The Government will consider a proposal to reduce the rate of tax on employee share option schemes to 20 per cent as a way to deal with the problems of wage inflation and staff retention.
The proposal was made yesterday by the Irish Software Association at its national conference in Dublin. The Tanaiste, Ms Harney, speaking at the conference, said the Government would seriously consider it. She is expected to meet the association in the next fortnight to examine the idea further.
At present, employees are taxed at the top rate of income tax applicable to their income - 24 or 46 per cent - when they exercise share options granted at a price below the market rate. Under the proposal from the Irish Software Association, all employees would be taxed at 20 per cent, regardless of what sector they worked in or when they acquired the shares.
The association claims this could reward employees without increasing their salaries directly and pushing up wage inflation. It also claims that giving workers shares in the companies they work for will encourage staff loyalty, which is being undermined currently by skill shortages in the economy.
A statement from the Department of Finance said the Minister, Mr McCreevy, was "prepared to consider further measures in this area" and that all proposals would be reviewed in the run-up to the next Budget and Finance Bill.
However, the statement added that "all employees should be able to participate on similar terms" in such schemes and said "efficiency improvements" should also result from the granting of such options.
The chairman of the Irish Software Association, Mr Gerry Jones, said the measure was needed if the industry was to achieve its goal of 40,000 jobs and exports worth £10 billion (€12.7 billion) by 2002.
"We have now reached full employment in the software industry and the key to controlling wages, while attracting the best people, lies in a reduction in taxation on share option schemes to 20 per cent," he said.
"Otherwise, the industry will wither from wage inflation, jobs will move overseas and the economy will lose out to competitors in the EU, India and elsewhere," he added.
Mr Jones said "making share options attractive" had been a key contributor to the success of Silicon Valley in California. "Ireland has the potential to be Europe's Silicon Valley but the dream can only become a reality if the appropriate measures are taken," he said.
Mr Jones told the conference at UCD that research and development also represented a major challenge for the economy. He said £100 million a year was required, with 40 per cent needed specifically for the software sector.
He pointed out that the State's Research, Technology and Innovation initiative would be completed in July. "This has been oversubscribed fourfold, which reflects the pent-up demand. "We must introduce additional funding before the next initiative is launched," he said.
Ms Harney said the issue of R & D spending would be addressed in the forthcoming National Development Plan.
