Government Structures

1. Government Structures • Ireland is a liberal-democratic society within the European Union, which operates a 'mixed' economy with elements of state involvement alongside free-market business enterprise. • Government is about providing a regulatory framework within which all citizens can benefit from progress. • This government operates at both central and local level. debshoganteaching

2. Central Government • Central Government comprises the Oireachtas (or national parliament), where new laws are framed and decisions made on revenue and spending. • This is mainly done in the Dáil, (or lower house), where 166 deputies sit. • These deputies are voted in at general elections. The annual budget presentation and voting is the most public illustration of this function. • The elected government of the day selects ministers to head-up the various government departments and take responsibility for a particular area, such as Finance or Enterprise & Employment or Environment or Agriculture. debshoganteaching

3. Reasons for state involvement in Business & Economic Affairs (case 387) • To encourage Enterprise– to grow, create jobs and generate tax revenue • To Regulate the conduct of business & economic affairs – fairness, exploitation • To provide & protect essential Services that also need a large investment: health, education, electricity, Bus Éireann, Irish rail etc. even though some routes make a loss. • To provide essential Infrastructure – the basic network of support needed for economic activity to develop, road, rail, sea, air links, waste disposal, water systems & educational facilities. debshoganteaching

4. To develop our natural resources:Coillte – long term timber & forestry products • BordnaMóna provides fuel for electricity stations and for domestic consumption. • Fairer distribution of wealth – collect taxes & spend on social welfare & other services • Balanced Regional Development – all parts of the country benefit from jobs & economic activity. debshoganteaching

5. To Develop and Implement Industrial policy:Forfás co-ordinates the activities of IDA Ireland and Enterprise Ireland. • To Promote and Market certain industries:BordFáilte promotes Ireland as a tourist destination, which benefits the Irish economy especially when people from abroad come to visit (invisible export). • To provide industrial Training:This involves matching the skills of the work force to the demands of employers. Fás is the state training agency and CERT provides training especially for the tourist industry. debshoganteaching

6. Government affects business: Economic Planning • Taxation Policies • Expenditure Policies • Public Sector • State Services for business • Regulations debshoganteaching

7. Impact of Taxation on Business • Taxes – compulsory payments of money to the state • Income Tax, VAT, Excise Duties, Corporation TAX • Pay for services – schools, hospitals, Gardaí, roads • Repay borrowing • Affect Business: • 1. Sales – High PAYE Income Tax reduces disposable income of consumer, reduces demand. • Increase in VAT (23%) increases the price of goods debshoganteaching

8. 2. Costs • High PAYE tax – workers look for higher wages • High Employers’ PRSI – higher labour cost, reduce recruitment • High Corporation Tax – reduces profit for investment • Administration Costs – collect VAT, PAYE debshoganteaching

9. 3. Business Confidence – • High taxes reduces confidence – foreign businesses will not be encouraged to set up in Ireland • High Income Tax – workers not encouraged to work • High Employers’ PRSI – less recruitment • High Corporation Tax – reduces profit for investment, less enterprise & risk taking debshoganteaching

10. 2009(C) Discuss how the Irish Government could use the tax system to create a positive climatefor business in Ireland. Use examples to illustrate your answer. • The Irish economy is currently in a recession. The collapse of the construction sector and theconsequent demise of the Irish banking system has had major ramifications for the Irisheconomy domestically and internationally. • Use of tax system to create a positive climate for business • PAYE – Reduction in PAYE rates should increase spending power and stimulate demandfor goods and services. • PAYE - Increase in PAYE rates could provide opportunities to reduce rates/watercharges and fund business supports e.g. grants or reduction in PRSI (cost of employment) debshoganteaching

11. VAT – Reduction in VAT, reduces cost of goods and services, stimulatesdemand – makes Irish economy more competitive • Tax Incentive Schemes – Promote the establishment and expansion of business • Corporation Tax – Reduction in Corporation Tax may improve company profits, andthe ability to fund future growth of the business • Stamp Duty – Reduction may re-stimulate demand in the construction sector • Tax Credits – Increase in tax credits may stimulate demand for goods and services debshoganteaching

12. Budget Terms • Current expenditure – spending on day to day running cost, public sector wages, social welfare payments, uniforms, stationery, lighting & heating • Capital expenditure - spending on infrastructure • National Development Plan – (5yrs) develop the country’s infrastructure • Fiscal Policy – the approach to raising & spending money • The Budget – financial plan for the year, how to raise & spend money • Balanced Budget/Neutral Budget – income=expenditure debshoganteaching

13. Surplus – income > expenditure • Deficit – income<expenditure (short term – use reserves or borrow, large deficits – increase taxes reduce expenditure) • Bond Market – government & large companies borrow money by issuing BONDS • BONDS – IOU issued by governments – promise to repay loan at a certain date with a fixed interest rate. • Buyers - Banks, insurance co., pension & investment funds debshoganteaching

14. Expenditure on Business • Main Areas of Spending – national debt, social welfare, health, education, agriculture, environment, security, EU contributions. • Sales – more money spent the more moving around in the Economy. Consumers will buy more. • Costs – spending on infrastructure & services – reduce costs and improve competitiveness. Wasteful spending leads to higher taxes - business • Business Confidence – well managed, no increase in taxes, confidence for future improved. • Borrowing large amounts, to pay back= increasing taxes, reducing spending – this undermines business confidence…. debshoganteaching

15. Public Sector • Made up of organisations & activities owned or financed by the state. • Employer – hospitals, schools, semi-state (FAS, Enterprise Ireland) • Civil Service – government departments, local authorities, Gardai, defence forces. • Protect the public interest & provide services. debshoganteaching

16. Private Sector – economic activities not owned or financed by the state • Public-private partnership (PPPs) – agreements where private business may build and operate a service, roads or toll bridges, • on behalf of the government for a profit. debshoganteaching

17. Government(Public Sector) effect on Business • Job Creation – creating jobs in the public sector reduces unemployment • Taxation – higher wage bill, increased taxation on Private Sector mainly & reduced spending on goods for public sector • Wages – employees of the state 18% of the population – increased sales for business. debshoganteaching

18. Services affect Business • Sales - advice & grants- for market research & marketing internationally (boost sales) • Cost – advice & grants – start up costs, expand, attract transnationals to locate in Ireland (helps costs & profits) • Business confidence – advice & grants – reduce risk, improves confidence. • County & City Enterprise boards, Enterprise Ireland, IDA • (see pg391/392) Research………VIDEO debshoganteaching

19. Laws & Regulations affect Business • Employment Equality Act 1998 (discrimination) & Unfair Dismissals Act 2007 – (just reason) • Consumer Protection Act 2007 (unfair & misleading practices –adverts • Data Protection Acts 1998 & 2003 – rules for data held on individuals • The Companies Act 1990 – correctly set up & monitored • Regulations – • Commission for energy regulation (competition in energy supply) • Commission for communications regulation (ComReg) competition • Central bank & Financial services authority debshoganteaching

20. News – Budget 2013 • News - business http://www.rte.ie/player/ie/search/?q=news • http://www.deloitte.com/view/en_IE/ie/insights/irish-budget-2013/index.htm debshoganteaching

21. 2010 (C) Discuss the different ways in which the Irish Government affects the labour force in Ireland. • Public Sector - The Irish government is the single largest employer. Pay cuts of 5%-15% introduced in budget 2010 have led to industrial unrest/disputes. Current embargo on recruitment. • Taxation : low rates of income tax will result in consumers spending more money on goods and services. increased production and job creation. • Utility charges: Electricity costs are the second highest in Europe/local authority charges increased/new carbon tax adding to energy costs. These all affect business costs and therefore may result in reduction of the labour force. debshoganteaching

22. 2010 • Spending- Infrastructure: investment on infrastructure leads to an increase in the number of workers employed in the construction industry. It encourages other businesses to operate here in Ireland and thereby increases employment. • Increased spending on education/ training : Government investments in education of the Irish labourforce through training schemes, short term courses, and upskillingprogrammes with FÁS, will result in a more skilled, educated and employable work force. • Information Technology: Investment in I.T. especially in second and third level institutions has resulted in the Irish labour force having greater skills which may be required in the high tech firms (‘smart economy’). • 2013 - * Allowances for after-school childcare for people who want to go back to work, school or college will get increased funding. • * More places will be provided in Community Employment, Jobbridge schemes. debshoganteaching

23. 2010 • Services - Grants and incentives to foreign companies to locate in Ireland will result in foreign industry providing employment to the Irish labour force. • Employment Subsidy Scheme designed to encourage companies to retain staff during the downturn in the economy. Firms that received the subsidy were required to commit to retaining as many as 10 staff for every subsidised job. • Legislation/Regulation: Industrial Relations legislation provides acceptable procedures for resolving industrial disputes. Minimum wage/labour costs: Minimum wage rates have gone up 55% since introduced (€8.65). This may discourage firms from employing additional workers. Other legislation which impacts on the labour force includes Unfair Dismissals Act, Employment Equality Act etc. debshoganteaching

24. Entrepreneurship: The Irish Government encourages the development of enterprise though supports provided by CEBs, Business Innovation Centresetc • National agreements: brings stability to business planning as business costs such as wages can be accurately forecasted/predicted. debshoganteaching

25. Research Project • 2012 Q2 (B) Outline how the Irish government’s policy of increased taxation and decreased public expenditure is impacting on business. (20mks) Budget 2011 - research • While the Government has maintained income tax rates at the standard rate of 20% and the higher rate of 41% and protected its corporation tax rate at 12.5%, none the less it has pursued a policy of increased taxation. debshoganteaching

26. Increased Taxation • 2012 - Value Added Tax (VAT): The 23% VAT rate applies to a wide range of goods and services. • Among the items that are subject to the 2% increase are: motor vehicles, petrol, electrical supplies, furniture, adult footwear and clothing, alcoholic and soft drinks, and tobacco. • In terms of services, accountancy services, legal services, tax advisory services are all subject to the higher rate of tax. • 2013 - low-paid workers, earning less than €18,000 a year, will also pay higher taxes of around €5 a week due to reductions in their PRSI tax-free allowance. debshoganteaching

27. Higher earners are to be targeted with: • * A 3pc hike in the USC on pensions over €60,000. • * Capping the tax relief on pension contributions at €60,000. • * PRSI on public hospital consultants' private patient income. • * PRSI on landlords and share earnings. • * Increases in capital taxes. • * The higher property tax on houses worth over €1m. • All told, the package of measures specifically hitting the wealthy is expected to add up to €500m. • The increase in the Universal Social Charge on high pensions will impact upon retired bankers, former government ministers and retired senior civil servants. debshoganteaching

28. Household charge: The new €100 charge became payable from Saturday 31st March, 2012 for some 1.6 million homeowners. Property Tax 0.18 % (.25) of value from July 2013 €270 a yr • Motor tax: Motor tax has risen by an average of about 7.5 per cent from the beginning of 2012. • Excise Duties: Tobacco products tax. Excise duty on a packet of 20 cigarettes was increased by 25 cent (including VAT).10c 2013 • Banking: Rate of Dirt has increased from 27 per cent to 30 per cent. 33 % 2013 debshoganteaching

29. Tax increases have a negative impact on business. • VAT increases lead to more expensive goods and services for the consumer which in turn causes demand to fall, thereby affecting business. • For example the volume of sales in department stores fell by 18.4%, electrical goods by 12.0% and bars by 3.5% as a consequence of the negative impact of the VAT rise to 23%. • Taxes such as the property tax lead to a fall in the disposable income of consumers. As consumers spending power is reduced the demand for the goods and services that businesses sell will fall. debshoganteaching

30. Increases in excises duties on tobacco products have led to an increase in tobacco smuggling. • Excise duties on cigarettes continue to rise, increasing the incentive for customers to choose cut price illegal products sold on the black market. In 2010, Ireland’s retailers lost €896 million in turnover to the Black market. debshoganteaching

31. Decreased Public Expenditure • The following are illustrations of cuts in government expenditure; • Social Welfare Older people will have to shop around as their telephone allowance gets cut. • * Child benefit will be cut by €10. • Healthcare Savings of €543m e.g. The Government is to reduce staff numbers and contain pay costs, to save €145m. • Education Savings of €132m e.g. The Government raised the pupil-teacher ratio, saving €19.4m debshoganteaching

32. Public Sector Employment e.g. The Government Public service pay bill will fall by €400m in 2012. By the end of 2012, the numbers employed in the public service will be below 300,000. • Public sector to be cut by another 6,000 in 2013. • Capital Expenditure. The capital budget for 2012 has been cut by €755m to €3.9bn • Among the major projects which have been cancelled are: • Metro North and Metro West, The underground Dart, Thornton Hall Prison, The new DIT campus at Grangegorman in Dublin, The Western Rail Corridor debshoganteaching

33. The Public Expenditure cuts have a negative impact on business. • Cuts in Current expenditure have meant lower wages for workers, lower social welfare payments for the unemployed, higher unemployment (Standardised Unemployment Rate 14.8% affecting spending in the economy. • As consumer spending power is reduced the demand for the goods and services that businesses sell will fall. • Capital - Under-investment in infrastructure can undermine economic growth and competitiveness. It is argued that Metro North would have created 4,000 direct construction jobs and thousands more indirect jobs in retail and in the construction supply sector. • Lack of investment in infrastructure will impact on FDI (Foreign direct investment) and on start-ups. debshoganteaching

34. The Government embargo on recruitment in the Public Service has reduced opportunities for employment. • Decreased public expenditure has resulted in less goods/services being purchased by Government agencies e.g. health services. • Cut-backs in Budget allocations to various state bodies/services have reduced the availability of various services/grants to businesses. debshoganteaching

35. BUSINESS QUIZ – ROUND 1 • AGM • IBEC • SIPTU • JIT • USC • PR • USP • NCA • ISME debshoganteaching

36. ROUND 2 • NAME THE : • 2 BUSINESS RELATIONSHIPS • 3 TYPES OF MANAGERS • 2 MOTIVATION THEORIES • 2 TYPES OF MARKET RESEARCH • 4 P’S • FACTORS OF PRODUCTION • ENVIRONMENTAL AUDIT -4 AREAS • 2 SECTORS IN THE ECONOMY debshoganteaching

37. ROUND 3 • CURRENT RATIO FORMULA • NORM FOR CURRENT RATIO • NORM FOR ACID TEST RATIO • DEBENTURE • 2 INCOME TAX RATES (PAYE) • VAT RATE • UNEMPLOYMENT RATE (NEAREST ANS) debshoganteaching

38. ROUND 4 • AGENCY TO ATTRACT FDI • HELP DOMESTIC ENTERPRISES • REGULATE CONSUMER PROTECTION ACT • REGULATES ENVIRONMENTAL LAWS • REGULATES THE EMPLOYMENT EQUALITY ACT • THE MAIN UNION THAT NEGOCIATES WITH THE GOVERNMENT debshoganteaching

39. WORK BOOK • ABQ debshoganteaching

40. Privatisation • This is the selling of commercial semi-state bodies or state sponsored bodies (SSBs) to buyers in the private sector. • The Irish Sugar Company was sold to investors on the stock exchange and became Greencore. • Telecom was privatised and became eircom but many investors lost money on their investment when eircom was taken over. • Nationalisation – Irish Banks, essential to the economy, fund and protect or regulate (loans) debshoganteaching

41. 2008 Privatisation is the selling off of state owned enterprises to the private sector. The arguments in favour of privatisation of commercial state enterprises (evaluate using examples): debshoganteaching

42. Arguments in favour of privatisation • Increased efficiency: little competition (Irish rail) and this can lead to a high cost structure, inefficient management, taxpayer. Part of AerLingus's problem was its inability to compete due to practices developed before the industry was deregulated. • The removal of political interference: The minister chooses directors for SSBs and this has often resulted in selections for political rather than business reasons. Dividends/re-invest-expand • Expansion: Privatised companies are able to take on loans and issue shares without seeking government permission. expansion • Government Revenue: In the year of the sale the government gains capital revenue in the budget. It will no longer have to support future losses. • Management: It is easier to attract top management to private sector companies as higher salaries and share options are offered. debshoganteaching

43. Arguments against privatisation • Increased prices: maximise the return on investment =price increases. Privatised water and electric companies in the UK have been accused of manipulating their monopoly position by increasing prices unreasonably. • Foreign ownership: Once privatised foreign companies may buy the former assets of the state, Eircell was sold to Vodafone. • Costs: Some SSBs can only be privatised at great cost(large debts). Irish Steel's debts paid before it could be sold. • Government revenue: Selling off profitable SSBs would result in the loss of dividend payments to the government. • Loss in essential services: Privatised -unprofitable services. Problems are emerging in the UK with off-peak rail services.no loyalty, protect jobs debshoganteaching