Government supports to enhance SME productivity will be needed to support the sector’s future viability in the face of rising labour costs – BPFI SME Monitor
19th April 2024 – The latest SME Monitor published today by Banking & Payments Federation Ireland (BPFI) suggests more strategic Government supports, as well as adjustments in profit expectations by SMEs themselves, will be required to ensure the viability and continued growth of the SME sector. With labour costs expected to increase substantially in the years ahead and the risk of upward pressure of average consumer prices, the report highlights the need for government to move away from subsidising current expenditure to supporting the future development for SMEs through measures that will increase productivity and efficiency.
Speaking on today’s report Brian Hayes, Chief Executive BPFI said: “Our latest SME Monitor shows a healthy outlook for the Irish economy, which is expected to grow at a moderate level in the short term after significant expansion since 2019. Employment has reached a new record high and inflation pressures are beginning to ease. However, increasing labour costs, including increases to the minimum wage, the proposed pension auto-enrolment scheme and higher employer PRSI contributions, will have implications for SMEs. In addition, almost 58,000 businesses availing of the Revenue Commissioners’ debt warehousing scheme will need to commence repaying their debt from 1 May 2024.”
“In order to ensure the viability and continued growth of the SME sector in Ireland, there needs to be a two-fold response from both the industry and government. If businesses do not increase productivity and efficiencies or adjust profit expectations, particularly for businesses in the service sector, these additional costs are likely to create structural long-term imbalances and put upward pressure on average prices for customers at a time where price levels are on average 19% higher than prior to the pandemic. In addition, while one-off government support schemes in the form of grants or loans helped many businesses in the short term, we need to move from subsidising costs to financing development and expansion in the form of longer term solutions for SMEs in the Irish economy.”
The SME Monitor further highlights the ongoing challenge of the costs of labour for SMEs in Ireland, with the latest ECB Survey on Access to Finance for SMEs (SAFE) from February/March 2024 showing that 17.4% of respondents cited costs of production or labour as a key concern. Wage costs in Ireland account for 85% of total labour costs, as opposed to around 75% in the EU, on average with the remainder made up of costs to the employer such as PRSI and private pension contributions (non-wage costs).
The recently announced taxation changes in relation to higher employer PRSI rates which will be effective from October 2024 and the proposed pension auto-enrolment scheme is likely to add to the non-wage cost levels in Ireland and the effect can be disproportional in sectors where non-wage cost shares are low, and these sectors are mainly dominated by SMEs. In addition, rises in wage costs such as minimum wage adjustments to a living wage will push up total labour costs. These mounting labour costs further underline that while one-off government support schemes such as new Increased Cost of Business Scheme introduced in Budget 2024 can help many businesses in the short term, strategic responses by both the State and businesses themselves will be required in the long term to secure a viable future for the SME sector.
ENDS/
Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland. Together with its affiliates, the Federation of International Banks in Ireland and the Fintech & Payments Association of Ireland, BPFI has over 125 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace.
Contact:
Fiona Murphy, Head of Communications, fiona.murphy@bpfi.ie 087 9740046 or Jillian Heffernan, Director of Communications, jillian.heffernan@bpfi.ie 087 9016880.
The SME Market Monitor April 2024 is available for download below in PDF format.
