I am the owner and manager of the Gleeson Group, which is a first-generation, wholly Irish-owned family business. We are engaged in the manufacture, marketing and sales of alcoholic and non-alcoholic beverages for the home and export markets. The group has a turnover of more than €250 million, although it used to be higher, and it employs approximately 680 people. We have six factory manufacturing units and ten distribution depots, which are strategically located throughout the country. We manufacture mineral water, soft drinks, cider, freeze pops, cream liqueurs and plastic bottles for the use of the Gleeson Group and third parties. We import wines and spirits from the manufacturers of principal brands in all the major wine producing areas of the world. We represent international agency brands, such as Bavaria, in the beverage and confectionery sectors. As the largest wholesaler in Ireland, the Gleeson Group essentially sells everything alcoholic and non-alcoholic that comes in a bottle, keg or can.
When I started to work in this business 35 years ago, in 1974, times were probably as difficult as they are now. Interest rates were between 12% and 15% and the effective rate of corporation tax was in excess of 50%. In those early days, we learnt to work hard, control our costs, increase our size, ensure the only mistakes we made were small, take advantage of every opportunity and, above all else, stick to our knitting. Various people were tempted to go in different directions over recent years, but we decided to stick to our knitting, which is probably why we are still here today. The tough recessionary times we saw in the past have given us good experience to survive this recession, but nothing comes close to the set of circumstances with which my business is now confronted.
My business is facing difficulties as a result of both international and domestic factors. International problems, such as the banking crisis that has plunged the world into the worst economic recession since the 1930s, have been well identified. There is a serious lack of liquidity. Interest rates are causing problems, as is the strength of the euro against the dollar and sterling. There is uncertainty about where energy costs and commodity prices are going in the future. Domestic problems, such as the dramatic decrease in consumer spending and confidence, are also noteworthy. The rapid change from the feelgood factor to the fear factor is reflected in the paralysis of consumers when they are deciding whether to buy a new house, change the car or go to the pub. The destruction of wealth as a consequence of the collapse of asset values and stock markets is having an effect on the confidence of the public. The level of unemployment is increasing, the Government finances are imploding and the current account deficit is continuing to increase. One of the most important factors is the unavailability of credit for small and big businesses. The cost of doing business in Ireland has been increasing for a long time and does not show any signs of dissipating. The factors I have mentioned will ensure a very changed and changing environment for us in the future.
While I accept the influence we can have on the international factors is minimal, we should be able to deal with some of the domestic issues such as the unavailability of credit from the banks for all businesses. This is one of the most serious problems facing Irish business as it affects everybody from the individual consumer to the small sole trader and the large business. All business is inextricably interlinked. If one sector is affected, that has a knock-on effect up the line. When all sectors are starved of credit, the economy is paralysed, unemployment increases, bankruptcies become more common and there is a decline in capital and current investment. The Government needs to ensure credit flows to business as a serious priority. This is an absolute prerequisite to any improvement in the economy and the business environment.
It is particularly upsetting to observe the pace at which the Government is able to initiate and execute change. From August 2008, my company began to cut costs and trim the workforce. On 5 January 2009, everybody in the company took a wage cut of between 10% and 14%, which was later moderated to 6.75% until next year. As I see it, Government spending and employment in the public service have increased over the same period. To date, the only evident policy has been to increase taxes, to which I will refer later.
It is imperative that the Government controls its own expenditure and the cost of the public service. Further increases in taxation will further depress consumer spending and delay economic recovery. Local government charges represent one of the most infuriating aspects of doing business in Ireland. My company is one of the largest employers in north Tipperary, employing 350 people in the village of Borrisoleigh. The local council appears to regard us as an inconvenience, even though we contribute €500,000 to that council in rates, road tax and water charges. Rather than encouraging further investment in the county, the council is a serious impediment to business development.
The Planning and Development Act 2000 has effectively allowed local councils to raise their own taxes. In doing this, they have been very resourceful and creative. In addition to the traditional rates and planning application charges, there are now public water supply services, public waste water charges, road infrastructure, recreational, community facilities and amenity costs, a community development levy, public car parking charges and so on. There are now further charges for fire certificates, which are about to increase from €2.90 per square metre to €11.90 per square metre. Effluent charges are also being increased. Planning permission is very difficult to obtain and also very expensive with requirements for EPA reports, environmental impact studies, sound studies and so on. Every business is seen as a soft touch. All of these charges upon charges are a serious disincentive to investment. They are anti-jobs, anti-enterprise and anti-local development.
Another problem is weak consumer spending and sentiment. Consumer spending is down and savings are up. Many factors influence this, such as unemployment, fear of redundancy, the destruction of wealth and the general economic malaise, but the factor which pervades all is the uncertainty of the future path of economic development in Ireland. This is probably the greatest contributing factor to the dismal performance of the Irish economy over the past 18 months. It is also one of the problems which we should be able to influence. What got us here? Factors include the international financial crisis, irresponsible lending policies pursued by the Irish banks, the property bubble, corporate governance, the failure of regulatory authorities, Government spending, poor Government leadership and an uncertainty about Government policy.
Where do we go from here? A good start would be to bring about strong and certain Government leadership, the certainty of future legislation, the availability of credit, the reduction of Government spending and better value for money in the public service. People are generally able to make sacrifices and accept reductions in their standard of living as long as they know what the sacrifice is for and that there is a prospect of success at some time in the future. It is essential that the Government sets out clearly a plan and path forward for the Irish economy and that the solution is credible and fair to all sectors of our society.
The indigenous manufacturing industry is in serious decline and has been effectively forgotten in Government policies over the past 15 years. There is a need for indigenous industry to re-equip and import the latest manufacturing technology and best practice. Industrial policy has been much more focused on FDI rather than on indigenous business. I believe this is a serious error. Indigenous industry and enterprise will be here for the long haul because it has nowhere else to go. Industrial policy should embrace all contributors to the building of a sustained economic model, but the centre of that strategy should be to prioritise and promote Irish enterprise and allow it to take its optimum position in the overall framework of Irish economic development for the future.
The next point is about indirect taxes. It is estimated that 8% of the Irish grocery trade has been lost to cross-Border shopping. This is a straight loss to the Irish economy and a serious loss of tax revenue for the Government. Despite this very obvious anomaly, the Government in the last budget increased the VAT rate by 0.5% to 21.5%, while at the same time the British Government decreased its VAT rate from 17.5% to 15%. This differential of 6.5%, when coupled with the relative strength of the euro against sterling, has translated into a huge loss of business to the Irish manufacturer, the economy and Government finances. Alcohol is probably the greatest attraction for cross-Border shopping. Excise is a tax specific to alcohol and can be addressed in isolation to the rest of the indirect tax regime. There is a case for greater harmonisation of indirect taxes between the UK and Ireland and we should be aware of the consequences of large disparities in this regard. Today's euro-sterling exchange rate, where €1 buys 93.5 pence, puts into perspective the disadvantages the Irish manufacturer has in trying to develop an export base in the UK or Northern Ireland.
Labour legislation and social welfare issues are also relevant. While certain legislative protection is necessary to protect the rights of workers and to prevent the exploitation of vulnerable people, the legislation may have swung too far in favour of the employee. It is usually the employee of no value who knows all his rights and where an employer has not followed procedures to the letter of the law and in accordance with the maze of employment legislation, the employee is able to extract a reward to which he has never been morally entitled. There is something fundamentally unsound when social welfare legislation is so constructed that it is more beneficial to stay on social welfare than work in regular employment.
I will address the questions of regulation and bureaucracy. There appears to be a Government agency or quango for every conceivable business activity. Generally, these bodies implement the letter of the law in respect of a particular piece of legislation without any consideration of the knock-on effects. The sheer volume of work and paper necessary to provide all the various Government agencies with the necessary information and statistics is mind boggling. Businesses are subject to inspection by too many agencies, which often duplicate each other's work and are engaged in building a self-serving bureaucracy. It should be possible to reduce the amount of work and the volume of paper required to meet the needs of government and a single, all-encompassing, on-line return for the most important information should not be beyond the ability of senior planners.
I will move onto family business and inheritance. My business is a family business and I would very much like to pass it on to my children to build a business for the next generation and the generation after that. Ireland is not short of entrepreneurs. There are innumerable stories of successful start-ups but in most cases they never become fully-fledged enterprises. The enterprise and invention of the original promoter is taken away by a multinational and the benefits are lost to Ireland forever. There are more impediments than incentives for onward development of indigenous industry, particularly family industry. Succession tax legislation is voluminous and complex. It is easier to sell a business and minimise the tax take than to pass it on to the next generation. There are many aspects of Irish succession legislation which are benign and accommodating but a further reconstruction would be very helpful to facilitate the optimum development of Irish enterprise.
Executive reward is another difficulty. The success of any business is measured by the quality of management. Present tax legislation makes it difficult to reward senior management in a tax-efficient manner and ensure these people stay with a company. It should be possible to accommodate a practical aid to developing the continuity of management in Irish industry.
I will now deal with bank charges and interest margins. After the serious errors of principle committed by the banks they are now busy trying to repair their balance sheets. This was only made possible by the Government's recapitalisation of the banks. As well as credit being virtually non-existent, the banks are using every possible opportunity and excuse to increase their margin on existing borrowings. This has the effect of negating most of the advantages of reduced interest rates from the ECB and will undoubtedly slow the pace of economic recovery when recovery arrives. It would be helpful if the Government used its influence to restrict the ability of the banks to unilaterally increase their margin on existing borrowings.
Debt collection and credit management is another small difficulty. Debt collection legislation is hopelessly inadequate and out of date. The recent High Court decision not to grant a committal order to a creditor has thrown normal debt collection procedures into chaos. Heretofore a debtor had to prove his or her inability to pay but now the onus has moved onto the creditor to prove a debtor has the ability to pay. Personal guarantees are no longer the simple instruments they once were and the decision as to whether a personal guarantee is to stand appears to be at the discretion of the courts. To get a hearing in the District Court or Circuit Court takes an inordinate amount of time — sometimes up to two years. Cashflow is the oil of business and without the ability to collect debts and enforce judgments the exercise is impossible. The legislation in this area should be non-controversial and should be reformed immediately.
The legislative framework for pensions is seriously out of date. The amount of administration required by the regulatory authorities has become extremely onerous. As they stand, the regulations favour the financial institutions and work against private member schemes. A complete overhaul of the rules and regulations and the legislative framework for pension funds needs to be undertaken in the shortest possible time.
I have outlined what I perceive as the main areas of difficulty for manufacturing in the current environment and in so doing may have given a rather negative appraisal. However, it is important to remember that in some respects the glass is half full. There are many positive and favourable factors for the manufacturing industry, including our low corporate tax rate and our membership of the European Union. We have a comprehensive and respected legislative framework and important reciprocal arrangements with most of the world's leading economies. We enjoy a world-class education system and a well-educated workforce. Ours is a developed economy with good information technology provision. We also enjoy a favoured location for foreign direct investment and have the further advantage of the Irish diaspora. These are all important advantages. There must now be a serious ambition and determination to turn the remaining negatives into positives.
