POLITICS:HIGHLIGHTS OF the budget included "Employment and Investment Incentives to boost Job Creation by SMEs". On closer inspection it is nothing more than a rhetorical flourish. The measures in the Budget may well discourage job creation and ignore the Government's own Innovation Task Report published earlier this year.

The Budget increased income tax. Entrepreneurs now have the opportunity to work until after lunch each day before they begin to receive post-tax income. Increasing taxes does little to encourage the “mobile talent regime” envisaged by the Innovation Taskforce. In fact, the Budget achieves the opposite.

Faced with starting an enterprise in high-tax Ireland, versus other jurisdictions with lower taxes and a functioning banking system, the choice is clear. The investments that should be encouraged are internationally traded goods and services. By their nature these are the most mobile investments. A corporation tax break is of little interest to an owner-managed firm. Entrepreneurs with ideas that result in internationally traded goods and services will see little to encourage them to base their activities in Ireland. This Budget does little to encourage start-ups.

The Innovation Taskforce suggested an Entrepreneurial Tax Credit. This involved permitting entrepreneurs who create new jobs to pay little or no income tax for a limited period of time. The Taskforce clearly recognised the incentive effects of granting tax relief to entrepreneurs that deliver the jobs. The scheme would have rewarded entrepreneurs who created jobs in Ireland. This reward would be limited (for example, to three years) and as a result, would have incentivised employment creation and resulted in additional tax revenue after three years. Sadly, I was unable to find any provisions in the Budget that reflected this excellent idea.

Instead, the measures in the Budget consist of the old reliables: as-yet unpublished proposals to further refine the already over-engineered Business Expansion Scheme and an extension of the corporate tax exemption for start-ups. The Business Expansion Scheme does not strike me as particularly attractive from an investor perspective.

The difficulty with the scheme is that it amounts to a tax rebate for investors in the Scheme. As a result, highly complex rules are necessary to prevent abuse. It is conceivable that the main beneficiaries of the Scheme are individuals who specialise in structuring compliant transactions, rather than investors or entrepreneurs. While the Business Expansion Scheme sought to address a perceived equity gap, it is possible that it resulted in over-investment in low-return projects that simply ticked the boxes in a complex piece of legislation. The Innovation Taskforce identified the need to encourage angel investors in the Irish economy. Measures that might encourage this activity would be useful.

While the Budget added little, it did take away. Exemptions for patent income are being removed. While this exemption was open to abuse, the Innovation Taskforce did believe that it played an important role and supported its retention.

It is unfortunate that the Innovation Taskforce appears to be a spent force in this Budget. One can only hope that some of the proposed measures will be included in the Finance Bill.

At a time when job creation is an urgent priority, it is sad that it has received so little attention in the Budget. Instead we are left with over-engineered incentives that do little for the stated beneficiaries.

By creating complex rules, the principal beneficiaries are the intermediaries who can navigate the rules, rather than the stated beneficiary. The Taskforce proposed a mechanism for rewarding people after they actually create jobs. This was a novel approach, and certainly far more attractive than rewarding promises to create jobs. It is a shame that it was ignored.

Eamonn Walsh is PricewaterhouseCoopers professor of accounting at UCD, a former dean of UCD Smurfit School and consultant to a number of leading European, US and Asian corporations