5 minute read 20 Sep 2022
How Budget 2023 can enhance Ireland’s global attractiveness

How Budget 2023 can enhance Ireland’s global attractiveness

5 minute read 20 Sep 2022

Ireland needs to retain its attractiveness as an FDI destination to remain competitive in international markets.

In brief

  • Ireland must offer cost competitiveness and an innovative environment to continue competing successfully.
  • Indirect support for businesses to diversify their sources of supply is imperative to relieve supply chain pressures.
  • Supports and incentives offered to indigenous Irish entrepreneurs, particularly to support greater innovation, is a critical factor in Ireland’s future growth and economic success.

The surge in Ireland’s tax revenues this year has been very welcome. Just when it was most needed, the Government has found itself with very valuable fiscal room to manoeuvre when it comes to helping people and businesses deal with the cost-of-living crisis.

The record €9bn revenue from corporation taxes is also very positive, although there is some concern in relation to the sustainability of such high levels and the concentration risk involved. A significant proportion of the revenue comes from a very small number of taxpayers.

While Ministers Donohoe and McGrath have no influence or control over the performance of the companies involved, Ireland’s broader competitiveness and the Ministers’ actions on Budget Day most certainly can affect their future investment intentions and those of their peers.

While undoubtedly the Budget will focus on cost of living and energy, it is more than ever critically important that Ireland’s highly competitive position as a location for FDI is kept firmly front of mind.

Indeed, in a dynamic competitive global landscape, the Ministers should seek ways to enhance Ireland’s attractiveness to FDI in order to retain and grow the level of investment from multinational enterprises.

Ireland’s competitive edge

Ireland’s competitiveness as a place to do business will become even more important as we face into anticipated recessions at home and in key export markets such as the UK, which remains a key export market despite the negative impacts of Brexit.

While Irish organisations have continued to diversify their export markets in recent years, that will not provide protection from a global recession where margins are likely to be squeezed to the limit. That simply highlights the critical need to ensure that Ireland offers a cost competitive, highly innovative, and supportive environment for businesses to be able to continue to compete successfully in international markets.

Questions have been asked in relation to the Government’s role in relieving some of the supply chain pressures faced by businesses, particularly in the construction sector. There is certainly very little direct action that the Ministers can take on Budget Day, but continuing indirect support for businesses in their efforts to diversify sources of supply will be important.

The Government is supporting those businesses through its network of embassies, Enterprise Ireland, and other government bodies, all of which are working hard to open up new trade routes to facilitate a broader range of procurement options. Very importantly, these efforts could also help to mitigate some of the upward inflationary pressure being felt at present.

Of key importance for our future economic success will be the supports and incentives offered to indigenous Irish entrepreneurs. These individuals are the bedrock on which the next generation of globally successful Irish companies will be built.

Maintaining a competitive environment for business and ensuring Ireland remains at the forefront of innovation internationally will be critically important for Irish entrepreneurs to flourish.

Spotlight to remain on R&D scheme

From a budgetary perspective, we already have a very attractive R&D Tax Credit regime and a Knowledge Development Box offering to encourage research, development and innovation. In this context, non-tax measures are becoming increasingly persuasive. These include the availability of the right technical skillsets and experience with the talent pool and among graduates from the third level system.

In light of that, the Ministers need to be conscious of the impact the personal tax burden can have on people’s decisions on where they wish to work. In particular, there should be no changes which could make the current SARP scheme less attractive. International mobility remains critical to supporting investment decisions by international businesses and the level of personal taxation can be a significant driver of the cost of such mobility.

Finally, with agreement on sectoral carbon budgets having been reached in July, there has been some speculation that Budget 2023 will include some new reliefs and incentives for green investments in an effort to accelerate Ireland’s net zero journey.

However, this is an area where nothing particularly radical from a tax perspective has been done to either penalise or incentivise activities or investments. We expect the existing policy position to be maintained in this Budget, and that the Government will resist pressure to reduce the carbon tax regime against the face of increasing energy cost.

Summary

As businesses grapple with inflation and high energy costs, continuation of post-pandemic support by the Government could bring down the number of business failures. Focused measures are the need of the hour. Sector targeted low interest loans may offer the much-needed respite that Irish businesses are looking for in a challenging economic environment.

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