Department of Social Protection unwittingly supports the black economy

The Black Economy within the Irish motor industry is being unwittingly pump primed, by the Department of Social Protection.

AutoTrade.ie has learned that the Department of Social Protection is purchasing workshop equipment (workshops lifts, compressors, tyre changers, wheel balancers etc.), for social welfare recipients (all non-nationals) to help set them up in business in direct competition to exisiting businesses in the sector.

A number of reputable workshop equipment suppliers that do not wish to be named have confirmed to us that they have been paid by the Department of Social Protection for equipment that was purchased on behalf social welfare recipients, all of whom were non nationals.

It has also been alleged though not confirmed, that some of the equipment which has been purchased with government funds, has been shipped overseas.

It appears that there is no follow-up to ensure the recipients of this new equipment actually part-take in legitimate business. Instead, it seems in practically all cases they join the growing black economy. Many work in back alley sheds and deal in cash only.

No VAT, no income tax, no rates, no public liability insurance, no enforcement of health and safety rules or the plethora of other rules and regulations that legitimate business must abide by.

It’s an absolutely crazy situation that the already enormous black economy that is costing the exchequer and legitimate businesses hundreds of millions of euro is being fuelled to a significant degree by a Government Department.

No wonder a few weeks ago that Minister Joan Burton had to formally request the Oireachtas to approve €685 million in extra funding for her Department for the 2012 calendar year.

We asked the Department of Social Protection to please confirm, if this is happening? If so under which scheme are the payments being made and what is the rationale
in purchasing Capital Equipment to help set up new businesses in direct competition to existing businesses? This is the five paragraph written reply we got back. You can decide if it answers our questions.

“The Department operates two schemes to assist people on social welfare who wish to become self-employed; namely the Short Term Enterprise Allowance (STEA) and the Back to Work Enterprise Allowance (BTWEA).

The Short Term Enterprise Allowance provides immediate access to support where people who have lost their jobs and qualify for Jobseeker’s Benefit wish to set up a business. Payment under the scheme is at the same rate and for the same duration as their entitlement to Jobseeker’s Benefit.

The Back to Work Enterprise Allowance is designed to provide a monetary incentive for people who are dependent on social welfare payments to develop a business while allowing them to retain a reducing proportion of their qualifying social welfare payment, plus secondary benefits, over two years.

To qualify for these schemes a person must set up a business that has been approved by a Local Integrated Development Company or by a facilitator of the Department of Social Protection. The business venture must be deemed to be viable and sustainable and must not involve displacement of existing business in the same industry. Each application is decided on its merits within the criteria set down for the scheme. In assessing viability, cognisance is taken of the demand for and supply of particular services at local level.

The Department provides further support to people who qualify for these schemes through the Technical Assistance and Training Scheme (TATS) under which a participant may qualify for a grant up to a maximum of €1,000 towards certain business start-up expenses. These include training (in areas such as book-keeping/accounts, preparation of business plans, marketing, literacy and computer training) and the purchase of small items of equipment. The participant must make a minimum contribution of 25% towards the total cost of equipment or other start up business costs supported by TATs.”

We stand by what we have learned and nothing in the Department statement alters this. We stress that our evidence is that only non-nationals have been availing of this to date. We also found no evidence in practice of any viability or sustainability studies judging by any business criteria or otherwise of the merits of viability at any level before money is handed over. Equipment suppliers that we spoke to also saw no requirement in practice in most cases of any contribution (never mind 25%). In three instances outlined to us, the recipients of the equipment with Department money did not want to pay VAT and were very disappointed to have to do so. And contrary to what the Department said, this practice does have negative effects and displaces legitimate businesses in this sector, as well as fuelling the black economy albeit unwittingly.

While at the same time giving money away in the manner we described earlier, Minister Burton and the Government continues to defend the controversial Budget cut to the respite care grant for so many vulnerable genuine people. It also continues to hamper any possible growth in small and medium businesses by further austerity measures. Year on year, it brings more uncertainty with higher taxation on earnings and spending. Meanwhile, it does nothing about all the red tape and the virtually non existent bank lending to businesses and consumers.

Basically, it continues to attack practically all the fundamentals that could provide any growth in small and medium business, the main sector that could turn the economy around. We have three former teachers and a trade union official running this country and unfortunately for us, it shows.

This may be the Labour and Fine Gael way, but is it really Frankfurt’s way? Shame on all who preside over such contradictory, unjust and unjustifiable actions.