An analysis of the potential economic impact of new EII scheme was published by the Department of Finance recently. The new EII scheme, which will replace the existing Business Expansion Scheme (BES), was first announced in the Budget and is contained in Finance Act 2011. The analysis sets out estimates of the potential amounts that will be raised and associated Exchequer costs of the new scheme using the existing BES scheme as a benchmark. The potential employment benefits of the new scheme are also analysed.
According to the analysis, the objectives of the new EII scheme are:
- To support the creation and retention of employment in small and medium sized enterprises across the economy.
- To help address the market failure in relation to equity capital investment, this can act as a barrier to sales growth and market development for SMEs.
- To help the survival of companies (and their retention in Ireland) beyond the initial development stage.
Based on figures for BES relief in 2009, a 20% increase in take-up of the new EII scheme is estimated to result in €74.8m being raised. The associated cost to the Exchequer would be €22.4m. It is worth noting that the actual cost of the incentive to the Exchequer would be lower than the 2009 BES relief, due to the change in the upfront tax relief level from 41% to 30%. The additional 11% relief available where jobs have been created will increase the costs of the scheme somewhat but these increased costs will not be encountered until 2014 at the earliest. Estimates of the amounts and associated Exchequer costs if there was a 10% increase in take-up or 100% increase in take up are also provided.
The analysis indicates that approximately 2,400 new jobs will be created over a two-year period, and the possible Income Tax yield to the Exchequer from these additional jobs would be approximately €8.4 million by the end of 2012.
The new EII scheme is subject to European Commission approval, and until then the existing BES relief will continue.
The economic impact analysis of the new EII scheme is available here.