Submission to the Minister for Finance Budget 2016 August 2015
Michael Noonan TD Minister for Finance Department of Finance Government Buildings Merrion Street Upper Dublin 2 D02 R583 4 August 2015 Dear Minister, As you and your officials prepare the groundwork for Budget 2016, I write to outline the key priorities for the retail sector at this crucial time for our industry. We look forward to your close consideration of these points in the coming weeks and hope that you will include some or all in your Budget 2016 measures. The strategic importance of the retail sector to the Irish economy The retail sector is Ireland s largest employer. With a footprint in every town in the land, it is also this country s most geographically diverse industry. These two facts highlight the potential the retail sector has in helping the Irish economy on to a path of sustainable growth. It is important to remember that; Retail employs 270,000 people this is the total number of those employed in ICT, agriculture, forestry and fishing and the financial and insurance sectors combined. The retail and wholesale sector spends approximately 8.2billion in wages and salaries, an average of 30,000 per person. The wholesale and retail sector generates over 5.1 billion in taxes per annum. Broken down by category, 3.6 bn of this came from VAT, while a further 1 bn came from PAYE. This shows the wholesale and retail sector as a major conduit to tax takes in the country. 90% of retail businesses in Ireland are Irish owned. 77% of retail businesses are family-owned. 38% of retailers have a turnover of less than 200,000. 77% of retailers have a turnover of less than 1 million.
The current state of the retail sector and performance of retail sales in 2015 CSO data for 2015 suggests that a modest recovery in consumer spending is underway. However, the data also shows that this recovery is fragile and patchy. When car sales are excluded year-on-year growth has returned only modest gains, with a large disparity between volume growth and the growth in the value of sales. While data in recent months shows the pace of recovery is strengthening, sales values remain 17% below pre-recession peak levels. Furthermore the recovery remains uneven with certain retail categories, in most cases those worst affected during the downturn, recovering at a faster rate than others. Total sales for all businesses combined (excluding motor trades & bars) annual change Month Value Volume January 2.6 5.7 February 0.9 5.3 March 0.8 4.9 April 4.1 8.3 May 3.0 5.8 June 2.8 5.8 This divergence between sales volumes and sales values can be attributed to the practice of retailers discounting items in order to drive footfall. The requirement for retailers to engage in this practice is proof that consumers remain reluctant to spend. The potential for the Irish retail sector A healthy retail sector is vital to the Irish economy and to the commercial life of our towns and cities. If the economy improves, and we put in place the right policies to support the development of the sector, we project that retail has the potential to create up to 40,000 new jobs. In 2012, employment in the wholesale and retail sectors averaged, as today, just over 270,000 people. Historically, employment growth has been about one percentage point lower than the volume of sales growth. This reflects the high employment intensity of the sector coupled with productivity improvements that have been in line with the performance of the other sectors of the domestic economy. The chart below shows that wholesale and retail employment has the capacity to reach the pre-crisis peak by the end of this decade and employ in excess of 310,000 people, accounting for about 15% of total employment in Ireland.
thousands Employment potential of wholesale and retail, based on 3-4% GDP growth from 2015 330 320 310 300 290 280 270 260 250 240 4% growth Pre-crisis peak 3% growth 2012 2013 2014 2015 2016 2017 2018 2019 2020 Employment potential Source: CSO and Ibec calculations The retail sector is a major employer right across the country and is labour intensive. Any significant increase in retail activity will immediately lead to job creation. A resurgent retail sector will also have a direct impact on the social and commercial lives of our towns and cities, which have been badly hit by shop closures and resulting job losses. Some of these regional towns have yet to experience any benefit from the improved performance of the Irish economy in recent times. An improvement in the performance of the retail sector would be felt in these towns and villages immediately. Budget 2016 Proposals With the scale and breadth of our industry at its disposal, the Irish economy can deliver job growth throughout the country. To do this, retail must be put on a path to sustainable growth. Budget 2016 offers the Government a valuable opportunity to assist the domestic economy through targeted, strategic measures that will give consumers reassurance and give retailers hope. We would like you to consider the below proposals for inclusion in Budget 2016 in order to safeguard jobs in the retail sector and help the sector realise its potential in years to come; 1. Continue to ease the tax burden on Irish consumers Ireland s current system of income taxation is simply not fit for purpose. Irish consumers continue to struggle with the highest marginal tax rate at average earnings level in the world. Cutting income tax is the most effective way of boosting consumer confidence and enhancing spending power. Our exceptionally high marginal tax rate currently in excess of 50% also discourages the uptake of overtime work and limits the opportunity for productivity gains in a highly labour intensive environment such as retail.
To rebalance the burden, Retail Ireland calls on the Government to reduce the marginal rate of tax by 1% and increase the entry point to the marginal rate by 1,500 for a single person, with a corresponding increase for married couples. In addition, personal tax credits should be increased by 100 for all earners. Such a course of action will boost spending by putting more money into the pockets of Irish consumers and ultimately benefit Exchequer revenues though increased tax generation. Cost to the Exchequer - 496 million 2. Reduce the burden of other consumer taxes Retail Ireland calls for continued Government support for the retention of the 9% VAT rate for the hospitality sector. Retail Ireland also urges Government not to increase other taxes. Any cut in income tax should NOT be funded through increases in other taxes such as excise duties, VAT, etc. By increasing these other taxes consumers will not feel they have extra disposable income and the retail sector will not experience any appreciable increase in sales. The ubiquitous presence of black market products should also be considered in the context of current excise rates on alcohol, tobacco and fuel products. Losses to the Exchequer in uncollected taxes of at least 500m are matched by 547m in losses to retailers and intellectual property holders such as record companies. Losses from fuel laundering and smuggling of up to 466m, losses from the tobacco trade of up to 250m, with smuggling and counterfeiting of tobacco products a major source of revenue for criminal gangs and paramilitary organisations. Furthermore, losses from illegal downloads of music, computer games and computer software of 269m, are very significant given the financial difficulties and job losses at legitimate companies in this sector. Any move to increase duties on these products will only serve to increase this black market activity and impose further losses on legitimate operators and ultimately, the State. Cost to the Exchequer Revenue neutral 3. Incentivise Job Creation It is imperative that measures are taken in Budget 2016 to reduce the costs for retailers to hire new employees, which will simultaneously encourage expansion and investment. Retail Ireland calls on Government to demonstrate its commitment to employment growth in retail by reinstating the reduced employer PRSI rate of 4.25% as previously introduced under Budget 2011, before being reversed in Budget 2014.
Such a move would provide the retail sector with a considerable stimulus at a time when there is increasing wage pressure in the sector but no appreciable increase in the value of retail sales or turnover. Furthermore, it would provide retailers with a significant stimulus and help retailers to create jobs and realise the potential that exists within the sector. Given the highly labour intensive nature of retail, recent recommendations by the Low Pay Commission to increase the National Minimum Wage by 0.50 per hour will have a damaging and disproportionate impact on our sector. Restoring the rate of employer PRSI contributions to 4.25% will help balance the impact of such an increase whilst safeguarding existing employment and promoting additional job creation at a critical time in the sector s recovery. Jobs to be created Up to 40,000 new jobs possible in the sector by 2020 Cost to the Exchequer - 176 million 4. Incentivise e-commerce Investment Retail Ireland urges Government to introduce a scheme with the purpose of offsetting the cost of establishing an online presence. Online remains the most challenging channel for Irish retailers and the cost of establishing a presence in this market can be prohibitive even for wellestablished medium sized retailers. Retail Ireland would propose the introduction of a scheme based on the current R&D tax credit model system which would allow retailers to offset the cost of web developments against their VAT costs. Cost to the Exchequer - 5-10 million 5. Impose no new costs on retailers Budget 2016 should address the cost base concerns of the retail sector in areas such as energy, Government services, local authority charges and other input costs. This matter was discussed in detail by the Retail Consultation Forum at a recent meeting of the group. Goods inflation in Ireland is running at a record low level (-3.1% - May 2015). This means that it is proving incredibly difficult to recover value in the marketplace where competition between retailers is intense. The control of input costs is therefore imperative to the future health of the retail sector. Anecdotal evidence of requests for increases in Local Authority rates in the order of 50% is just not acceptable at this time. Cost to the Exchequer Revenue neutral
6. Establishment of a Town Centre Fund Retail Ireland would propose that Government support regional development through the establishment of a competitive tendering process for towns and cities around the country to access funding to support the regeneration/development of their town/city. This funding could in turn support the resource requirement which exists in such towns/cities in the form of a Town Centre Manager who would have responsibility for encouraging the development of commercial centres in towns/cities. Retail Ireland would propose that such an initiative could be run in conjunction with the roll out of a Town Centre Strategic Development Plan as devised by a sub-group of the Retail Consultation Forum. Such a plan could in turn be piloted in selected location(s) across Ireland and funding could be drawn from the Action Plan for Jobs initiative. Cost to the Exchequer - 10 million (initial pilot scheme) 7. Education & Skills supports The retail sector takes the issue of the continuous up skilling of its staff very seriously. The industry wishes 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 450,000 training days, while over 12,000 retail employees have received the benefit of these customised programmes. The feedback from course participants and members companies has been universally positive. Given the success of this model, Retail Ireland calls on Government to increase the funding allocated to 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. Cost to the Exchequer - 5 million
Conclusion Retail Ireland fully supports the Government s stated aim of growing the economy and helping to create the right conditions for employment generation and economic certainty for Ireland and its people into the future. To make that aim a reality, we must encourage consumers to start spending again. The retail sector has endured a torrid time over the last eight years. We are finally beginning the see the emergence of growth in the sector in recent months. This growth however is fragile and will need to be nurtured and encouraged through measured intervention and stimulation. We encourage the Government to harness this growth by adopting the measures outlined above. Recovery in the retail sector will bring an immediate benefit to the wider economy and will deliver new jobs. We believe the measures outlined in this submission support our shared aims and we look forward to some or all being implemented. We very much look forward to meeting with you next month to discuss our positions in greater detail. Kind regards, CONOR WHELAN CHAIRPERSON Retail Ireland, Ibec 01 605 1558 retail@ibec.ie