Business groups fear McCreevy may deliver another Budget shock

The business community is in a state of pre-Budget limbo as it awaits the next move of Mr McCreevy. Last year, by removing the ceiling on employers' PSRI, the Minister for Finance showed again that he was not afraid of injecting a shock factor into Budget proceedings. That he might repeat the effort is what business fears most about Wednesday.

A year on from the move on PRSI, any consensus to be found among the disparate groups representing business interests largely relates to this issue. From the employers' representative body, IBEC, to the small and medium business organisation, ISME, every business grouping is dissatisfied with the PRSI system as it stands. All are hoping for change in Budget 2002, be it through a reintroduction of the ceiling or a reduction in the overall PRSI rate.

IBEC has taken the view that the Minister is unlikely to be for turning on the publicly controversial ceiling issue, and has submitted that the rates should be reduced, rather than the £36,000 (€45,711) limit being reinstated.

IBEC economist Mr Aebhric McGibney argues that while last year's "unilateral" decision was inexplicable at the time, it is today completely at odds with the needs of an economy in the midst of slowdown. Employers' PRSI should be cut to 9 per cent from 12 per cent to compensate for last year, says Mr McGibney, if only for the purposes of maintaining a consistent pro-enterprise policy.

IBEC has estimated that the abolition of the PRSI ceiling will have increased the costs over the whole economy of this year's payroll by 1.5 per cent, with sectors employing many highly-paid, skilled workers hit even harder.

Its calculations show that PRSI costs for a worker earning £40,000 at the time of last year's budget have increased by £768, or 17 per cent in the course of the year, due to the impact of the Programme for Prosperity and Fairness (PPF) and the abolition of the ceiling.

Further down the scale, IBEC argues that companies employing lower-paid workers have been hit hard too, this time by the failure to raise the threshold for the lower rate of employers' PRSI - of 8.5 per cent - from £14,560 per annum.

A similar PRSI argument is being pushed by ISME, the representative association for small and medium-sized companies. In a pre-Budget submission which informs the Minister that "the much-heralded rainy day is now upon us", ISME claims that small and medium-sized businesses have been bearing a disproportionately high PRSI burden for several years, with the 2001 budget simply adding to this.

The organisation is hoping for a 1 per cent reduction in both the higher and lower rates and has estimated that the proposal would cost around £260 million.

In addition, however, ISME has asked that the £36,000 ceiling be reinstated, thereby sending "a clear signal to those who are trying to attract, provide and retain high value jobs".

Profit sharing is another issue featuring on more than one group's budget wish list. It is widely held that the Revenue-Approved Share Option Schemes introduced in last year's budget, while well-intentioned, have not achieved the penetration that was originally expected, with only two companies adopting such schemes in the course of the year. Under current rules, 70 per cent of options awarded under such schemes must apply to all employees on "similar terms", a qualification which has been deemed overly restrictive by interested companies - many of which participate in uniform global schemes organised at foreign headquarters.

The result has been that companies with existing share option schemes have declined the option to convert them into approved schemes while employees have lost out on the tax front, says Ms Sheena Doggett, of A&L Goodbody's Share Schemes Unit, who has been involved in one of the two approved schemes established this year.

She believes that schemes which leave more scope for performance-related reward would be welcomed by multinationals, among whom the take-up is currently "non-existent". This view is shared by Mr Cormac McConnell, director of the Irish ProShare Association, which is encouraging a broad-based rethink on the concept of employees becoming financially involved with their employer. He cautions against major jumps into gain-sharing in this year's budget, however, saying that the area needs much further research before effective solutions can be reached.

On a more specific basis, several sectors or sub-sectors within the economy are also hoping for results in next week's budget.

ICT Ireland, the association representing the information and communications technology sector, is pushing for measures encouraging support of entrepreneurship in the area, such as tax incentives for those investing in start-ups, or an extension of the soon-to-terminate Business Expansion Scheme. The association is also looking for a cut in the 20 per cent VAT rate applying to e-commerce in order to make firms in the sector more competitive.

The Construction Industry Federation is lobbying for a reduction in the 9 per cent stamp duty applying to investors buying second-hand homes, and for a guaranteed commitment to the full implementation of the National Development Plan, an aspiration shared by IBEC. Meanwhile, the Small Firms Association is seeking more focused management in the public sector, rather than increased spending.