Employers have manufactured the SME ‘crisis’ to boost profits

• Published date: 15 April 2024
• Publication title: Irish Times (Dublin, Ireland)

There are further demands for billions of euro in new business subsidies and the freezing of real wages for the lowest paid

Critically, though, there is little evidence of a crisis. Since 2019, just before the start of the Covid lockdowns, profits in our domestic economy have increased substantially, including the wholesale and retail, and SME-dominated hospitality sectors.

This increase was so significant that it led the Central Bank of Ireland to conclude that profits were a major contributor to domestically sourced price increases in 2021 and 2022. Last year, employment increases in the hospitality and the wholesale and retail sectors exceeded the economy- wide average. This doesn’t look like any kind of crisis.

Employer groups point to insolvency statistics showing an increase in business closures in 2023. However, insolvencies are still below their 2019 level and well below the long-term historical average. Insolvencies were kept artificially low during the pandemic with State subsidies extending the survival of many unviable businesses that, in normal times, would have closed down. Now that these subsidies have been removed, we are experiencing a return to normal trends.

Increased profits, increased employment, below-average insolvency rate: the crisis that employer groups describe is a manufactured one, based on anecdote and unsubstantiated assertions.

So what’s really at play? Some businesses became reliant on State subsidies for survival. The Department of Enterprise estimated that in the past few years, €32 billion was provided in Brexit, Covid, and direct and indirect cost of living business supports. While many of these subsidies were absolutely necessary to rescue sectors during the lockdowns, especially the temporary wage schemes, as these supports have been withdrawn, some businesses have been unable to return to commercial viability.

It is not in our economic interest, however, to maintain market-distorting subsidies that prop up nonviable companies. Still, employers’ organisations affiliated to the SaveJobs campaign are demanding substantial tax cuts, with a price tag of nearly €2 billion.

Ironically, this subsidy is not directed at struggling businesses. The demand for a cut in the standard Vat rate, which would cost €1.2 billion, would spread this subsidy among successful businesses not in need of support. In effect, employers’ groups want the State to subsidise their profit margins.

And not only through tax cuts; employers want a real...