Contentious tax breaks for small and start-up firms cost State nearly €240m

Controversial tax breaks for small and start-up businesses cost the State almost €240 million between 1997 and 2005, the latest figures show.

The Department of Finance yesterday released a full review of the business expansion (BES) and seed capital (SCS) schemes.

The Government plans to extend both for seven years, but the Irish Congress of Trade Unions (Ictu) opposes this. It has complained to the EU Commission, claiming that they are illegal State aid.

The schemes allow individuals to write off their investment against the top rate of tax - 41 per cent.

The department's figures show that the total cost of allowing the tax write-offs came to €238 million between 1997 and 2005. During that time, investors put a total of €533 million into both schemes.

The BES attracted the bulk of the investment. Individuals placed €497 million into companies that raised cash under this scheme during the period. The cost to the taxpayer was just over €224 million.

The SCS, which is specifically designed to support start-ups, attracted €36 million, at a cost of €14 million.

The figures show that both the amounts invested and the cost dwindled over the nine-year period. In the 1997/98 tax year, the BES attracted €117.7 million, at a cost of €56.5 million. In 2005, that dropped to €38.3 million and €16.1 million respectively.

A department spokesman said there were no figures showing what benefit the companies that raised the cash delivered to the exchequer.

He pointed out that the scheme was primarily designed to support small and medium-sized businesses.

The companies surveyed in the review were unable to say what kind of return they were going to deliver for their investors. Almost 60 per cent said they had delivered zero returns to backers at the time the survey was carried out last year, but a similar number said investors were satisfied.

The Government has to get EU approval before it can extend the schemes, as they are state aid.

It intends doubling the amount that companies can raise to €2 million and increasing the limit on the amount that investors place in the schemes to €100,000 from €31,750.

Commenting on the report, Ictu's economic adviser, Paul Sweeney, said yesterday the organisation was "disappointed" the Government was seeking to extend the schemes for a further seven years.

Ictu believes the schemes provide tax shelters for the wealthy and do not deliver any real benefit to the economy.