Budget 2016: ‘You’d have to laugh if it wasn’t so serious’

13 Oct 2015

Tech investor Brian Caulfield has slammed the Irish Government on missing an opportunity to help Irish entrepreneurs and start-ups.

Those were the words of the chair of the Irish Venture Capital Association Brian Caulfield, who has slammed the Government on missing an opportunity to put right a discriminatory tax regime that fails to support start-ups.

In today’s Budget 2016 speech, Finance Minister Michael Noonan TD outlined a few measures aimed at encouraging entrepreneurs, including fixing a disparity that penalises owners and entrepreneurs in favour of employees, reducing capital gains tax from 30pc to 20pc and increasing company limits of BES/EIIS.

However, the chair of the Irish Venture Capital Association (IVCA), Brian Caulfield, immediately expressed his disappointment, pointing out that the new €550 tax credit for entrepreneurial owners of firms is still only a third of the overall PAYE tax credit.

‘This was an enormous missed opportunity to address structural issues around taxation and share options. I am hugely disappointed’

He lambasted the fact that the 20pc capital gains tax (CGT) is restricted to the first €1m, a once-in-a-lifetime benefit.

The Budget also contained no developments to encourage companies to reward staff with share options – in the midst of a raging global war for talent.

“You’d have to laugh it wasn’t so serious,” he lamented in notes he posted on Twitter that caught our eyes.


A lost opportunity for entrepreneurial Ireland

When I caught up with Caulfield by phone less than an hour after the Budget speeches had ended, he was still bristling at what he termed a “lost opportunity” for Ireland to fix obvious injustices towards entrepreneurs.

“I think overall it’s incredibly disappointing. In terms of the tax credit I do think it is a positive and given the cost of equalising the tax credit in one go I don’t think that was ever going to happen. It is progress in the right direction, but let’s not kid ourselves, it is only a third of the PAYE credit. They are addressing something quite discriminatory but only going a third of the way.”

Caulfield’s opinions matter because he is an accomplished entrepreneur and investor and deeply respected among his peers in the European and Silicon Valley tech communities. As well as being a partner with Draper Esprit, a subsidiary of the US$9bn Draper Fisher Jurvetson venture capital syndicate, Caulfield sold Exceptis Technologies, an electronic payments company, to Baltimore Technologies in November 2000 for US$26m. Six years later, he sold Similarity Systems, a data quality company, to IT giant Informatica Corporation for US$55m in cash. Caulfield also served as interim CEO of Belfast mobile cloud firm Aepona. Intel acquired that company for US$120m in 2013.

An ‘outragiously discriminatory’ Budget for entrepreneurs

Caulfield pointed out that for entrepreneurs there were no big changes in Budget 2016, which he labelled “outrageously discriminatory”.

“Some of the changes around CGT are targeting headlines. While they reduced CGT to 20pc, it is horses**t. The lifetime limit is €1m. The reality is an Irish entrepreneur will still pay more than three times the tax here than the UK on anything other than the smallest gain.

“It was designed to get the headlines and do nothing more. Remember, we’ve only gone from 33pc to 20pc compared with 10pc CGT in the UK.”

Caulfield also pointed out that Budget 2016 contained no changes to share options.

“Share options taxation remains a disincentive to retaining mobile talent.”

Changes to the Business Expansion Scheme/EIIS will also be ineffectual, Caulfield predicted.

“The changes they have made don’t target the real problem – the problem with EIIS is there is virtually no uptake by investors. They have increased the amount a company can raise. That’s not the problem; the problem is how you can get investors to take up BES/EIIS in the first place.

“The idea is to encourage small amounts of capital going into companies. The problem, however, is not companies wanting to raise more capital from BES. What they’re doing is making changes they deliberately know will give them the headlines but will do nothing to improve uptake in any way, shape or form and is fundamentally not targeting the real problem: uptake.”

Caulfield said that while the Budget hasn’t made the problems facing entrepreneurs any worse than they already had been “any notion that this is a transformative improvement in the environment for start-ups or that it represents tax equalisation for entrepreneurs or self-employed people, or that it creates a level playing field with the UK, any notion along those lines is incorrect.

“This was an enormous missed opportunity to address structural issues around taxation and share options. I am hugely disappointed.”

If Caulfield takes heart from anything it is that among Ireland’s start-up community there has been a huge emotional engagement on the issue.

“It is interesting to see that the discriminatory tax treatment of start-ups and the self-employed is now more mainstream than before.

“I hope that this was just an election budget, a populist budget, and that maybe in the first Budget of a new Dail term that a Government might address the real issues and be prepared to do more to improve the environment for entrepreneurs.”

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