Is State’s flagship enterprise scheme floundering?

Cantillon: Donohoe needs to fix EIIS, and give some clarity on the issue of eligibility

Minister for Finance Paschal Donohoe:   could throw some extra resources to the Revenue, which is struggling to administer the Employment Incentive and Investment Scheme. Photograph: Clodagh Kilcoyne/Reuters

Minister for Finance Paschal Donohoe: could throw some extra resources to the Revenue, which is struggling to administer the Employment Incentive and Investment Scheme. Photograph: Clodagh Kilcoyne/Reuters

 

In Michael Noonan’s 2016 budget speech, delivered in October 2015, the former finance minister trumpeted his upgrading of the Employment Incentive and Investment Scheme (EIIS), which gives tax breaks to investors to pump cash into growing businesses.

Two years on, will the upcoming budget speech of Noonan’s successor, Paschal Donohoe, fix the problems in the State’s flagship enterprise scheme, which sources in the the investment community say is “not fit for purpose”?

Some businesses whose investors previously qualified for EIIS tax breaks have been denied certification this year, after Revenue tightened its internal rules on the paperwork it accepts for eligibility.

Investors say this has staunched the flow of incentivised risk capital into the SME sector down to a trickle. They also complain of massive delays.

EIIS is restrained by certain European Union state aid protocols, known as GBER. This effectively excludes companies over seven years old unless they meet tight exemption criteria.

Soothe problems

Minister Donohue could help soothe some of the existing administration problems in the short term if he gives some clarity about the eligibility for EIIS in his October budget speech.

He could also throw some extra resources towards the hard-pressed Revenue Commissioners, which is struggling to administer the scheme, causing the long delays that are putting investment at risk.

But if EIIS is to remain at the heart of the Government’s enterprise incentivisation regime, a longer-term,more substantial change might be required.

Does the State believe that companies aged over seven years are incapable of innovation and growth that deserves taxpayer incentivisation?

If the answer is no, then EIIS should be redrawn outside of GBER strictures. This would require the Government drafting new legislation, and sending it to Brussels for approval under state aid guidelines.

This process would probably take up to 18 months, assuming the Government gets approval from European bureaucrats (never a sure thing).

But if the centrepiece scheme is not to slither in a swamp of irrelevancy, Donohue should consider setting the train in motion as soon as possible.

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