High tax rates hurting Irish entrepreneurs, says EY report

Startups are struggling to compete with multinationals when it comes to staff...

High personal tax rates are holding back business growth and stunting job creation, according to leading Irish entrepreneurs.

A major new EY survey of 160 former 'Entrepreneur of the Year' finalists found that nearly three-quarters believe that the overall cost of doing business, coupled with the high rate of capital gains tax, is putting a dampener on entrepreneurial activity.

Some 72% of entrepreneurs cited punitive personal tax rates as a significant obstacle to growing their business.

The Irish tax system sees people earning more than €32,800 annually enter the 40% band – this compares with a UK system that only sees people hit the 40% rate after they start earning £43,001 (€50,624) a year. 

A further 76% of those surveyed believe that the Government isn’t doing enough to support entrepreneurship.

EY tax partner Kevin McLoughlin told Breakfast Business:

"I think it's a really clear message coming out of the survey... It just shows the existing challenge Ireland faces in competing against the UK and other countries in Europe when it comes to your personal tax burden.

"I think [entrepreneurs would] be very conscious that, from a business perspective, a high personal income tax rate does tend to create upward pressure on wages, increasing the cost of employment. And therefore impacting on their ability to compete, particularly with FDI [foreign direct investment], which is probably seen as having deeper pockets than the indigenous sector.

"But it probably also extends to being a little bit more creative around compensation for equities. So having proper incentives for shared ownership schemes, which can help to reduce that cost of employment."

Some 57% said that recruiting experienced staff had been a challenge, with 43% saying they had struggled to compete for talent against large multinationals.

McLoughlin continued:

"The war for talent really is the big thing at the moment that's probably hindering further progress here."

The report also states that taking advantage of being one of only two English-speaking EU countries once Brexit is complete – along with Malta – will be key to the future prosperity of Ireland’s entrepreneurs.

Reasons to be cheerful

Turning to the positive, close to 60% of entrepreneurs said that agencies such as Enterprise Ireland, IDA and Invest Northern Ireland have helped them to grow and get access to European markets.

Over half of entrepreneurs highlighted Ireland's education system and the favourable corporate tax rate as enabling better business.

More than three-quarters also revealed they expanded their workforce over the past 12 months. The same proportion said that they planned to increase their headcount in the next year.

McLoughlin noted:

"They've created 13,000 new jobs across the island in the last 12 months, so [they are] a really powerful engine for economic activity."