Responses from the small business community to the budget delivered in Ireland on Tuesday have ranged from underwhelmed to outraged, with the Irish Small and Medium Enterprises Association (ISME) in particular condemning the austerity budget as "smoke and mirrors".

Commenting on the measures, which included a 2% VAT hike, in addition to an extension of the corporate tax exemption for start-ups to entities beginning to trade in 2012-14, and a restatement of the commitment to the 12.5% corporate income tax rate, ISME suggested that the budget was "over simplistic in its drive to generate income and cut expenditure, with little or no consideration for future economic growth and development", and argued that the VAT increase in particular would "put further pressure on consumers".

It went on to observe that increases in motor and carbon taxes will increase business costs, and raising the rate for Capital Gains and Acquisition tax (from 25% to 30%) could lead to a reduction in the amounts recovered.

"Overall, while the Association acknowledges that tough measures are required to address our significant exchequer deficit, this Budget will only make a bad problem even worse for the SME sector, by increasing business costs, with the threat of more to come. The failure to implement initiatives to assist, promote and incentivise enterprise, the area of the economy which is relied on to produce wealth and generate employment, will be viewed as a major own-goal," it concluded.

The Small Firms Association, while welcoming a number of the measures announced on Tuesday, including the extension of the corporate tax break for start-ups, the foreign earnings deductions to support companies entering emerging markets and the improvements to the R&D tax credit scheme, also warned of the adverse impact of the VAT increase (from 21% to 23%), arguing that:

“Whilst in the tax hierarchy, it has less of an impact on economic growth than corporation tax and income tax; the choice should have been the introduction of domestic rates and a broadly based private property tax, which is the area where Ireland is most out of line with tax policy across the developed nations. As the VAT tax take is dependent on consumption, there is no guarantee that it will raise the tax revenues the Government expects. The Government needs to do more to improve consumer sentiment and encourage spending to order to restore domestic demand.”

The Department of Jobs, Enterprise and Innovation unsurprisingly sought to put a positive spin on Finance Minister Michael Noonan's budget, emphasising the beneficial impact that the previously announced Temporary Partial Loan Guarantee scheme and Micro-Finance Loan scheme, the start-up exemption, and changes to the research and development tax credit are likely to have on the Republic's businesses, both small and large.

With regard to the the research and development tax credit, designed to encourage companies, both domestic and multinational, to spend more on research and development by allowing them to write off a portion of such expenditure against corporation tax, the DJEI welcomed the fact that a larger portion of the total spend on R&D can now be written off, by including without restriction the first EUR100,000 spent for the purposes of availing of the credit, and that companies will have the option to use a portion of the R&D tax credit to assist in the employment of key employees in order to drive the development of R&D.

It went on to observe that:

"Businesses who outsource research and development activities to universities or other organisations will be subject to fewer limits in availing of the tax credit. Since SMEs generally have less in-house R&D capabilities than larger companies, this will make it easier for them to avail of the tax credit and will encourage the creation of new high-value R&D jobs."

Minister for Jobs, Enterprise and Innovation, Richard Bruton suggested that:

“This Budget represents a positive step towards restoring our international reputation and restoring confidence in Ireland as a location for investment, trade, and job-creation. It also includes a series of tax changes to incentivise businesses, from SMEs to large multinationals, to establish, grow and invest in job-creating activities. In the context of the severe constraints on the public finances and the need to make adjustments, this represents a significant statement of Government priorities."

And continued:

“As a result of the measures announced today: It will be easier for many micro-enterprises and SMEs to access vital credit; It will be easier and cheaper for small businesses to engage in crucial research and development activities; It will be cheaper and easier for businesses to export to key growth markets in Brazil, Russia, India, China and South Africa; It will be easier and cheaper to run a start-up business."

Under the terms of the Temporary Partial Loan Guarantee Scheme, further details of which were given in the budget, the government will partially guarantee loans by traditional lenders to viable businesses that are at the margins of commercial lending decisions and have difficulties accessing credit, either because they have insufficient collateral, or because the lender does not have the skills or experience to carry out a proper assessment of the proposition, due to a lack of knowledge of new sectors, markets or technologies.

The scheme is intended to be temporary, with initial provision made for EUR450mn in new lending to be guaranteed over three years.

The Micro Finance Loan Fund, meanwhile, will provide loans on a commercial basis for start-up businesses and micro-enterprises; again, the government expects that businesses that will primarily benefit will be those at the margins of commercial lending decisions.

It was announced that the scheme will use an initial exchequer investment of EUR10million to leverage further funds from private sources. Over a ten year period, the scheme has the potential to provide up to EUR100mn in additional lending to over 5000 micro-enterprises over that period, the government revealed.