These are the Budget steps that would help Irish companies compete in the war for talent

THE RETURN OF growth to the Irish economy in recent years and a renewed confidence in the Irish business environment has resulted in an increased level of activity in the employment market.

This has in turn led to a surge in the number of job vacancies, increases in staff turnover, longer recruitment periods, and a greater pressure for employers to be competitive by remunerating employees effectively – each representing a significant additional cost to companies.

As a result, employees have more opportunities available to them and a greater ability to negotiate when it comes to remuneration and choosing employers. The war for talent is therefore now, more than ever, at the forefront of employers’ minds.

While Ireland offers a favourable tax regime for those who have not been living in Ireland for five years and are returning to work in Ireland, our domestic income tax rates are still far too high when compared to our European competitors, who are also seeking to attract the best talent.

Furthermore, in Ireland, remuneration such as basic salary and cash allowances cannot be delivered tax efficiently because of the current high rates of employment taxes and the additional charge to employers’ PRSI (in general at a rate of 10.75%) that these types of cash payments attract.

There is a real need to introduce incentives in Budget 2017 which will allow Ireland to compete as a top destination for talent in Europe. Something which is now more important than ever as we face into Britain exiting the EU in the first half of 2017.

Some of the measures which could be introduced to support talent retention and attraction in Ireland include:

1. Reduction in personal income tax rates

Ireland’s domestic income tax rates are still at the higher scale in Europe. The marginal tax rate in Ireland comes into effect at a very low level of income and is disproportionate when compared to other countries given the cost of living.

For example, a single person in Ireland earning €75,000 currently pays €3,464 more tax annually than the same person would in the UK – which equates to €289 extra tax paid every month.

Therefore, any move towards a reduction in income tax or USC rates would be a welcome development, however a longer-term strategy for a further reduction must be a priority for Budget 2017 and beyond.

2. Equalising the PAYE credit for the self-employed

There is a lack of equality between the tax treatment of employees and those who are self-employed, with employees currently receiving a PAYE credit worth €1,650 each year.

While last year’s budget went some way to address this by introducing a credit of €550, which it is hoped will increase to €1,100 after next week’s announcement, we would welcome a move to fully equalise this credit in Budget 2017 so that there is fair treatment between all classes of taxpayers, regardless of how they earn their living.

3. Employee rewards and share based remuneration for SMEs

Share schemes can be tailored to meet the needs of the employer and are a useful means of rewarding and retaining key talent when they are linked with either employee performance, the performance of the business, or both.

At present, Ireland does not have a favourable tax regime for share awards, and private companies are at a disadvantage to public companies as there is no ready market for shares in a private company.

A more favourable regime around the taxation of share awards should be encouraged, and any changes to simplify these schemes for SMEs would also be a welcome development in Budget 2017 as they would help smaller privately owned businesses in Ireland compete with larger public companies.

Conclusion

Britain’s looming exit from the EU presents a real opportunity for Ireland to attract Europe’s mobile workforce and to attract some of the 600,000 Irish-born immigrants currently in the UK back home.

However, there are a number of measures that will need to be introduced by government in order to ensure that Ireland can compete on the European stage and not only attract foreign talent but retain its homegrown talent in an increasingly competitive employment market.

By putting these measures in place, Ireland will be better positioned to compete as the location of choice for the very best talent.

Sarah Connellan is a tax partner working in people advisory services at EY Ireland.

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