Ten measures to deliver sustainable retail growth

Transcription

1 Submission to the Minister for finance Submission to the Minister for Finance Budget 2018 Budget 2018 Ten measures to deliver sustainable retail growth

2 Introduction The retail sector is Ireland s largest employer. With a footprint in every town and village in Ireland, it is also the country s most geographically and socially diverse industry. The wholesale and retail sector employs 285,000 people accounting for 14% of total employment. The majority of the 37,400 retail and wholesale enterprises operating in Ireland are small businesses with 85% of businesses employing less than 10 people. The sector is also the biggest contributor to the Irish Exchequer, generating 23% of total tax receipts in Ireland. This is more than twice that of Ireland's second largest sector, financial services, which accounts for 11%. Over the past 3 years, tax revenue from the sector has grown by 28%; largely due to increased PAYE receipts and corporation tax which is now more than double what it was four years ago. Recovery in the Irish retail sector remains modest and retail sales values remain significantly off their peak. In 2017, deflation and heavy discounting continues across most categories of retail with consumer prices now back to 2009 levels. Allied to weakening consumer demand and lower margins, retailers have also had to contend with significant increases in labour costs, rents, rates, energy and insurance costs in recent times. A healthy retail sector is vital to the Irish economy and to the commercial life of our towns and cities. Employment in this labour intensive sector has grown by 2.3% in the past four years with 6,300 more people working in retail than four years ago. These growth figures are very disappointing when you consider that employment in retail declined by over 45,000 from a peak of some 320,000 in The UK s decision to leave the EU poses significant challenges and potential risks to the Irish retail sector. In the past twelve months consumers have remained sensitive to any macro-economic shock and this is unlikely to change during the EU and UK negotiations. The most obvious short term impact is the devaluation of sterling against the euro and the impact the falling value of the pound is having on retailers in the border area. This has led to the return of cross border shopping, and resulted in a significant jump in online shopping in all parts of Ireland, in particular from UK online retailers. Retail Ireland believes that Budget 2018 should be viewed as an opportunity to strengthen growth within Ireland s largest industry and largest private sector employer. Our objective is to see the delivery of much needed strategic investment, through new and existing funding structures, and the protection of the retail sector from internal and external risks. This would safeguard jobs across the country and help the sector grow in the years to come. Our submission sets out a number of measures which will help put the retail sector on a path of sustainable growth. This mix of actions will incentivise job creation and ease the tax burden on consumers and retailers, which will in turn help maintain growth and enhance consumer spending power. 2

3 The following is the basis for our position: Taxation 1. Reduce the burden of consumer taxes Any cut in income tax should NOT be funded through increases in other taxes such as excise duties, VAT, etc. By increasing these taxes consumers will not feel they have extra disposable income and the retail sector will not experience any appreciable increase in sales. Due to currency fluctuations, the Republic currently has a price differential to the North in most categories of consumer goods including food, drink, alcohol and tobacco. The threat of increased cross-border shopping and black market activity arising from a more volatile pound means that further tax induced price increases on alcohol, tobacco and fuel products should be avoided where possible, as it will result in losses for both the retail sector and the State. In addition, we remain in fundamental disagreement with the principle of additional food and beverage taxes such as fat and sugar taxes. The 9 per cent rate for special tourism-related activities has made a substantial contribution to those industries. It has also had the added benefit of supporting certain retail categories which fall within its remit. Categories such as food service, newspapers sales and hairdressing have all benefited from the reduction in their applicable VAT rate. Any move to increase this rate at this point would have a severely detrimental impact on sectors which have only recently stabilised, and are only now beginning to look to return to a period of growth. While the hospitality sector may be experiencing significant growth, these sectors of retail who share their VAT rate continue to struggle with falling prices and slow growth rates. Furthermore, food service and hairdressing provide new labour market entrants with exciting career opportunities and career paths in every town and village in Ireland. Since it was introduced, the reduced rate has enabled these categories of retail to employ and train increasing numbers of apprentices, while also enhancing training programmes and other further education opportunities. Any move to increase their cost base at this point would inevitably impact their ability to sustain such activities. With the closure of JobBridge and the decline of the rate of growth within the whole retail sector, the abolishment of this special 9 per cent VAT rate could discourage the creation and uptake of jobs with these categories of retail. Implement a freeze on consumer taxes and duties on consumer products. Retain the 9% VAT rate for the food service, newspaper sales and hairdressing categories of retail. Limit the cost to retail associated with implementation and collection of the Sugar Sweetened Drinks Tax. Introduce measures and funding to increase enforcement and sanctions on the sale of counterfeit goods and the unlawful sale of ordinary goods, in particular with regard to fuel laundering, illicit tobacco and counterfeit medicines. 3

4 2. Continue to ease the tax burden on Irish consumers Ireland s exceptionally high marginal tax rate discourages employment, investment and consumer spending. Our marginal tax rate deters the uptake of overtime work and limits the opportunity for productivity gains in a highly labour intensive sector such as retail. Cutting income tax will boost spending by putting more money into the pockets of Irish consumers and ultimately benefit exchequer revenues though increased tax generation. Increase the entry point to the 40% rate of income tax by 1,000 to keep ahead of wage growth. Reduce the higher marginal rate of tax for those earning over 70,000 by 1% and commit to reducing the all-in marginal rate for all employees to 47% over the coming years. 3. Incentivise job creation Over the past four years, employment in the retail sector has grown by 2.3% or 6,300 jobs. These growth figures are very disappointing when you consider that employment in retail declined by over 45,000 from a peak of some 320,000 in Ireland s minimum wage is now 7% higher than This growth rate significantly outstrips general wage growth in the sector which runs at 8% since The knock-on impact of this increase on other wage grades above the National Minimum Wage has been partly responsible for the stunted growth in numbers employed in the retail sector. After two recent hikes upwards, Ireland s minimum wage rate is the second highest in the EU and monthly retail wages in Ireland are the fourth highest in the EU. If retailers are to stay in business, they must remain price competitive; wage levels must be set against the price that the business can charge customers for goods and services. With little to no inflation in consumer goods and growing concern over the impact Brexit is already having on the retail sector, there is absolutely no economic basis for a further increase to the minimum wage. The recent recommendation by the Low Pay Commission to increase the National Minimum Wage by 30 cent per hour, if introduced, will significantly affect retailers ability to remain competitive against a backdrop of falling prices and rising costs within the sector. Wage pressures arising from rising employee s personal costs including housing, health and childcare are a result of failures of public policy over many years. It is entirely unreasonable to expect individual employers such as retailers to bear the cost of these. The Irish retail sector is facing acute challenges from the fallout of Brexit and a more volatile sterling. If the Low Pay Commission s recommendation is implemented Ireland s minimum wage will be 12% higher than that in the UK, putting the sector in the Republic of Ireland at a competitive disadvantage when compared to counterparts in the North or pure play online retailers based in the UK. A further increase in the minimum wage could price the long term unemployed and new entrants out of the jobs market. Obliging employers to offer an unrealistic wage for entry-level jobs is yet another barrier to deciding to take on an unemployed person or new entrant. Any rise in the minimum wage not only affects employers through its direct impact on wages but also through Employers PRSI. A further increase in the minimum wage will see a dramatic rise in 4

5 numbers going onto the higher rate of Employers PSRI and this will put increased pressures on retailers. Any possible further increase in the National Minimum Wage must be offset by the reintroduction of a lower rate of Employers PRSI of 4.25% for low-paid workers, to help stimulate employment growth in the retail sector. Retail offers an exciting, dynamic and rewarding career and many retailers are engaging with the Department of Social Protection through schemes such as Jobsplus to provide employment opportunities to job seekers. To allow more welfare recipients to take up positions with Irish retailers, in particular during busy periods, a more flexible and innovative social welfare system is needed. This could help transition social welfare recipients into full-time employment, while at the same time increasing their disposable income. Delay implementation of the Low Pay Commission s recommended increase of the National Minimum Wage and freeze the minimum wage at its current rate of Demonstrate the Government s commitment to employment growth in retail by reinstating the reduced Employers PRSI rate of 4.25% as previously introduced under Budget 2011, before being reversed in Budget Introduce changes to social welfare structures to improve the incentive to work and increase the productive capacity of the economy. Allocate greater resources to administer and promote the JobsPlus scheme to encourage employers to offer employment opportunities to the long term unemployed. 4. Impose no new costs on retailers The retail sector has come through unprecedented economic and trading challenges, having witnessed a significant reduction in consumer demand and sentiment over recent years. Growing competition continues to put downward pressure on retail prices and turnover and Brexit already poses a major threat to the retail sector. Allied to this the cost of doing business continues to escalate - utilities, rates, rents, local services and rising wage expectations are combining to put significant pressure on retailers' margins. The sector s competitive position, hard won in recent years, is now being undermined and gradually eroded. During the uncertainty of the Brexit negotiations and in a post Brexit era, control of costs and a focus on our competitiveness will be essential to sustain the recovery in Irish retail. Address the cost base concerns of the retail sector in areas such as, local authority charges, energy, government services and other business input costs. Reform the revaluation process by introducing a Valuation Bill before the end of Introduce ambitious local government reform. Implement the Cost of Insurance Working Group recommendations without delay. 5

6 5. Extend the Home Renovation Scheme To deal with the housing crisis and help stimulate the construction and homeware and furniture sectors, the Government should extend the hugely successful Home Renovation Scheme. This will allow extra time for Homeowners and Landlords to make the necessary changes to their properties, provide additional support to the construction sector and continue the growth in retail categories linked to Ireland s burgeoning house market, which were hardest hit in the recession. Extend the hugely successful Home Renovation Scheme to both Homeowners and Landlords for a further year, until December Infrastructure and Supports 6. Focused funding for retail sector The majority of the 37,400 retail and wholesale enterprises operating in Ireland are small businesses with 85% of businesses employing less than 10 people. The importance of entrepreneurs and small businesses to Ireland s economy cannot be overstated. Focusing on the sustainability and expansion of our existing retailers through better access to credit, an improved taxation environment and upskilling employees, will help improve the performance of the overall retail sector and positively impact the social and commercial lives of our towns and cities. Irish retailers are committed to buying local and supporting Irish suppliers. In order to support local suppliers and the agricultural sector, Retail Ireland member companies are actively working to foster entrepreneurial skills and develop export opportunities for Irish food by connecting small local suppliers and manufacturers with global markets through online platforms. By giving such small producers access to their networks and allowing them take advantage of well-developed and sophisticated supply chains such suppliers now have access to a global marketplace way beyond their scale, offering them opportunities to grow exponentially. Mandate state agencies to support ongoing work by large and mid-sized retailers who are providing international supply chain opportunities and training to smaller producers. Allocate a greater share of government funded business initiatives towards capital investment, business expansion and in-work training for Ireland's largest industry and largest employer. 7. Incentivise e-commerce investment Competition in the Irish retail market has continued to grow and the migration towards online shopping has increased significantly. In the last ten years, the proportion of Irish consumers who 6

7 shop online has increased from 19% to 50%. Recent data from the Central Bank shows that the total value of online purchases in 2016 was 13.2 billion, although not all of this is accounted for by retail. Research suggests that 75% of online purchases are made from international online retailers, who have no physical presence in Ireland and make a limited contribution to the Irish economy or communities around Ireland. Furthermore following sizeable devaluations in sterling in the past twelve months, there has been a considerable upsurge in online shopping with UK online retailers. These figures represent both a compelling opportunity and considerable challenge for Irish retail. Falling consumer prices and rising business costs have prohibited investment in this area, and small and well-established medium sized retailers continue to struggle to meet the challenge of establishing an online sales platform. In order to wrestle back some of this international spend, Irish retailers need help to take advantage of the possibilities that e-commerce presents. Such supports would significantly increase revenue for the exchequer, with minimal investment by the State. Introduce a scheme that allows small and medium sized retailers to offset the cost of establishing an online presence. We propose the introduction of a scheme based on the current R&D tax credit system which would allow retailers to offset the cost of web developments against their VAT costs. Make sure that more SMEs can gain access to the online trading voucher by expanding its upper limit on employment to 50 and turnover limit to 10 million. Ensure existing and planned investment in broadband rollout is protected. 8. Invest in infrastructure & Brexit alleviation measures Public investment is falling well short of levels necessary to meet the economic and demographic pressures facing the country. As a result, retailers are coming under considerable pressure to bear the cost of inadequate housing, health and childcare supports through increasing demands for higher wages. The impact of Brexit will be felt most among employers which are most embedded in the domestic economy. Brexit leaves the Irish retail sector particularly exposed to higher logistic costs and supply chain disruption from the reintroduction of customs controls and duties. Therefore, it is vital that Budget 2018 takes decisive steps to offset risks that would add costs to the supply chain. In order to support retailers and reduce disruptions to product supply and costs relating to delays in transit, an investment programme to modernise and advance the use of technology at all Irish ports and airports and any other points of entry and exit to the State should be introduced. Investment in our road network would also minimise the impact of Brexit on Irish consumers and the retail industry. The speedy roll-out of high speed broadband and improvements in mobile coverage in rural areas is essential to capture the benefits of e-commerce for Irish retail, and enable regional retailers to enhance their physical stores through the use of new technologies. To offset the threat posed by Brexit to the Irish retail sector funding should be provided to help retailers trade through any period of disruption, adapt and succeed into the future. 7

8 Increase State spending on infrastructure and set out a clear path of funding to deliver key infrastructure projects. Put in place funds to support retailers adapt their businesses to the worst impacts of Brexit and succeed into the future. Allocate a specific funding stream to allow for the modernisation of customs procedures in advance of Brexit. 9. Additional funding for village & town centre renewal Retail Ireland welcomes the development of a Framework for Town Centre Renewal and the introduction of a Town and Village Renewal Scheme. While retail activity has picked up, vacancy rates in key towns and cities remain high. The growth of online shopping at the expense of shop visits and fluctuations in consumer confidence is significantly contributing to vacancy rates across the country. Under investment in the public realm, streetscape and shop fronts in rural and urban areas have also added to the loss of footfall in recent years. Increase funding to the Town and Village Renewal Scheme to provide for the implementation of the Framework for Town Centre Renewal. Education 10. Education & skills supports The retail sector takes the provision of further education and the continuous upskilling of its staff very seriously. The industry strives to build long term careers for retail professionals within the sector. In recent years, Retail Ireland and its member companies have been developing a suite of training programmes available to retailers through Retail Ireland Skillnet. Since its inception, Retail Ireland Skillnet has provided 500,000 training days, while over 14,000 retail employees have received the benefit of these customised programmes. Due to retail s presence in every town and village in Ireland, the development of retail apprenticeships, commencing in 2018, will deliver exciting career opportunities and career paths for new entrants into the retail sector in every part of Ireland. The National Training Fund currently allocates almost 80% of its funds for re-activation programmes. During the crisis when the unemployment rate was 15% it was necessary to prioritise this area. However, given the recent fall in unemployment, these funds should be re-directed towards in-work training schemes such as Skillnets, who provide training opportunities to retail employees in new and emerging skills areas. 8

9 Prioritise education, apprenticeships and life-long training by allocating a greater share of the National Training Fund budget towards the Skillnet programme in order to allow networks, such as Retail Ireland Skillnet, access to increased funding to meet the ever increasing demand from member companies and retail employees alike. Make no changes to the National Training Fund levy until the review into the effectiveness of the fund s expenditure is completed. Conclusion There is increasing evidence to suggest that the linkage between retail sales and economic growth is getting weaker, meaning it cannot be taken for granted that Irish retail sales will grow in line with general economic growth in the coming years. In order to sustain retail s positive economic impact on the domestic economy, it is vital that factors such as weakening consumer confidence, public investment, the uncertainty of Brexit and its affects on exchange rates, and rising wage expectations to offset the high cost of housing and shortages in childcare are addressed by government. The Irish retail sector is finally in a period of growth driven by a more confident consumer with respect to their future personal finances and the generally more positive economic environment, after enduring a torrid time over the last nine years. This improved outlook should provide retailers with the opportunity, in 2018, to invest in both their businesses and employees. This investment will strengthen the Irish retail sector, create employment opportunities and allow the sector to meet the demands of the changing Irish consumer in the years to come. We would encourage government to do all in its power to support this emerging growth. Budget 2018 provides a further opportunity to government to introduce a set of measures that will help the retail sector realise its potential. Retail Ireland fully supports the Government s stated aim of delivering a strong economy focused on increasing employment across urban and rural Ireland. In order to achieve this, the Government must harness growth in the retail sector and throughout the economy by adopting the proposals outlined above. 9

10 Retail Ireland 84/86 Lower Baggot Street Dublin retail@ibec.ie 10