Budget update – new tax reliefs on IP will stimulate smart economy

8 Apr 2009

The introduction of a new tax relief on capital expenditure incurred in the acquisition of intellectual property (IP) will act as a catalyst to attract further inward investment into Ireland, and ultimately lead to the creation of new jobs, according to Deloitte.

“There has been a lot of talk of the need to create a smart economy,” said Padraig Cronin, head of tax and legal services at Deloitte.

“The new move on IP is a way of making the smart economy begin to become a reality. We welcome the move, as it will serve to not only retain existing operations, but to encourage others currently considering locating in Ireland to actually go and do so.

“It is a very good example of how Government and industry coming together can help position Ireland as a natural home for IP-related enterprise. It provides a good foundation for further employment-related incentives to be introduced in the future.”

The move to create a National Asset Management Agency to cleanse Irish bank balance sheets was also welcomed by stockbroking firm Davy, which said the outcome may be increased credit flow in the economy.

According to Davy, bank assets will be transferred to the AMC at an “appropriate price”, and that banks and creditors will not get off lightly.

“This announcement signals little appetite for nationalisation. The agency structure may ensure survival of salient banks and reduce perceived sovereign risk,” the firm stated.

It said the fiscal three-year plan to reduce the exchequer’s deficit by 8.5pc by 2011 means the Government has avoided an aggressive response in 2009, acknowledging weakness in the economy.

The Government aims to close the deficit to 10.75pc of GDP from an estimated 12.75pc pre-budget. Crucially, it targets a deficit peak in 2009, before a steady fall to €15bn, or 8.5pc of GDP, by 2011.

However, Davy said that tax hikes on average income workers are questionable.

“The targets are helpful, but the means to attain them is not. The fiscal measures veer towards tax hikes and capital spending cuts, rather than reductions in the cost base of the public service. Current spending is set to reach a record share of 40pc of GNP in 2010.

“The capital spending cuts are puzzling. Investors will finance public investment because it boosts productivity and is the easiest way to keep people in employment,” Davy said this morning.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years