Unsurprisingly, tax cuts, talent and reduced bureaucracy are some of the areas that top the wish list of Irish entrepreneurs when it comes to doing business in Ireland.
The forthcoming budget is significant in a number of ways. It will be the first budget that our minority Government will seek to have approved by Dáil Éireann, a significant political challenge.
While our expectations of any form of giveaway have been well dampened, it is important that there is clear commitment to both support domestic businesses and to confidently assert Ireland’s continued attractiveness to foreign direct investment (FDI).
According to the Central Bank, two-thirds of all new jobs created in Ireland come from start-up companies less than five years old. Entrepreneurs are the lifeblood of Ireland's prosperity, stimulating economic activity, creating jobs and contributing to the exchequer.
Ireland’s economic recovery in recent years can be directly linked back to the taxes associated with the increasing numbers of people in employment. A significant contributor to this has been Ireland’s entrepreneurial community; therefore our ability to sustain this improvement will be contingent on the Government’s focus on providing the support that this community needs to continue to thrive.
Therefore as we face into Budget 2017, how can Government seek to support a continued employment-led recovery for Ireland through investment?
Government does not create jobs, however, it has a substantial role to play in regulating, incentivising and directing private sector activity. Ireland has made significant improvements in recent years to address issues relating to costs; however, much more needs to be done.
Host of challenges
Entrepreneurship itself presents a host of challenges, from the start-up stage where funding needs to be sought, all the way through to scaling a high potential business model.
However, a common challenge is access to talent and funding. Giving entrepreneurs the support and ability to free up capital will allow for reinvestment into their current or a new business venture, creating much needed employment in towns and cities across Ireland.
One significant measure would be to improve the capital gains tax treatment on the sale of businesses. Currently we have a reduced rate of 20 per cent on lifetime gains of €1 million, which, given its scale, has minimal impact.
The UK by contrast offers a 10 per cent rate with a lifetime limit of £10 million. Amending our rules to get closer to the UK is not about giving successful entrepreneurs a tax break, but is more about increasing the amount of capital that can be reinvested in new businesses, which can create new jobs.
Most entrepreneurs are serial in nature – they keep creating new businesses and new jobs. Other measures allowing for capital gains to be “rolled over”, essentially deferred, should also be considered to make it attractive for businesses to invest in new assets in order to remain competitive.
As demonstrated in a recent report by the Irish Tax Institute, Ireland’s personal tax code is too progressive and not competitive enough when we benchmark ourselves with many of our European neighbours.
With the war for talent continuing to escalate, particularly in high growth sectors such as technology and life sciences, such high marginal tax rates create challenges for entrepreneurs who will struggle to compete against large multinationals with the power to offer higher salaries to counteract high income taxes.
In putting forward potential changes to personal income tax in Budget 2017, the Government should, therefore, consider whether rates as they stand now are acting as a disincentive to entrepreneurship, and how this can be tackled head on.
Tax regime
Ireland’s tax regime and reputation has been the subject of many headlines in recent weeks. It is critical for FDI particularly that the Government gives a very clear signal that Ireland remains competitive and open for business, offering a transparent and reliable tax system with a stable tax rate of 12.5 per cent.
More importantly, a clear statement that Ireland remains resolute in its determination to have a tax regime which is not just competitive now, but will remain strongly competitive into the future when compared to our traditional competitors for FDI such as the UK, the Netherlands, and Switzerland, plus emerging competitors like Singapore.
The next couple of years will see many global companies make very significant decisions on the location of operations and valuable assets. These decisions will set the scene for the foreseeable future and it is critical that Ireland is positioned strongly to retain existing businesses and attract new businesses.
As with the domestic sector, this is not about offering businesses low rates of tax but about ensuring our tax regime is sufficiently competitive to attract and retain businesses.
While the Minister for Finance has made it clear that there is little room for manoeuvre, the upcoming budget is still an important opportunity to make these strong commitments to both the domestic and international sector.
Continuing to create employment is vital to continued recovery on a more widespread basis and the expansion of existing measures will allow entrepreneurs do what they do best and create jobs.
For international business, now more than ever, strong messages are needed about Ireland’s continued commitment to be a highly competitive, transparent and attractive location for investment. Kevin McLoughlin is head of tax at EY Ireland and lead partner of the EY entrepreneur of the year programme