Tuesday 6th May 2014 The newly elected President of the Institute of Certified Public Accountants in Ireland (CPA Ireland), Mr Cormac Fitzgerald has called for amendments to the Employment & Investment Incentive Scheme (EIIS) to provide a boost to Ireland’s SME sector and help it unlock its full job and wealth creation potential.
Mr. Fitzgerald is managing partner, Fitzgerald & Partners, Kinsale. He has a special interest in the SME sector and employs over 110 people in the Cork area in his various businesses. Mr. Fitzgerald was KPMG Cork Business Person of the Year in 2008.
Delivering his inaugural address to CPA members, Mr Fitzgerald said that a more imaginative approach to SME funding could see significant investment in hard pressed SMEs with tens of thousands of jobs preserved and created in the process.
“We live in the innovation age”, he said. “We must continually strive to innovate the full panoply of enterprise supports and incentives if we are to maintain and accelerate the recovery. The changes to the EII scheme made in recent years have been very welcome as is the latest government call for submissions on equity financing for business. But the government should look to the sources of finance which already exist and look for a means of directing them towards the SME sector”.
According to Mr Fitzgerald lessons should be learned from the SSIA scheme in this regard. “The enormous success of the SSIA scheme shows how Irish people can be incentivised to save or invest their money in certain ways. At the moment there is more than €90 billion in personal savings lying in deposit accounts earning negligible returns for savers. If just a small proportion of this total was invested into Irish SMEs the results could be transformative in terms of jobs and wealth creation as well as on the overall economy.”
Mr Fitzgerald argued that the EIIS in its current form is too complex and costly for ordinary savers but that with just a few changes it could become a key source of funding for SMEs. “We need to take a leaf out of the crowd-funding book as well as learn from the SSIA experience. If savers were allowed to put some of their money into an account which would be lent to or invested in SMEs under the management of their bank and get full tax relief for it in the way that EIIS investors do, this could divert billions of euro in funding into the sector at effectively no direct cost to the State.”
Everyone would win under such a scheme. “Savers would potentially get a far better return on their cash in the form of tax relief of up to 41% in certain circumstances; the banks would be put in a position where they would be better able to meet the funding needs of their business customers; SMEs would benefit through a new line of funding; and the country would benefit through job creation and an overall boost to the economy.”
Mr Fitzgerald did acknowledge that such investments would not be without risk. “Savers would have to understand that there would always be the risk associated with this– but they would at least have the cushion of the tax relief to mitigate this”, he said. “That’s where the banks would come in. It would not be like the loan approval process which can take months and involve huge volumes of paperwork. It should be a quick due diligence procedure to establish that the proposal is reasonably sound and that the facts contained in the documentation are correct.
“Of course, the precise details of how the scheme would operate need to be worked out but with goodwill and commitment from all parties that should not present a major obstacle.”
Turning to the issue of the legacy debt problem facing many SMEs, Mr Fitzgerald said that while the recent upturn in the property market may help some of those affected, more direct action was needed in other cases. “Many businesses are struggling under the weight of large debts built up during the boom years”, he pointed out.
“The costs of servicing these debts are sucking the lifeblood out of viable SMEs and holding back growth and job creation. Again, an innovative and imaginative solution is required to the problem. The banks need to look at mechanisms to freeze and warehouse a portion of these debts for a period during which no further interest would accrue. This effective ‘loan holiday’ could be used by the business to return to growth and hopefully emerge in a much better condition to pay the debt. The government should look at some means of incentivising the banks through tax credits or some other mechanism in order to assist in finding a solution to this very real problem.”
The importance of finding solutions like this cannot be overstated, according to Mr Fitzgerald. “If we cannot find solutions there will be no incentive for these business owners to move forward; to develop the business and, ultimately, to create jobs. There are some really good, profitable businesses who, if their primary debt was right sized the business would have the opportunity to prosper again. This has been a test of character for many, many business owners. Let us encourage these people to move forward and reward them for keeping their doors open.”
Calling for solutions where everybody shares in our collective recovery Mr Fitzgerald said they will help to create a positive business environment which will pay for itself by translating emerging business confidence into tangible growth. “If legacy debt issues are addressed and an amended EIIS scheme adopted this would bring much needed vibrancy back into the Irish SME scene. CPA Ireland looks forward to making a formal submission to the Department of Finance on the vital area of SME financing and we would welcome the opportunity to engage with the banks, Government agencies and business owners to road test our proposals and help develop practical and meaningful solutions to the funding issues facing SMEs.”