NEW GOVERNMENT MUST GIVE GREATER FOCUS TO SME SECTOR

Some thoughts on SME sector as we enter 2025

At the beginning of every year. one is naturally inclined to look at prospects for the coming year with some sense of trepidation, and phrases such as ‘unprecedented uncertainty’ and ‘potential economic volatility’ are thrown about with abandon. As we enter 2025, there is certainly a justified sense that the coming year is shrouded in intense uncertainty and unpredictability. The war in Ukraine is ongoing and it does appear that Putin has a greater bounce in his step than at any time since the illegal invasion of Ukraine occurred; the situation in Syria could go in any direction; and the plight of the Palestinians just gets worse by the day. However, from an Irish perspective the possible actions of the Trump administration should give us most cause for concern.

The oft-repeated reality is that Ireland has an inordinate dependence on US multi-nationals in terms of direct and indirect employment, and more particularly and worryingly, income tax and corporation tax receipts. It remains to be seen what the Trump administration might do to further the ‘America first’ agenda, but the risks to Ireland are compelling. In some ways there is not a lot we can do to counter those risks other than deep diplomatic engagement to mend fences; and to ensure that in vital strategic areas such as energy, water, and housing we get our act together as quickly as possible. Unfortunately, the solutions to those strategic deficiencies are long-term in nature, but the first thing that is necessary is to get the short-term commitment in place. That short-term commitment and long-term vision and commitment are lacking in Irish policy making circles.

A new government will be put in place over the coming weeks and these long-terms issues must be a key priority. However, the incoming administration must also work more fervently to create a counterbalance to the intense multi-nation dependence. In other words, more attention and assistance must be devoted to the indigenous economy, which is dominated by the broadly defined SME sector.

CSO data show that in 2022, the SME sector (<250 people employed) accounted for 99.8 per cent of total businesses in Ireland and for 68 per cent of persons engaged in the business economy. The SME sector accounted for 43.1 per cent of business turnover and almost 41 per cent of gross value added in the economy. These small businesses dominate retail, hospitality, and construction, and represent the lifeblood of regional and local economies around the country.

The environment for many SMEs has been intensely challenging over the past couple of years. There has been a massive escalation in the costs of doing business, including energy costs, insurance costs, labour costs, and compliance costs. Many SMES, particularly in retail and hospitality, are labour intensive, so labour costs and other labour market regulations in areas such as paid sick days and parental leave impose an inordinate financial and logistical burden.

On January 1^st, the minimum wage was increased by 5.5 per cent to €13.50 per hour and Ireland remains committed to moving towards a living wage over the next couple of years. In assessing the impact of the minimum wage, it is obviously beneficial to pay people as highly as possible, but the business implications for many businesses are very challenging. In analysis of the impact of the minimum wage and the move towards the living wage, the impact of pay relativities does not seem to be considered in the calculations. The reality is that if the minimum wage is increased, it tends to percolate up through the wage structure in the company.

If the incoming government is serious about helping the SME sector, it must recognise that many government measures simply add to the costs of doing business and result in many businesses cutting hours and hiring fewer part-time workers. The SME sector deserves a senior ministry with teeth. I await the programme for government with keen interest in respect of its commitment to the vital SME sector.

Meanwhile, the year ahead promises to be a mixed one for the SME sector. The cost environment is likely to remain challenging, particularly labour costs; the recruitment and retention of workers will remain a significant challenge; overseas tourism numbers are likely to come under pressure for the second year in a row, not least due to how expensive the tourism product has become; and inevitable we will see many SMEs go out of business, particularly in hospitality and retail. On the upside, interest rates will come down.

In overall terms, the incoming administration needs to show more real commitment rather than lip service to the lifeblood of the economy.