Tax breaks would encourage R&D

28 Oct 2002

ICT Ireland is about as close as hi-tech multinationals get to a collective voice in the Republic, so when the organisation starts lobbying the Government and its disparate agencies on the best way forward for nurturing the sector, it clearly expects to be heard.

reminder of the fiscal contribution that information and communications technology (ICT) has made to the country.

According to its latest figures ICT industries are responsible for a third of exports, worth €31bn, and boast an output that is equivalent to almost 16pc of GDP. Now does it have your attention?

A special interest group within ICT Ireland has compiled a report — Securing the future of ICT in Ireland — that outlines Ireland’s research and development (R&D) inadequacies. R&D is singled out as a must-have competency providing a vital rung in the ladder that will take Ireland Inc higher up the value chain.

In case you haven’t been paying attention, the days of attracting inward investment with cheap labour have long gone. The problem is where to go next to maintain the country’s lucrative association with ICT.

All the talk about e-business hubs, digital media and knowledge economy have been clumsy attempts to label the Next Big Thing that might help save Ireland’s tech sector from decline.

You can add R&D to the list. To the credit of ICT Ireland, however, it presented a stronger case than most at the launch of its report last week. “We are in a cyclical industry and are at the bottom of a cycle,” warned Eoin O’Driscoll, vice-chair of the research group. “We need to be sure that Ireland participates in the upturn when it happens, otherwise we will lose the position we have. At the moment we fall short and our expenditure in R&D is way behind our competitors.”

He also highlighted the relatively low number of patent applications in the Republic compared to countries such as the Netherlands and Finland as further evidence of the problem.

“Ireland has a reputation for many things in IT,” added David Mulligan of Microsoft, “but it’s just not there in the R&D sense.”

Unfortunately the analysis of the benefits of R&D and Ireland’s failure to register as a centre for such activity were a good deal more straightforward than the proposed solutions to the shortfall. They largely hinged around three old favourites: taxation, education and communications.

Unsurprisingly for a body comprised of multinational representatives, it was looking for a continuation of the corporate tax regime that first sold Ireland to the blue chips in the late Eighties.

“Our tax position is no longer unique,” said O’Driscoll, citing India and China as increasingly attractive to investment. The report argues for upping the ante with tax relief schemes for companies of all sizes involved in R&D and tax credit deductions against payroll taxes to attract the high quality, labour intensive workforce that R&D demands. There was also a call for extending the Government’s existing business expansion and seed capital schemes.

Representatives from Microsoft and Oracle were on hand at the launch to vouch that their firms would commit to more R&D in Ireland if the incentives were there. “We have already been using Ireland to develop our migration strategy for moving customers over to our products,” said Joe Gallagher of Oracle. “That’s something we could take further.”

Microsoft’s Mulligan talked about carrying out R&D on Xbox games and Windows in Ireland if the environment was right.

Next on the hit list was education. The well documented decline in interest for science among second level students and the lack of third level R&D were root problems that needed to be addressed. Worse still, the rot extended to post-graduate level.

“The next phase for securing an ICT future is very much about post-graduate skills,” said UCD professor Tom Brazil. “At the moment we won’t be able to take in these kind of students to support this kind of policy because the funding isn’t there.”

Another linchpin that was identified as crucial for fostering the right environment for an R&D culture was a respectable national broadband infrastructure. This is defined by ICT Ireland as high-speed access to all populated areas of 3,000 and up. Broadband connectivity is considered vital by the group not just for multinationals but for indigenous industry.

The only surprise about this observation was that the panel skated over the subject as if it was a straightforward roadmap to national broadband. ICT Ireland’s secretariat is right in the middle of the ongoing debate on the best way to realise the rollout and knows better than most that there is a long and painful journey ahead.

From a body that has shouted the loudest for a dedicated e-minister with real legislative power, it will come as no surprise that ICT Ireland also sees the need for a centralised national body to drive the R&D issue as opposed to the disparate work that is being done across many different government agencies. A co-ordinated national policy on R&D was called for along with the enhanced fiscal incentives and improved infrastructure.

The first impression of the report is of an expensive wish list that will sit uneasily on the desks of government ministers looking to cut back on expenditure rather than increase it. But O’Driscoll refuted the suggestion that the timing was all wrong for lobbying the cash-strapped Government. “The thrust is not about more money and more spending,” he said. “What we’re talking about is encouraging industry to do more R&D through tax incentives.”

Sandwiched between well worn concerns over education and infrastructure, here was the meat. The core message to the Government was to improve its fiscal incentives to the sector if it wants to maintain Ireland’s lucrative relationship with technology.