Chapter 21 Business and the Government

Reasons for Government Involvement in Business

1.
2. 3. 4.

5.

Develop Natural Resources Essential Services Infrastructure Business Development, Enterprise & Employment Environment

The Governments Role in creating a Suitable Climate for Business

1) Revenue and Expenditure Policies Current Spending/Sales and profits

The Government is the largest buyer of goods and services in the country. eg.: Garda uniforms, school desks, civil servants salaries, pensions, etc This increases sales and profits for businesses in the economy. The money for current spending comes from taxes and borrowed money. The government spends money on capital projects such as new hospitals, schools, roads, etc. This creates direct and indirect employment. These services are important for the development of society. An improved infrastructure makes it easier, quicker and cheaper for businesspeople to transport goods around the country The money for capital spending is mostly borrowed.

Capital Spending

Grants
The

government provides a wide range of grants and incentives to encourage business to set up (which creates employment). These are non repayable sums of money that a business gets if it meets certain conditions. Grants make it cheaper to set up a business.

IDA Ireland attracts foreign firms to Ireland Enterprise Ireland provides assistance to indigenous industries
E.g.:

for training, to buy machinery, etc

2)

Taxation Policies

Corporation tax

As of 2010, the rate of corporation tax is 12.5%. This means that businesses can keep much of their profits. This encourages many businesses (especially foreign businesses) to set up in Ireland. A large proportion of their profits can be used for reinvestment and expansion. When businesses set up in Ireland, jobs are created (tax for the government, more goods and services sold)

PAYE

By keeping income tax rates low (20% and 41% as of 2010), the government increases workers disposable incomes (they take home more money). This benefits the business community as more money will be spent on goods and services. This increases the sales and profits of businesses. Workers dont demand higher wages, so there are few industrial relations problems.

VAT

Low rates of VAT benefit businesses as customers have greater spending power.

3)

Government Economic Planning

Government economic planning reduces uncertainty for business. Every 3 years social partners negotiate National Agreements. The social partners are the government, trade unions, and Business interest groups. (Eg Croke park deal)

1.

Issues negotiated are wages, taxes and social welfare payments

These agreement help business in the following ways: Reasonable wages increases keep a business costs low. They can continue to employ workers and charge a low price for their good. This helps to control inflation, workers continue to be employed and businesses can continue sell their goods and services at home and abroad which increases sales and profits. Industrial relations improve as wage increases are agreed in advance by all parties.

2.

3.

4)
1.

Government Departments and Agencies

IDA Ireland

This encourages foreign firms to set up in Ireland. It offers grants and financial incentives to firms that set up here. This helps to create jobs.

2.

Enterprise Ireland.

Enterprise Ireland provides a number of supports for industries that are set up and run by Irish people. It gives grant to pay for machines, training, research, etc. It gives advice, help with business plans, etc.
3. 4. 5. 6.

Labour Court and Labour Relations Commission FAS

It trains workers in the skills they need for the area they wish to work in.
Failte Ireland provides advice to businesses involved in the tourism industry.

Failte Ireland Udaras na Gaeltachta

Provides grants and advice to entrepreneurs setting up a business in Gaeltacht (Irish speaking) areas of Ireland. This helps create jobs

Governments Role in Regulating Business

1)

Consumers The Consumer Information Act

Business must give consumers truthful information about their goods and prices. The Director of Consumer affairs investigates complaints about false information, promotes high standards in advertising and prosecutes offenders.

The Sale of Goods and Services Act.

Businesses must give refunds/repairs/replacements if the goods they sell arent of merchantable quality (fit for their purpose or the same as sample shown).

In addition to these, any firms involved in mergers or takeovers must get approval from the competition authority before agreements are reached. Competition is better for consumer as it keeps prices down, as there are more ideas and as goods are of better quality.

2) Employees Employees rights are protected through the labour laws:

1.
2. 3.

Industrial Relations Act 1990 (businesses cant stop an official strike), Unfair Dismissals Act 1977 and 1993 (unfair dismissal not allowed) Employment Equality Act 1998 (businesses cant discriminate against workers).

In addition to these laws, the Health and Safety Authority carries out inspections of workplaces to ensure that there are safe and healthy working conditions for employees.

3.Environment There are strict regulations in place for businesses in relation to dumping, waste disposal, recycling, etc. These are enforced by the Environmental Protection Agency (EPA). The EPA is the government watchdog that ensures firms are complying with environmental laws. It can impose large fines on offending firms.

4)

General Public

Data Protection Act 1988 set up the Data Protection Agency. It outlines the rights of all people on whom electronic data is held (data is got fairly, data is kept safe, data is used only for the purpose given, etc). The Data Protection Commissioner enforces laws and investigates complaints.

5) Business The Companies Act 1963 1990. This regulates the formation and operation of private and public companies

How the Government Affects the Labour Force

1. Government as an Employer

The government is the largest single employer by far. Some 350,000 people work in government jobs in some capacity. Government employment falls into the following categories.

Public sector workforce, such as civil servants, teachers, gardai and nurses. This includes all those working in local authorities, county councils and corporations. Employment in state-sponsored bodies such as the ESB, An Post and Dublin Bus. There are also thousands of jobs created indirectly in areas such as catering, cleaning and providing other services to the government. Contracting companies to build the LUAS, the Port Tunnel, the M50, etc helps increase the number of jobs in the economy.

2. Taxation Corporation Tax

Low

rates encourage further employment by companies rates make it attractive to work and spend which creates spin off jobs

PAYE/PRSI
Low

3. Government Regulation These are the laws the government makes to protect the interests of the worker. The Minimum Wage Act ensures that all workers earn a decent basic wage. Other laws dealing with strikes, unfair dismissal and discrimination also give workers rights and ensure they are not treated badly by their bosses

4. National Agreements These are agreements between the government and the social partners (unions, employer representatives, farming associations, etc.) to keep wages increases small. In return, the government will keep the rate of tax low. Small wage increases keep a businesses costs low and their prices low. They are competitive and need workers to make goods and services. These agreements help control inflation and help create employment

5. Enterprise The government through the IDA, Enterprise Ireland, the County Enterprise Boards, helps attracts investment to Ireland. They give grants, advice and any help they can to individuals and businesses setting up companies in Ireland. This helps create employment in the country.

6. Government Spending Increases government spending means that more salaries might be paid, more school equipment will be purchased, More workers will be needed to build roads, hospitals, etc. Government spending can thus create and maintain employment.

Impact of Economic variables on Business

1. Inflation