I would like to take this opportunity to thank the Small Firms Association, and in particular your Director Patricia Callan, for inviting me here today to address your Annual Lunch.

I know that back in September, you held your Annual Conference. The theme of the Conference was, I understand, entitled “Up for the Challenge” and explored whether delegates as small business owner-managers are up for the challenges that lie ahead in our economy. In particular, the Conference focused on how we must adapt to changing market realities and face up to new opportunities and threats.

We expect the rate of inflation to average 2.6 per cent next year which will be significantly lower than that for 2007, which we now forecast will average 4.9 per cent. The principal contributor to our accelerating rate of inflation over the past two years has been mortgage interest rate increases stemming from ECB interest rate increases. Our 2008 forecasts, as in the past, continue to be made on the assumption of no further interest rate changes. We are also expecting the level of service sector inflation, which has been the main driver of domestic inflation over the last number of years, to moderate, as the rate of growth in domestic demand eases.

Unemployment is expected to remain low while another surplus for the public finances is in prospect. Indeed, this year will be the tenth year in the last eleven in which a surplus has been recorded, and this has facilitated a sharp reduction in the ratio of public indebtedness to national income.

Next year, the prospect of lower levels of new housing output will weigh on the overall rate of growth which is now likely to be lower than in the recent past although still much higher that in other EU countries. New housing output is currently in the process of reverting to more sustainable levels, and once this adjustment is completed, a gradual pickup in the growth rate is expected in the later years of the forecast horizon.

Our success has created pressure on our competitiveness. Coupled with dramatic changes in international markets, it is becoming an increasingly challenging environment for all businesses, particularly small businesses. The growing complexity and ever-onward globalisation of business and manufacturing are constantly presenting us with new competitive challenges to which we must respond.

However there are many positive developments which should not be overlooked. Manufacturing output in the first six months of this year increased by over 7% - the strongest start to a year in five years. Exports have increased by 6%. New business start ups – one of the most significant benchmarks of confidence in our economy – are very healthy.

The Irish economy is in a period of transition. There will be some shortfall in overall tax receipts reflecting developments in some taxes such as stamp duty. With the moderation in the residential construction sector it is important that other sectors, such as small and medium firms, become an increasing source of economic growth.

I and my senior officials had a very useful pre-Budget meeting with your Chair, Pat Crotty, Director, Patricia Callan and the delegation from your Association. Your analysis of the current business environment is important. We share a focus to maintain growth and employment and so generate the resources necessary to meet key social priorities and services. As always, I will have to find a balance between different priorities and policy objectives.

In response to your useful and positive analysis of the economic and business environment I would like to say that our fiscal approach will continue to keep taxes down on work which is such a key factor for competitiveness and maintaining economic growth. We will maintain an employment friendly tax structure. I welcome your Association’s support for our position on the European Commission’s proposals for a common consolidated corporate tax base. I am committed to maintaining our 12½% corporation tax rate. We believe that resources would be better targeted at real barriers and at clearly identifiable problems that will yield true benefits for business. It is important that all interested parties make clear their opposition to this proposal and work to convince their European counterparts that a common consolidated corporate tax base would be detrimental to business, member States and the EU’s interest.

The Report of the Small Business Forum published in May 2006, clearly demonstrated the importance of the small business sector to our current economic performance. Perhaps more importantly, it underlined the central role that the sector must play in our economic development over the next decade.

The Report also set out a comprehensive agenda to enable the small business sector to achieve its full potential and enhance the significant contribution the sector already makes to the economic well being of the country. The Forum’s recommendations were focussed on three fundamental objectives: creating a better environment for small enterprises; stimulating growth of small enterprises; and encouraging more and better start-ups.

Considerable progress has already been made on the implementation of the recommendations of the Small Business Forum. This reflects the clear commitment of the Government to the continued provision of a supportive environment within which the small business sector can flourish; where unnecessary burdens are reduced and where appropriate supports are provided. I believe that the package of new and improved initiatives, delivered in response to the Forum’s Report over the last year, will create the conditions under which the full potential of the sector, which employs over 800,000 people in Ireland, can be fully realised.

The availability of funds for small businesses, particularly in the difficult start up and expansion phases, was a key area for the Small Business Forum. To improve the availability of funds, the Forum recommended radical improvements to the BES and Seed Capital Schemes. You will, I am sure, be well aware of the generous package of measures to assist the small business sector that I announced last December in Budget 2007. The commencement of the improvements to the Business Expansion and Seed Capital Schemes announced at that time, were however, subject to State-Aid approval from the European Commission.

As you know, the Government recently secured approval from the European Commission under State-Aid Rules for the revised and expanded BES/SCS Schemes, and in September, I signed the Regulations necessary to give effect to these changes as approved by the EU Commission. While the approval obtained does entail some modifications to the proposals I announced in the Budget, I am satisfied that the revised schemes will still represent an exciting and important source of funding for those involved in the establishment and expansion of qualifying businesses.

The Forum also recommended the introduction of an Innovation Voucher programme, to incentivise small Irish firms to access knowledge in the third level sector and stimulate innovation. The Innovation Voucher Fund which awards vouchers of up to €5,000 to small companies to enable them explore a business opportunity or problem with a public research body. By doing so, knowledge transfer will be facilitated from the research departments of Irish Institutes of Technology and Universities to individual firms and companies.

A substantial budget is available to Enterprise Ireland for investment in Research Development and Innovation, which provides scope for further development of such initiatives next year.

Another of the key areas of focus for the Small Business Forum was the need to build and develop Management Capability within small firms. Owners and managers of small businesses have to be able to manage a diverse range of functions: sales, marketing, accounts, tax, human resources, etc. The Forum considered it imperative that owner/managers build their managerial capacity through training and networking programmes.

This view is obviously shared by your Association which has demonstrated a strong commitment to management development over the years through the training and other programmes offered to your members.

Earlier this year, the Association launched its National Centre of Excellence initiative which benefited from financial support of €1.2 million from the FAS Strategic Alliance Programme. I understand a promotional “Road Show” has visited 15 locations throughout Ireland involving more than 800 participants. I commend your Association for this initiative and would recommend to owner/managers that they actively seek out the developmental opportunities that are provided through initiatives such as this one.

There is ample evidence of a strong correlation between training to build management capability and business profitability. While it is understandable that owner/managers of small businesses can be reluctant to take the time out of their extremely busy and demanding schedules to access training programmes to build managerial skills, it really should be regarded as a sound and necessary investment.

A flexible labour market is an important base for the small and medium enterprise sector. In recent years the Government has introduced a suite of support measures for childcare in tandem with significant increases in child benefit. The measures included a new five-year National Childcare Programme which aims to fund and additional 50,000 childcare places by 2010. A more targeted and equitable funding of community childcare services through the community childcare subvention scheme will receive over €150 million over the next three years.

Based on the work of the Small Business Forum and other reviews, we have embarked on a programme of steps designed to create an environment for the small business sector that will enable it to achieve its full potential. This is essential to our continued success and prosperity going forward. However, the performance of the small business sector ultimately depends on the determination, passion and hard work of the thousands of entrepreneurs who run the many diverse businesses that make up the sector. I would like to take this opportunity to salute these efforts and to wish you every success in your future endeavours. I am also delighted to reaffirm the commitment of the Government to playing its role in facilitating the growth and development of the sector.

In conclusion, I want to again thank the SFA for inviting me to address your Annual Lunch. Events such as this help us all to take time-out to reflect on the key priorities for the future and to consider how we might best tackle the challenges ahead.

Thank you very much.