Budget 2021 Commentary by Mark O’Rourke

Budget 2021 measures will be a lifeline for many Irish SMEs - but blanket measures can’t keep plugging the gaps indefinitely

SME owners will be somewhat comforted at the prospect of further supports to help them keep the wheels of their businesses turning and staff on the books following today's Budget announcement.

However it’s clear that the Government is coming under increasing pressure to negotiate the catch-22 of stimulating the economy while also protecting our society. Weekly rebates of up to €5,000 for businesses severely affected by the pandemic and the continued waiving of commercial rates are a good start in terms of helping Irish SMEs weather the current Covid-19 storm. But this type of Government support can’t continue forever – especially with the prospect of a no-deal Brexit still on the horizon.

The latest measures announced in Budget 2021 show similarities with Government actions around Europe, the Americas, Africa and Asia. Data from the World Bank has shown that debt finance, employment support and tax measures are the three leading measures used worldwide to deal with the Covid-19 pandemic and its effects on business. The Government has today followed this lead by announcing it will look to draw on EU funding of just under €2.5bn to continue financing the Temporary Wage Subsidy Scheme.

These measures will likely prove a lifeline for many SMEs up and down the country, building on the July Stimulus and keeping many of the 250,000 businesses with fewer than ten staff in operation.

However these blanket measures can’t keep plugging the gaps indefinitely. Recent studies from the Central Bank and ESRI show that, by and large, Ireland’s multinationals have held up well throughout the current crisis. Instead it’s been sectors such as hospitality and construction that have borne the brunt of the pandemic – especially small or medium-sized businesses whose margins are tighter and which can easily slide into experiencing a cashflow crunch. As a result the reduction in VAT for the hospitality sector will be particularly welcomed. But the Government will need to remain alert and respond nimbly to any further signs of turmoil in these sectors. As the Minister for Finance indicated, we will be living with this virus for some time, and this means Government must dial up and down stimulus in particular sectors as required.

This will be all the more necessary if a no-deal Brexit does come to pass. Almost two thirds (63%) of Irish SMEs say failure to reach an agreement will have a negative impact on their business, and many will be unable to cope with any further disruption to supply chains, the additional time taken to receive goods or raw materials, and knock-on effects this will have on costs and cashflow. Last year the Government encouraged what it termed ‘vulnerable but viable’ businesses to secure emergency loan approval ahead of a possible no-deal UK withdrawal, and earmarked €110m for those businesses. It’s encouraging to see that the Government has not lost sight of the additional support SMEs will need as a result of Brexit, having factored this into its €3.4bn Recovery Fund.

But despite these measures, many SMEs will tonight be considering their options. Our own research has shown that 66% of Irish businesses are now more likely to consider using external finance than they were in March – mirroring similar trends in the Netherlands and Belgium.

Many SMEs have already shown incredible adaptability to these most challenging circumstances – from restaurants and retailers shifting to direct delivery to customers, or manufacturers producing PPE and hand gel. It’s important that these efforts are rewarded, but Government supports cannot be viewed in isolation – the private and public sectors must both do everything in their power to collaborate and help our SMEs survive and thrive throughout the Winter and into 2021.

13 October 2020

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