Make or break Budget for tech sector


30 Oct 2003

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The upcoming Budget is expected to be the most parsimonious in years as the full effect of the shortfall in tax revenues is felt. However, despite the general atmosphere of belt-tightening, the leaders of Ireland’s ICT industry believe that Minister McCreevy can use his Budget to address key weaknesses in the industry. We talked to several of them about their prescriptions for reviving an ailing sector.

Inez Bailey, Information Society Commission

Wish list
Make IT literacy mainstream
Resurrect community-based IT schemes
Promote ‘e-champions’ within local authorities
Use e-government to boost relevance of IT
Provide IT tools to community groups
Improve IT access for disabled

The publication of the Information Society Commission’s (ISC) weighty E-inclusion report earlier this month was a timely reminder of the work still needing to be done if Ireland is to become a fully-fledged knowledge economy. Coming out of the report are six key messages for Government.

Top of the list, says Inez Bailey, leader of the ISC’s E-Inclusion working group, is integrating IT literacy within mainstream state-funded further education and training programmes. In other words, IT training and awareness should be part and parcel of every further educational initiative. “The report highlights that there isn’t a huge awareness of the fact that some people have poor computer skills. There should be an opportunity for people to gain these very necessary skills while they are engaged in education or training programmes,” she says.

One of the factors that keeps IT skills at a stubbornly low level is that for whole sections of the population — from the unemployed to pensioners to women working in the home — IT has little relevance. Such groups will only understand IT and benefit from it if they are exposed to it — hence the argument for bringing IT out of the IT training room and into mainstream educational programmes.

Another initiative that would help close the digital divide is community-based IT training and awareness initiatives such as the now defunct CAIT (Community Application of Information Technology) initiative, which was shown be very effective in engaging disadvantaged groups and providing them with IT training opportunities, she says. “Something similar needs to be put in place to ensure that disadvantaged groups at community level can be supported to engage in ICT,” she adds.

Linked to this is the concept of promoting an ‘e-champion’ within each of the State’s 34 local authorities. These are people who would act as IT mentors by fostering appropriate partnership-based IT initiatives.

Inevitably, e-government gets a mention in the report. But rather than simply advocate that more money be spent developing websites, the report recommends that local authorities host community-specific information that can be accessed by local people visiting council offices and service centres. The report also suggests that local people could be given the tools — again, via the local authority — to create and disseminate their own content.

The final recommendation is that greater effort should be made to improve access to technology for disabled people. In Bailey’s view, web developers don’t see this as a priority and will generally build in accessibility only at the client’s request.

Clearly, implementing this set of recommendations will cost money but Bailey feels it will be money well spent. “What we’re trying to say is that if there are people left out of this key area, it will cost us all. It will cost in terms of lack of productivity, it will cost in terms of the loss to individuals, their family and society as a whole because they are not going to be able to engage in something that’s now considered a core skill area and a core part of life,” she concludes.

Brendan Butler, director of ICT Ireland

Wish list
Business Expansion and Seed Capital schemes to continue
Help for the digital media sector
R&D tax credits
Retention of employee PRSI ceiling

‘Go easy on us’ is the gist of Butler’s plea to Minister McCreevy. “As an industry we’ve been through a rough patch but we’re beginning to see light at the end of the tunnel so, whatever you do, don’t knock it back. Don’t introduce any new punitive measures on the industry,” he says.

So no nasty surprises, please, is the message from Butler, who is head of IBEC’s lobby group for the ICT industry. And pleasant surprises: what form would they take? Butler has several in mind. The first is the retention of the Government’s Business Expansion and Seed Capital schemes — programmes that the Minister has indicated will be wound up on 31 December. Butler sees these as essential to an industry that has few other funding channels open to it in the current climate. “If we cut off the funding from these schemes, it would be a very serious body blow to the indigenous technology sector, in particular the software industry,” he warns.

Butler’s second plea is for Section 481 relief for the film industry to be retained in order to help the emerging digital media sector. If the relief goes, he argues, so too may the film industry and with it a cluster of promising young tech firms that are selling services into it.

Butler’s other priority area is R&D. Butler supports the introduction of tax credits and in fact any measure that “encourages people already doing some R&D to do more and those not doing any to start”. Such incentives are needed, he feels, to put Ireland on the R&D map and attract R&D dollars from multinationals.

Butler fires two final salvoes. First, if the Minister removed the employee PRSI ceiling of 2pc on earnings over €35,000, as he hinted he may, it would disproportionately affect IT workers, who tend to earn above-average incomes. So don’t abolish it is Butler’s message. Second, the Minister should make a clear restatement of the Government’s commitment to retaining Ireland’s comparatively low (12.5pc) rate of corporate tax and strenuously resist harmonisation pressures from the rest of Europe.

Dr Alastair Glass, director of ICT division, Science Foundation Ireland

Wish list
Maintenance of SFI funding levels
Better science infrastructure
People-friendly policies
Tax credits for R&D

The ‘F’ word features prominently in what the head of Science Foundation Ireland’s information and communications technology unit hopes to see in the Budget. “One thing that’s critically important … is to continue funding, at least at the current level. I’m not at this stage advocating increased funding. But if funding is cut way back it will sent the strongest message to the world that Ireland is not serious about its commitment to science. Because research is a long-term commitment, if there’s a short term stutter here that would have a very, very negative influence on multinationals putting their R&D in Ireland.”

Fortunately, SFI’s current budget of €646m over six years (2000-2006) is secure but that of the Programme for Research in Third-Level Institutes (PRTLI), which is run by another key agency, the Higher Education Authority, is not. The Government has frozen the funding for the programme that is responsible for building the educational infrastructure — buildings and laboratories — which are needed to underpin the State’s scientific research capacity. The funding freeze is a worry, concedes Glass. “We are going to have an infrastructure problem if there is no money for buildings. For instance, in Cork, some of our scientists are based out at the airport a long way from the university and we have people renting buildings downturn. This is not a good scenario for a high-tech country, so I think it is essential that we have some focused construction activities that are better able to house the research programmes that we’ve put in place,” he notes.

Third on Glass’s wish list after funding and infrastructure is the implementation of what he terms ‘people-friendly’ policies. Apparently simple things like processing the visas of foreign scientists more speedily may seem like a relatively minor issue but such is the competition for world-class talent that a new appointment could be jeopardised by a slow clearance process, he says. Approval comes quicker than it used to, Glass emphasises, but the process still needs refinement. “To be competitive we have to resolve that issue,” he remarks.

Another area of concern is the scarcity of permanent professorships — of tenured posts in general — within Irish universities. Any top scientist who holds a tenured post in another country is unlikely to accept a position within an Irish university unless he or she is guarantees the same status here, ie a permanent post. SFI can fund a scientist for five years but cannot offer funding in the long term, Glass reminds us.

As a director of an organisation whose goal it is to make Ireland’s science base world-class Glass naturally wants the Government to provide more support through, for example, tax breaks for R&D, but he’s also quick to acknowledge the progress that has already been made. “I think we’re succeeding with the charge to grow the R&D infrastructure. Perception is a critically important aspect because if multinationals are going to send their research organisation to Ireland they will do that because they perceive we have a commitment to the future.”

Kathryn Raleigh, director, Irish Software Association

Wish list
Retention of Business Expansion and Seed Capital schemes
20pc of government IT spend should be on SMEs
More investment for science and technology in education

Over the past few months, the Irish Software Association (ISA) has been loudly calling for the extension of two important government-backed funding mechanisms — the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS). The schemes are established on a renewable two-year basis, with the current ones due to expire on the 31 December, 2003. Kathryn Raleigh, director of the ISA, explains their importance: “The BES and SCS are really the only schemes left where companies can access funding at a very early stage. Coupled with that you have a situation where most of the companies seeking grant approval from Enterprise Ireland only get matching funding from that organisation if they first get BES or SCS funding.”

If these twin schemes are not renewed in 2004, the consequences for the industry will be very serious, she predicts. “The first impact of the non-renewal is that venture capitalists won’t see a pipeline of companies to invest in. We’ve guesstimated that 5,000 jobs have been created through BES schemes. We’re not saying that those jobs will disappear but that you will not have a further throughput of job creation going forward,” she says.

The cost of running the schemes is, she asserts, “not massive” especially when the rapid payback from new jobs is taken into account.

Although the importance of the funding issue outweighs all others, Raleigh has several other items on her wish list. One is that the Government should implement a policy of spending at least 20pc of its IT budget on technology from small and medium-sized enterprises (SMEs). This policy has been successfully applied in the US and would, she argues, work equally well here, where SMEs currently provide only a tiny fraction of the Government’s technology needs. “It’s a shame, because we don’t have the luxury of having a big market in Ireland — we don’t have a Nokia or a Siemens or a big defence sector. The one area the Government could help from a practical point of view is to actually start purchasing from SMEs.” She adds: “We hear anecdotally from our members that it’s easier for them to supply [foreign] governments than it is our own.” The ISA, she stresses, is not calling for a buy-Irish policy, which would be anti-competitive, but a buy-SME policy — one that could bring tens of millions of euro into the coffers of small tech firms, she believes.

Education should be another priority area, she feels. Specifically, she would like to see changes to the way science is taught in schools as well as additional supports for PhD students. “Companies want to locate R&D ventures not where the best R&D tax credits are but where PhDs are available.” She adds: “Without a decent crop of highly qualified engineering and science students, the industry is going to really suffer down the line. We’re still getting very good engineers through but we’re beginning to lose on the volume.”

Like other sectors of the ICT industry, the software area is beginning to see the much-anticipated green shoots of recovery but will, Raleigh feels, need full governmental support if these shoots are not to be nipped in the bud.

Joe Macri, general manager, Microsoft Ireland

Wish list
Retention of corporation tax rate
Retention of employee PRSI ceiling
Tax credits for R&D
More money for ICT in education
Tax incentives to boost PC penetration

Microsoft is a large employer in Ireland and its revenues account for 4.7pc of national GDP so it is hardly surprising that the rate of corporation tax heads Joe Macri’s agenda. The Australian-born head of Microsoft Ireland would like to see the Minister hold firm to the existing (12.5pc) rate of corporation tax in the face of harmonisation pressures from other EU countries.

PRSI comes next on his list. The Government’s mooted plan to remove the employee PRSI ceiling of 2pc on earnings over €35,000 would have the effect of reducing employees’ take-home pay and putting an upward pressure on salaries, he believes. “This would be a major concern for any business, no matter how big or small,” he remarks.

He also feels the Government could do a lot more under the general heading of ‘skills’. He welcomes the significant level of investment that’s been made in Science Foundation Ireland and wants it to continue. He backs the idea of introducing a simplified tax credit to generate more investment in R&D. He would also like to see significantly more money ploughed into ICT in education, particularly in the primary sector, which he feels has been neglected to date. “The IT in Schools 2000 programme was a good first step but we have a long way to go. We need to prime-pump the pipeline of talent through the schools and the universities to create the next generation of scientists. That is a long-term play and that has to start at the primary school,” he recommends.

Macri argues that technology such as e-learning systems can enable the teaching of technical subjects and help create a “standard pedagogical platform” throughout the school system. Just as important as the technology, he adds, are the teachers that use it. Here, the Government needs to properly resource the teaching side and eliminate the absurdity of teachers doubling as IT managers. “We shouldn’t be asking teachers to do that because what then happens is that you create a digital divide, because some teachers are good at it and interested in it and some are not,” he explains.

Rounding off his list, he reiterates a call oft made by the PC industry: to bring in tax incentives to boost PC ownership. This would of course benefit Microsoft but Macri makes the valid argument that there’s little point forging ahead and creating a broadband Ireland if PC penetration, at about 30pc, remains the lowest in western Europe.

Macri concludes with one simple observation: that the ICT industry has become too big to be ignored by the Minister. “When ICT accounts for 33pc of exports and over 100,000 employees, making decisions that’s good for that sector is good for Ireland.”

Gary Coburn, chief operating officer, Horizon Technology Group

Wish list
Stimulate capital spending
Reinstate ceiling on employer PRSI
Tax relief for child care
More competition in professional services

Every businessperson likes to have a buoyant market to sell into but boosting demand in the economy is not the focal point of Gary Coburn’s wish list for Minister McCreevy. Rather, reducing the cost of doing business is his No 1 priority.

One of Ireland’s best-known indigenous technology firms, Horizon Technology Group has endured a tough couple of years as the market for IT products and services has contracted. Coburn reports that the market, if not growing, has stabilised now. But what makes doing business more difficult than ever is that costs have remained stubbornly high and it is these that the Minister needs to target in his Budget, Coburn feels.

For example, something as basic as employers PRSI is causing him a major headache. “From 1 January next year, employers will have to pay PRSI on employee benefits such as company cars. This makes it very expensive to hire people.”

Another example he cites is the very high fees charged by professional service firms such as auditors and solicitors. He would like to see the Minister open up these sectors to competition in order to reduce fee levels. “We are paying very high rates here compared to other countries and I would certainly like to see the Government tackle that,” says Coburn.

IBEC has regularly lobbied for tax relief on childcare and this is also on Coburn’s wish list. He feels that the costs of hiring and training could be brought down and the career prospects of women enhanced were the Minister to implement this measure. “Tax relief would make it easier for women to continue working after they’ve had children.”

The final area Coburn would like the Minister to address is the worrying decline in Ireland’s ICT manufacturing base and shift of jobs to low-cost economies in Asia. Coburn feels that many multinationals have only very shallow roots in the economy, which can make these jobs very transitory. Offering, for example, government grants to multinationals to boost capital spending in areas such as R&D would protect Irish jobs and make it harder for those companies to walk away, Coburn feels.

By Brian Skelly