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To stay competitive Ireland must close housing and infrastructure gaps

The housing shortage is a hurdle to attracting talent – it must be addressed to maintain Ireland’s FDI edge

Inflation-driven salary increases and escalating input costs, coupled with a housing shortage, could make lower-cost locations more appealing than Ireland for multinational corporations. Photograph: iStock
Inflation-driven salary increases and escalating input costs, coupled with a housing shortage, could make lower-cost locations more appealing than Ireland for multinational corporations. Photograph: iStock

With inflation forcing wages and other expenses upwards, and suitable accommodation increasingly difficult to find, Ireland could be in danger of losing out to lower-cost regions for future investment.

“Inflation-driven salary hikes and escalating input costs, coupled with housing shortages, could make lower-cost locations more appealing,” says KPMG tax partner Cillein Barry. “To maintain competitiveness, Ireland should focus on innovation and productivity gains, investing in technology and upskilling the workforce to ensure efficiency. Additionally, addressing housing affordability and infrastructure development are vital to retaining top talent and investors.”

Evershed Sutherland managing partner Alan Connell believes Ireland’s biggest competitiveness challenge centres on infrastructure.

He says that while our economy is buoyed by foreign direct investment (FDI), “the issue of housing in Ireland is one that still needs to be resolved”.

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“If we are to secure further FDI we need to ensure that we have the necessary infrastructure so that people can actually live here,” says Connell. “We need to look at the skilled workforce and what incentives are in place. Factors such as housing are key, as the lack of affordable housing in main cities and urban centres is a real barrier for many companies seeking to invest in Ireland. Affordable and accessible housing, proximity to amenities and good transport infrastructure are all key to businesses thriving.”

According to Barry, the housing shortage has become a significant hurdle to attracting talent from overseas and tax measures to help support an increase in the housing supply formed a key part of KPMG’s pre-budget submission.

“Designed to help reduce cost pressures, promote investment and encourage landlords to stay in or enter the market, a multifaceted approach is needed to help ease housing supply challenges, ensure project viability and stem the exit of private landlords from the sector,” he points out.

“Some tax measures proposed included reducing VAT on the supply of new housing, the reintroduction of mortgage interest relief, a targeted and controlled form of Section 23-style relief to promote urgent investment in the rental sector, and the introduction of tax relief for both employers and employees on the provision of property for employee occupation.”

PwC head of tax Paraic Burke also points to some tax measures which could assist with the housing supply issue.

“Rent received by employers from employees could be treated as trading income and taxed at 12.5 per cent with no surcharge,” he says. “Where the company opts to rent the property to the employee at less than market rent, relief from BIK would apply on an element of the ‘underpaid’ rent.”

There are other tax measures which could improve Ireland’s competitiveness for FDI, particularly in light of the changes to corporation tax under Pillar Two of the OECD BEPS process, says Barry.

“Many countries are re-examining their tax offerings and incentives. To maintain Ireland’s competitive edge, Ireland must ensure that it is best-in-class across a broader range of tax measures to be the choice for foreign direct investment examples include adopting a territorial regime, reforming the capital allowances regime, enhancing the personal tax regime and positioning Ireland as an innovation hub.”

Burke sees four pillars to enhancing Ireland’s competitiveness. “We need to reassess our corporate tax offering, simplify our overall tax system, support innovation among indigenous Irish businesses and invest in key elements of infrastructure and climate action,” he says.

“On the corporate tax side we need to see more pro-growth tax initiatives to maintain and enhance Ireland’s differentiators. At a minimum, we need to offer a modern system for taxing foreign profits so that we can guarantee investors setting up in Ireland that they can return profits to investors efficiently.

“We should also increase the effectiveness of key regimes such as the knowledge development box and extend special assignee relief to be in the best possible position to win the next wave of FDI.”

Investing in Ireland’s infrastructure and natural resources is a huge opportunity, not only in meeting climate targets but opening up investment into profitable industries, adds Burke.

“We need greater and more effective investment in our infrastructure and skills so that Ireland has the capacity to continue to grow sustainably and profitably,” he says. “Budget 2024′s introduction of the Infrastructure, Climate and Nature Fund is very welcome but significant additional measures will be required in future years to address the challenges at hand.

“While much of the support needs to come through non-tax-driven behavioural changes such as planning process improvements, grid capacity and so on, there is also a role for tax-driven measures like capital allowances, supporting green investments by private equity investors and subsidies to encourage citizen-led changes like household retrofitting.”

Barry McCall

Barry McCall is a contributor to The Irish Times