of resources in their life cycle.

There is little doubt but that delayed payments is one of the most serious problems faced by the small business owner. The rarely diagnosed but frequently experienced cheque in the post syndrome has resulted in many beds being filled in coronary care units throughout the country. It is fair to expect State and semi-State organisations to give a lead in this regard. It must be accepted that the importance of this problem has been increasingly recognised in recent times. Major improvements will be difficult to achieve without a major corresponding effort on the part of the private sector. However, there will always be conflicting needs between receiving timely payments and maintaining a customer's trade. Small business owners can contribute to an overall improvement in this regard by developing more effective credit procedures internally while making every effort to treat their own creditors fairly. Timely payment is above all a two-way process.

Under its recommendations entitled "Reducing Burdens", the task force has come up with a number of sensible proposals, some of which have been adopted by the Minister. Useful proposals include the raising of the VAT threshold to £40,000 for both goods and services, less frequent VAT and PAYE/PRSI payments, minimal tax account requirements for very small businesses and removing the needs of a compulsory audit in very small firms. Some of these suggestions should benefit the small business owner and the State. I welcome in particular the proposal regarding tax accounts for very small businesses since the current situation does not seem to be cost beneficial to either party. The proposals to rationalise and simplify tax forms also seem sensible.

I would have strong reservations about any adjustments in labour legislation which would reduce the level of protection given to part-time workers. In particular the recommendations that only those working 18 hours or more per week should receive full protection does not seem equitable. One must keep in mind that 18-22 hours can constitute a full working week for those involved in some professions. Why should someone working such hours in an unskilled or semiskilled job not receive camparable protection?

There are a number of other excellent proposals in this report which I welcome — the provision of a comprehensive business information system is an excellent and promising suggestion. In general I warmly welcome this excellent report. I commend the Minister and his team on their major contribution to the future wellbeing of small industry. The receptive response of the Government, particularly the Minister, Deputy Ahern, must be acknowledged. I hope that every person directly or indirectly involved in the development of our small business sector reads this report and finds substantial encouragement in its recommendations. On a practical level, each of us can contribute as consumers by making every effort to support our vital indigenous business sector.

Mr. J. Mitchell

In view of the fact that there are three Ministers in the Department of Enterprise and Employment I am surprised none of them is here for this debate. That is symptomatic of what is wrong at the heart of Government. For years I favoured the idea of a Department of Employment, yet the biggest disappointment since this Government was formed is the Department of Enterprise and Employment and, not surprisingly, unemployment remains at an extraordinary high level.

The bureaucracy and lethargy which I have experienced with the Department is appalling. I have had communication in the past year or so from three or four small business people in my constituency who were less than pleased with their reception by the Department. On one occasion when I telephoned the Department it took seven minutes to get a reply. Meanwhile my secretary telephoned the Department on the GTN service. Both calls were answered at the same time and we both asked for the Assistant Secretary in charge of job creation. I was put through to the Office of the Minister of State, Deputy O'Rourke, and my secretary was put through to another office, neither of which was responsible for job creation. In fact, there was nobody in the Department of Enterprise and Employment responsible for job creation. There is no senior person to whom a public representative or, more importantly, an entrepreneur can go to discuss the various problems that must be overcome before a business can be set up and jobs created. There is no one-stop shop. In fact, the bureaucracy is now worse because the Department is too large.

A Department of Employment should have a one-stop shop where those interested in creating or maintaining jobs can have all their concerns dealt with in one office. I had hoped the Department of Enterprise and Employment would ensure that all the disincentives and barriers to employment would be removed. For years I have asked questions in this House of the Minister for Finance, the Minister for Industry and Commerce, the Minister for Social Welfare and the Minister for Labour but there was no Minister to whom I could put questions concerning the distortions in the labour market arising from the totality of Government policies. Questions were ruled out of order or parts of questions were transferred to various Ministers. That highlighted the confusion in Government policy and the fact that it was, unknowingly, creating unemployment because of conflicts in its policy. I hoped the solution to those problems would be the creation of a Department of Employment but I was wrong and I am bitterly disappointed.

Since 1985 we have had sustained, favourable economic indicators, low inflation, low interest rates, a balance of trade surplus, a balance of payments surplus and general economic growth, but we continue to have 300,000 people unemployed. No one in Government seems to realise the effect of overall Government policy. A person with more than two children earning the average industrial wage is worse off than they would be on the dole. How does that happen? It happens because of a series of unconnected Government policies. Employers here have a mark-up of approximately 35 per cent over gross pay to cover, for example, public liability insurance, sick pay, holiday pay, the supply of protective clothing, canteen costs, maternity pay and, of course, the 12.5 per cent employers' PRSI. I understand that Eurostat, the European Union Statistics Office, and our Central Statistics Office accept that the mark-up in Ireland is approximately 35 per cent above gross pay. It costs an employer £378 to pay an employee £280 a week gross. For the employee, however, that £280 quickly melts away because of excessive income tax, 7.5 per cent PRSI and pension contributions. Also, there is no tax allowance for a child dependant and employees must also pay for transport to work, etc. An employee earning an average industrial wage of £280 gross has less than £180 a week net.

The problem for the employee is that on an income of £180 he may have a few pounds more than he would have on the dole, but he loses his medical card, higher education grants, civil legal aid, etc. because all means testing is based on one's gross income, not take home pay. These distortions make it impossible to create jobs because employers cannot afford to offer the salary that would entice a person to take up that job. No man or woman who is already badly off on the dole can be expected to take up employment if they are going to be worse off as a result but that is what we are asking of them. I have referred only to the average industrial wage but we all know that tens of thousands of jobs pay much less than the average industrial wage.

Virtually no progress has been made in this respect over the past number of years. Last year, the first Fianna Fáil/Labour budget imposed a 1 per cent levy on income which worsened the poverty trap. The whole economy is caught in that poverty trap and in addition, throughout the European Union, there are extraordinary rigidities in the labour market compared to, say, the United States. We have the highest unemployment level in the European Union. Spain is catching up on us but it does not have distortions to the same extent that we have, for example, in regard to people over 55 years of age, those on FÁS schemes, etc.

The reality is that our unemployment level is close to 20 per cent; the average for the European Union is 12 per cent; the figure in the United States is 6 per cent. The EU average, therefore, is twice that of the United States and the Irish average is more than three times that of the United States, despite the fact that EU countries in general, and Ireland in particular, have better underlying economic indicators than the United States, they have better trade figures, better interest rates and lower inflation. It is obvious that we have a problem here. If that problem is not addressed, sustained economic growth will not be followed as it used to be, by sustained growth in employment because Government policies will have taxed jobs out of existence.

The Government does not seem to understand how its policies are affecting the labour market, yet this is the biggest issue facing the country. Apart from Northern Ireland, no other issue is more serious. Unemployment is causing misery in many homes, young people are forced to emigrate and those who stay at home have no hope in the future. Fathers and mothers long term unemployed feel they have no stake in society, they have no hope and nothing to get up for each morning.

Why has the Government no sense of urgency to change these obvious impediments? Why was a Department of Enterprise and Employment established if, after 18 months, there is negligible improvement in the unemployment figures? Every day we are told the economy is booming but 300,000 families are not enjoying the benefits of that boom. They feel completely excluded from its benefits and are oblivious to any sense of improvement or well being. The Government has failed these people.

I have been a colleague of the Minister for Enterprise and Employment, Deputy Quinn, in politics in this city for the past 20 years. As far as I am concerned, he is the biggest disappointment of this Government because he is stifling enterprise. The Casual Trading Bill, for example, which is currently before this House, is an attack on the very people who, rather than rely on social welfare, have tried to create jobs for themselves. The poor women in Moore Street, Thomas Street, Meath Street, Camden Street and Henry Street go out in rain, hail and sunshine to earn a wage and provide a reasonable standard of living for their children but they are being clobbered by the proposals in the Casual Trading Bill. That Bill is symptomatic of the endemic anti-enterprise culture which is the hallmark of the Labour Party. It is destroying any hope of job creation. In Dublin city, which the Minister, Deputy Quinn and I have the honour to serve, the industrial base has been reduced by 24 per cent and it is meaningless to talk about services unless there is an industrial base to serve. We must restore such a base to the city where the most profound social problems exist.

We need to do a number of things to alter the climate. There should be a dramatic reduction in income tax and this calls for much more progress to be made than the minor steps taken in the budget. Most of the changes were to cancel the 1 per cent levy brought in last year, but I favour a significant carbon or energy tax, the proceeds of which could be used to dramatically reduce income tax. It would also help the environment and employment.

It is not sensible to have a 20 per cent PRSI levy when 20 per cent of the population are unemployed and 12 per cent of those in the EU are unemployed. There are many young children in the Gallery and I hope this debate and my contribution will lead to changes which will improve their job prospects in ten years' time.

We should move from a payroll base for PRSI. CIE employs 13,000 people and pays £35 million in PRSI. Another company with a bigger turnover employes 120 people put pays £333,000 in PRSI. Capital intensive industries remain under-taxed while labour intensive industries are over-taxed. I understand that if we try to change it, capital intensive industries will move to other countries. However, we should seek a co-ordinated change at EU level and if I am elected to the EU Parliament I will continue to press for that.

The third change in Government policy relates to the assessment of means, which should be disposable income, not gross pay. Such a policy change was made in the UK in 1984 and when one applies for a State grant or benefit take home pay is assessed. Many of those earning an average industrial wage here fail to get a medical card because their gross pay is £20 over the limit while their take home pay is £20 or £30 under it. The same applies to higher education grants. Such a policy change ought to be made in the interests of social justice and removing one major contributor to the poverty trap.

A person drawing the dole receives between £10 and £14 per week per child but in the case of those who work there is no tax allowance for dependent children which creates another distortion and poverty trap. A person with more than two children will be worse off working for the average industrial wage or less compared with those on the dole. For three children you receive £42 and £56 for four children. Those who work do not receive anything for their children even though they may be paying fees for them at third level institutions. A child tax free allowance for the employed must be considered. I know it will be a costly exercise but some way must be found to fund it otherwise distortions of the labour market deriving from Government policy will continue and there will not be a pay-off in terms of jobs from sustained economic growth.

High income tax, a silly PRSI base, means testing of gross pay rather than take home pay and no child tax allowance, are distortions which have led to the success of a manager being gauged in terms of how he can reduce the work-force. Every senior manager I know whether in CIE, Bord Telecom, Guinness, Gouldings, Jacobs or Aer Lingus is in the buiness of shedding labour rapidly. Why? It is as a result of Government policy. We need to change those policies dramatically. I would consider having an Irish peerage to honour those who create jobs. No recognition is given to them, on the contrary we impede their efforts.

I welcome the debate and the report. I have been in the House for over 20 years and I have seen many such reports. Unemployment has increased and successive budgets have made the position worse. This is not done deliberately — but Governments fail to comprehend the effects of their policy. There is no overview of the effect of Government policy and that was my hope for the Department of Enterprise and Employment. However, it is disaster.

Mr. E. Walsh

In the 1960s and 1970s multinational companies were given grants irrespective of the purpose for which they were required. As we found out later, many of these grants were invested in the development of technology which was used to replace workers. It was some time before it was recognised that there had to be a change in policy so as to assist job creation in industry. The report of the task force refers to the need to focus on projects which were ignored in the past because it was thought they could not create jobs. It is acknowledged that the small business sector is more likely than large multinationals to create the greatest number of jobs.

Multinational companies tend to have little regard for this country or their obligation to create jobs. Those companies, and native industries, told successive Governments they would have to create the proper climate to boost employment. I remember being regularly told that if the Government acceded to the demands of industry there would be a significant increase in employment and improvements in the market place. However, while the right climate has been created the unemployment rate has remained high.

It is important that we understand the nature of business. The first priority for any business is to make a profit. One cannot rely on those in the market place to create jobs; they do not regard this as their role and we cannot expect them to do so. Those who say that the elimination of restrictions and increased intervention by the Government will boost job creation in industry should remember that the very opposite may be the case — most businesses will employ the least number of people possible to do the work. They say they cannot make an adequate profit or hope to increase it to the level they expect if they do not operate in this way. Today in many businesses one employee is doing the job previously done by many people. They are trying to do what they can with no assistance and any assistance given is usually through the employment of part-time workers who can be dispensed with easily. These factors must be taken into account in the debate on this report.

Deputy Mitchell referred to the time the Labour Party, in Government with Fine Gael, advocated the establishment of the National Development Corporation, a proposal which led to great friction between the two parties. The establishment of a power house for the creation of jobs was central to Labour Party policy, and many of our ideas are now contained in this report. The Deputy said the Government was responsible for the decrease in employment in the Dublin area. Our entry to the then EC led to the demise of many small Dublin businesses, some of which were involved in the clothing industry.

When we voted to enter the then EC we knew we would be facing increased competition and that some native industries would be pushed aside. A substantial number of people voted in favour of membership knowing that this would be the case and also in the belief that the opportunites available would more than outweigh the losses. While they were correct to a certain extent, they did not realise the extent of the changes which were about to take place. Even as far back as the middle ages Ireland was not able to support its population — since the 1800s we have exported more people than anything else. We have never succeeded in devising a formula which would enable this country to support its population. This factor must be taken into account in any debate about the inadequate level of development.

Deputy Wallace referred to the carrying out of surveys among small businesses. We do not have sufficient information to enable us to determine the problems and needs of small businesses. This sector would also be able to advise us on the stages which should be taken to assist many industries. Deputy Harney said there should be a cut in State expenditure. During the debate on telephone charges she said that costs to ordinary consumers could be reduced by shedding 2,000 jobs in Telecom. I could not agree with such a proposal. Rather we must maintain and expand employment in both the semi-State and private sectors and, if possible, promote the expansion of Telecom into other projocts. I am opposed to the Progressive Democrats proposal that there should be less State intervention and we should be left to the whims of market forces. Intervention by the State is important from the point of view of job creation and in this respect the State can benefit from this report, particularly as regards intervention in the semi-State sector.

The £100 million fund will go a long way in assisting the new enterprises we hope will be set up. The special interest rates and tax refunds are very important for small business. Recently the banks were mentioned as constituting an important force in the overall equation, a matter which must be addressed. While that may comprise another agenda, nonetheless it is linked closely to the report, thereby ensuring a link with the debate on banks and their role in society.

It is said that Irish people incur too many risks in comparison with their counterparts in other countries. For example, a bank that requests the deeds of a family home in addition to an applicant's life savings as collateral against a business proposal is asking far too much. This level of collateral should be examined and, if possible, regulations introduced to eliminate such requirements.

The county enterprise boards are an important part of the overall scene and were debated in the House under another heading. Nonetheless, I emphasise that their work will be of enormous importance to the creation of small businesses. Here I might refer to the the objective of getting Tallaght working effectively with the relevant county enterprise board, recognising the small job creation units established by a combination of incubator units, operated by the "Get Tallaght Working" group, in conjunction with the expertise and support of the county enterprise boards which is certain to lead to increased employment in the area. Indeed, natives of Tallaght have always had good ideas, so I have no doubt we will see it projecting itself back into employment.

Another feature of this report is the rewarding of risks, tax credits being one of the incentives mentioned, and granting PAYE allowances for family members participating in businesses. Indeed, the rewarding of job creation through the tax credit system should be extended wherever necessary for the creation of employment. Value added tax on receipts instead of invoices constitutes another major step forward, the £40,000 limit for VAT returns helping many people. Being paid on time is another important element in ensuring that small businesses succeed. We have had plenty of evidence and experience in and outside this House of conglomerates withholding payments and extracting greater concessions from small businesses resulting from the latter's dependence on the former. The State must intervene in the marketplace to ensure fair play for small businesses, ensuring that large companies do not exert undue influence over smaller ones, or interfere in their internal affairs because of the nonpayment of accounts, thereby creating distortion in the marketplace.

Another recommendation of the Task Force on Small Business is the reduction of the administrative burden on people participating in job creation in the small business sector, through the one-stop-shop agency, ensuring that the minimum amount of time is devoted to compliance with State requirements. That one-stop-shop agency, which is becoming very popular in many other areas of business and development, should be utilised if possible for the benefit of the smallest groups in the self-employed sector. It is enormously difficult to set up a business on one's own, whereas the advice and assistance available from such one-stop-shops would be of enormous benefit in the early stages. A business information system, or network, is another matter that must be given serious consideration, recognising that large companies will have under the one roof all their business requirements, such as secretarial, telephone, fax services, typing pool and so on. We should assist small industries and businesses to avail of such services whenever sharing is feasible, thereby avoiding unnecessary duplication.

I should now like to refer to an area in which I was directly involved and have first-hand experience, through teaching, before being elected to this House. I was involved in Pearse College in south County Dublin when people on the dole were given an opportunity to avail of second chance education courses. One of my tasks was to get an enterprise business scheme going, demonstrating job creation which would take people off the live register. As part of that scheme we established a small shop in the college, giving participants practical, day to day experience in selling goods to the remaining pupils in the college, in conjunction with my task on advertising, marketing and display. We discovered that a huge number of those pupils who had been on the dole had fantastic abilities to fulfil most business requirements. Given a small opportunity and scope for development. Accompanied by practical experience, they were given the confidence to consider going out to find work in the marketplace, to create their own employment opportunities or reintegrate with the employment sector. That afforded young people an opportunity to learn not theory or the academic aspects of business but to acquire expertise and skills in the practical aspects of business. I have no doubt that many young people who participated in such courses at that college are now in gainful employment. Indeed. I know many have established successful businesses. This is an area on which the task force might focus greater attention, linking such courses with existing small businesses and occasionally allowing an interrelationship between them, so that people could be transferred from their small business enterprise into such colleges to participate in evening or one-day courses, thereby gaining the requisite expertise and skills as the work to expand their businesses.

We should give serious consideration to the future development of the Task Force on Small Business. For example, we must continue to monitor developments in the marketplace and keep a watchful eye on changes as we move to greater integration within the European Union. Not enough attention is paid to European languages. If small businesses are to be successful, for example allowing for expansion into the European Union greater area, we must devise a system that would give them access to the Continent without having to bear the full brunt of the cost themselves. We should consider the establishment of an agency here that would enable our small business people to have a representative on the Continent, in France, Germany, Spain and other countries, where their business interests might lie. I have in mind students on summer vacation who could act as agents for small companies interested in entering into negotiations with their counterparts on the Continent, or establishing contact with some institution there. We should enable those students to establish such contact and use their language skills on the Continent for the benefit of our small businesses. After that possibilities could be explored in a more formal manner, establishing formal contact points. This would mean small businesses could avail of the services of young students who remain on the Continent who will be able to identify routes, contacts and expertise to assist small native industries and businesses who could not afford to make regular visits there.

Minister of State at the Department of Finance (Ms E. Fitzgerald)

This has been a most useful, constructive debate on a thought provoking report of the Task Force on Small Business. As it said in its introduction, it is unique in that it brought together small business people to establish, from their personal experience, what needed to be done.

The key issues raised in the report related, first, to raising money. As the House is aware, discussions are taking place with the banks. The whole idea of a third banking force, contained in the Programme for Government, is geared to the need to provide adequate loan finance to small, starter businesses, an area in which the two major banking groups here, until very recently, have been fairly remiss.

Deputy Bruton suggested that the Government was contemplating taking over the risk aspect from the main banking groups but that is not the case. We are discussing how we can ensure there is a proper sharing of the risk and that the banks and financial institutions play their full part in facilitating small and start-up businesses.

I am always struck by the short sightedness of the major banks in not supporting small business development. If the banks control 80 per cent of the financial market they stand to gain a great deal from a climate which encourages more business development and growth. I have come across companies with guaranteed orders from blue chip customers who have been unable to get hold of the working capital they need to get on with their business. That is suicidal behaviour by our main banking groups. It is important that the dialogue continues and that we establish a strong third banking force, as a counterweight to the two main banks. We need one which serves the needs of small business and ensures that the two main banking groups also play their part in facilitating small business.

A key aspect in the report was that of paperwork. As one who employs a person to mind my daughter at home after school I understand the difficulties faced by a person like Zoe Baird who took the paperless route. Certainly, the volume of paperwork and transactions, particularly by those employing one or two people or somebody in the home, are a major deterrent. I do a long day's work and I do not want to be faced with a great deal of paperwork at home to keep my affairs in order. I sympathise with the difficulties faced by small businesses in this regard. A number of practical suggestions in this regard were made by the task force. I am pursuing this issue vigorously with the Revenue Commissioners. As a consumer of some of this paperwork I have some practical suggestions to make.

The third main feature identified in the report is that of "mentoring". This has been one of the great successes of the IDA programme now run by Forbairt. Under it the county enterprise boards can mobilise the experience of people who have been in business and those who are in senior business posts. In many partnership companies the involvement of people with business expertise which facilitates small business and start-up business in disadvantaged communities has been of enormous benefit. Senior management in major companies see it as a major benefit to their management team to share that expertise and to apply knowledge and skills gained to the problems of small business.

Cashflow is identified in the report as one of the major problems facing any small business. I wish to sound a note of caution on the recommendation because we should not apply a different standard from what we expect the public and private sector buyers to do. There were difficulties concerning people who had supplied the health boards. I am pleased we have been able to deal with the cashflow problems of the suppliers by late payment through the restructuring of the cash position of health boards. That is welcomed as a positive move by the Government. It would be a retrograde step if we were to assist a two tiered approach in the rules applied to public buyers and private sector buyers. The payment time is extraordinarily long and can cause great hardship for a small company supplying a few outlets, especially if one of those outlets becomes involved in the Phoenix syndrome, refuses to pay and starts up under a different name. If the payment period was shortened and there was a uniform approach that would be an improvement on the recommendation of the task force.

The task force made recommendations on the taxation system. In evaluating them we must bear in mind that the task force was almost entirely composed of people in small businesses so that a degree of special pleading should be understood. Many practical steps were taken in the budget to implement key recommendations, particularly on raising the thresholds for VAT and so on. A very sensible change is that the PAYE allowance should be given to children of people working in the business. The task force suggests that the self employed and small businesses should receive the full PRSI allowance and we want to move on that recommendation.

It is the Government's intention to continue to act on the proposals in the report. It is notable that many of the practical suggestions in it have been acted on. I am not anxious to see reports simply gathering dust on shelves. The speed with which the task force produced it deserves equal speed in terms of a Government response.

It is proposed to set up a unit in the Department of Enterprise and Employment to not only implement the recommendations in the report but to advise the sectors concerned. The role of the Oireachtas was referred to by Deputy Harney. The point was well made that what we are proposing is a joint committee on small business which would help ensure that the report does not gather dust but that its recommendations would be implemented, depending on resources.

We are all conscious that small business has major potential to deliver jobs here. If we can encourage small business and start-up businesses we will grow bigger businesses. One of the most striking statistics in the report is that while Ireland has roughly the same number of small businesses as other countries 98 per cent of our enterprises could be classified as small businesses. We have fewer fast track businesses that grow from small businesses to medium or larger businesses, and we have fewer businesses who make the breakthrough to medium and large size. The small business in Ireland tends to remain small. If every small business which is employing two people were to employ one extra person we would do a great deal to eliminate the problem of unemployment. We now have a very good economic environment and the economic forecasts are good. Those producing for the home market have a buoyant market and interest rates are at an all time low. That is good news for people who intend to borrow and invest in their businesses. Low interest rates is one of the key factors in encouraging investment.

Ireland has one of the highest savings ratios in the European Union. However, we are bad at translating those savings into investment. We need to ensure that the banks who are charged with taking care of the savings of the nation are also interested in genuine investment that will increase the productive capacity of this economy. Provision has been made in the National Development Plan for considerable investment in business and industry to increase growth in the economy and to make it cheaper to do business in Ireland. It is up to the other actors in the economy, particularly the lending institutions, to match this investment to unlock the potential of small business.

The task force makes the point in its report that small business is reluctant to accept equity finance. The point was made in the Culliton report that we tend to rely far too much on grant aid and far too little on equity and loan finance. Small business should be prepared to spread the risk and accept equity finance and thereby reach its potential. Sometimes people who have an excellent business idea find it difficult to gain access to finance because they want to maintain 100 per cent control. They ask others to share the risk but not the rewards. The unwillingness to dilute control may be one of the reasons the growth of small business is being inhibited.

The report contains many valuable recommendations drawn from practical experience. The Government has made a good start in the budget and the 1994 Finance Act in implementing some of the key recommendations. Through the institutional arrangements that have been made which involve the Oireachtas and the Department of Enterprise and Employment I hope we will do more to create an environment in which people with business ideas can flourish and prosper and create the employment that is so badly needed.

Sitting suspended at 1.45 p.m. and resumed at 2.30 p.m.