Irish small businesses and domestic industry players have long complained of poor relations with multinational companies in the government’s eyes. This is true in many ways, but of course it is regularly touted by lobbyists trying to win new aid packages. And the nation’s consumer-facing businesses have received extraordinary and entirely justified support throughout the pandemic.
But many domestic industries are currently under pressure, still enduring the economic fallout from the coronavirus and experiencing cost-of-living crises and labor shortages. And the costs imposed by various government policies are now a key part of the story heading into 2024. This includes a combination of minimum wage increases and their knock-on effects, increases in PRSI, automatic pension schemes, and longer periods of illness. -Salary entitlements threaten to further significantly increase costs from this year to 2025.
Business lobby group Ibec warns that this combination of higher costs will lead to higher prices and closures, and is calling for more generous terms in government support schemes to help businesses facing rising costs.
All this comes as businesses that took advantage of tax debt warehousing arrangements during the coronavirus period are due to agree repayment plans with the Department of Revenue by May.
And now there’s a new factor that could become a big problem in some industries. Increases in wage levels for those with employment permits will have a particularly strong impact on the meat, horticulture and medical sectors.
All of this comes as businesses that took advantage of tax debt warehousing arrangements during the coronavirus pandemic are due to agree repayment plans with the Department of Revenue by May, but the government has now announced that the It shows flexibility in terms of the conditions under which it is carried out.
Various government measures aim at legitimate goals. Raising the minimum wage is intended to give people a decent living. Social insurance contributions for Irish employers are low by international standards and it is reasonable to expect companies to pay a little more. Auto-enrolment addresses the important issue of pension shortfalls. It makes sense to aim to offer higher salaries to people who come to work in low-wage jobs. It is necessary for companies to recover unpaid taxes due to the impact of the new coronavirus infection.
But all of this combined will create sudden cost and cash flow pressures for domestic businesses, on top of the challenges many businesses already face. There have already been a number of closures in the restaurant sector and small private nursing homes. Unless the government plans to phase in additional costs more gradually, we will see more costs in these and other areas in the coming months.
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There are tactical issues here as well as strategic ones. Ireland is already a high-cost economy, with many sectors paying commensurate wages, including multinational corporations and the companies that provide their services. This is a factor that raises the price level of the entire economy, including housing, and pushes up wages. Add to this the fact that costs have soared as inflation has soared over the past few years and businesses in the domestic economy, many of them in small and medium-sized businesses and low-margin sectors, are feeling the heat. They are low-wage players in an increasingly costly economy.
How does the government see the future of these sectors? Its goal is to eliminate ‘low-wage’ jobs and move to a national living wage by 2026 through successive increases in the minimum wage. In today’s prices, that’s nearly 15 euros an hour, or about 30,000 euros a year.
An interesting test case is posed by the rise in wage levels based on the employment permit system, which places a minimum income limit on people coming to work here from countries outside the European Economic Area. This is a system that relies heavily on the meat, horticulture and medical sectors, which have until now been allowed to pay below the general floor of €30,000.
In a document published just before Christmas, Neil Richmond, the Secretary of State for Employment, appeared to take these sectors by surprise. He said the minimum wage level for medical assistants would rise from €27,000 to €30,000 by this week, with a “indicative” rate of €34,000 by January 2025 and €39,000 by 2026. It was announced that This means new or renewal applicants will be considered for this job. Under the permit system, this amount must be paid, which will inevitably lead to increased pressure from staff doing the same work.
The meat and horticulture sectors also face immediate increases under the proposal.
Consultations between government officials and the sector’s representative body, Nursing Homes Ireland, have resulted in the increase being put on hold. Nursing homes say setting such targets requires more state funding from the Fair Deal scheme and the National Care Purchase Fund. Meanwhile, in an industry where a third of companies made a loss in 2022, planned increases over the next few years are raising eyebrows, according to a PwC report.
The meat and horticulture sectors also face immediate increases under the proposal. The current standard for general operatives in these fields is due to rise this month from just under 23,000 euros to 30,000 euros, rising to 32,000 euros in January 2025, 34,000 euros in July 2025, and 39,000 euros by 2026. It is planned that Again, these rates are similar. It will apply to new and renewal permit holders, but a lower limit will be set soon. Food industry executives say such price increases are unaffordable and will ultimately lead to closures and impact farmers.
Setting a goal of 30,000 euros is reasonable. But the question is when and how will we get there? There is also the issue of affordability with higher fees added in later years. Is the country ready to accept a bill to increase nursing home wages? And how are the meat and horticulture sectors, which determine prices in competitive markets, expected to cope with an almost 70% rise in worker salaries by 2026?
There is no sign that the various government policies are being coordinated, and no one seems to be paying attention to the sharp rise in costs that will be imposed on businesses when all efforts are taken together. The government has already made concessions to debt warehousing and delayed changes to nursing home wages, so unless we act quickly, further setbacks are inevitable in the coming months.