The employers’ lobby group Ibec has warned that the State’s ambitious investment plans for areas such as climate change and housing are at risk unless it boosts the competitiveness of the private sector to increase the tax take to pay for them.
It is calling for a range of measures, such as tax breaks for investment in robots and increased spending on research and development (R&D), as well as a renewed focus on developing small- and medium-sized businesses (SMEs) as global corporate tax reform threatens to stunt Ireland’s vital multinational sector.
In its submission to the Government ahead of October’s Budget 2022, Ibec notes that the State plans to invest about 4 per cent of the value of the economy each year until the end of the decade on goals such as cutting carbon emissions and ending the housing crisis.
This “can only be achieved if it is underpinned by the tax returns from continued growth in the private sector”, it says. Otherwise, the State’s investment priorities “will not be deliverable”.
“If you want to deliver on the ambitious investment plans, then you need to offset some of the competitiveness challenges” facing the private sector, Ibec’s chief economist Gerard Brady said.
The employers’ group’s submission contains measures that fall under four main headings. The first is focused around maintaining “fiscal discipline”.
Ibec said capital investment plans may be “prudent”, but only if the Government maintains discipline on day-to-day spending. Other organisations, such as the Irish Fiscal Advisory Council, have previously warned that State plans for increased future current spending are “unrealistic”.
Secondly, Ibec argues that competitiveness challenges for the private sector must be offset by increased digitalisation and innovation. It also calls on the Government to “radically improve” the tax treatment of SMEs, through measures such as enhanced capital gains tax relief for entrepreneurs who cash out.
State investment in R&D should rise by €112 million, or 20 per cent, per annum until 2025, it says. And it advises the Government to be ready to break into its €2.8 billion Covid contingency fund to help business in areas such as tourism devastated by the pandemic.
It also argues that €540 million should be taken from the State’s €1 billion Brexit adjustment fund to help exporters innovate and find new markets.
Global tax reform
Under a third heading around preparing the economy for change, Ibec says the State must get ready for the impact of global tax reform on foreign investment by simplifying the corporate tax regime and boosting R&D tax credits.
It also wants tax breaks for investment in robotics and computer-aided manufacturing, and more investment in skills training and cybersecurity.
Finally, it wants the Government to free up constraints on the economy and society by speeding up investment in childcare and spending an additional €220 million on low-carbon investments, such as encouraging businesses to buy lower-emission vehicle fleets.
“[The lack of] childcare is taking skilled workers out of the labour market,” said Mr Brady.