Ms Cora O'Brien:

Before I commence I wish to say that this is the piece of work we did and it is effectively the strategy we are proposing for the indigenous sector. This is the Government's strategy for tax and foreign direct investment, FDI. Fundamentally, we are saying that we want to see an equivalent of that for the Irish indigenous sector and this is our suggestion for what that might look like.

Detailed analysis from the Irish Tax Institute's new report highlights a range of mismatches in tax policy that are hindering efforts to grasp global trade opportunities and meet the challenges Ireland faces. While our 12.5% corporation tax rate is valued by many Irish businesses, we have a pattern of sustained high rates across a range of other taxes that are critical for growth and we have some tax reliefs that are either not available or not accessible to Irish SMEs. The right tools, supported by the right policies are essential. This urgent need to change tax policy is reflected in independent research we did with Behaviour & Attitudes where 84% of the companies to whom it spoke believe that tax policies relating to the future of the Irish indigenous sector need to be addressed in this year's budget. We must take a strategically-focused approach to Irish business and address barriers in the tax environment. Policies that focus on the country's access to highly-skilled talent, expertise, innovation and R&D, as well as capital investment and finance, are critical to the plan.

The first challenge for releasing the necessary dynamism that the IMF has stressed as critical, is the high capital tax environment. We know that Irish SMEs are more reliant on bank finance than those in other EU member states and that they need to diversify into other equity sources of finance. The Government has recognised the need to develop appropriate alternative funding mechanisms to support companies over the coming years. This makes the capital gains tax environment critical. However, the high capital gains tax rate is restricting external investment in Irish businesses and creating "reluctant" business owners who may hold onto businesses beyond the point where they have the capacity to grow them to the scale required in a new global exporting environment. Unless addressed, that will hinder the structural changes needed for a new and more resilient export model, including the national ambition to "increase the number of our Irish-owned companies of scale by 30%". In fact, the 33% CGT rate is the fourth highest rate in the OECD and ten percentage points above the median OECD CGT rate. It is also high when one compares it with Germany, which has a rate of 25%, and also an excellent record of business investment.

We do have a targeted "entrepreneur relief" which reduces the high CGT burden on business sales to a limited degree and is especially important given the serious competition from the UK regime, as highlighted earlier this month by the UK Institute for Fiscal Studies. Ireland’s CGT regime is not competitive when compared with the UK and the entrepreneur relief which should mitigate our high rates locks out important angel investors, who are willing to invest money, experience and industry expertise in ambitious young companies. Business angel investment in Ireland is low compared with other countries such as the UK, Spain, France, Germany and Sweden, which are doing this well.

There has been much talk about our personal tax regime in the context of an export strategy. We need the best human capital and talent to build management expertise, innovation and R&D capability and to drive export-led expansion. However, challenges abound here too. In addition to having high personal tax rates, Ireland does not currently have a workable share option scheme that allows SMEs to attract and reward highly skilled and hard-found talented employees. SMEs must compete with larger companies for talent and 38% of them do not believe they can compete with the larger companies when recruiting for the best candidate. A new share option scheme would help them attract the talent they need.

On R&D and innovation, which is the second pillar, in the work and research carried out, especially post-Brexit, innovation and new product development are deemed essential to export growth. Only 1% of small firms and 16% of medium firms consider themselves to be R&D active, which is a low number in the context of our national ambitions. Innovation in younger companies has flat-lined since 2009. The 1% figure is a concern in the context of IMF findings which show that SMEs are the drivers of change in innovation.

Ireland has an attractive R&D tax credit regime, but some administration barriers are weighing on its success in terms of the low take-up among SMEs. Irish Tax Institute research shows that 75% of companies are aware of the R&D tax credit and 20% have availed of it. However, of those who availed of it, almost half said that the process was difficult to prepare for and administer and only 35% of companies surveyed said that they intend to use it in the next 18 months, although that would rise to 62% if there was more clarity around the criteria for qualification.

In summary, we appreciate that fiscal constraints limit the funds available in this year's budget and that not all the essential policy changes can be addressed this year. In light of the urgency of Brexit and the need to capture markets we would like to see some changes that might assist in the talent and innovation area. These include a less punitive capital tax environment; a workable share options regime; some reduction in the personal tax burden and; and, an improvement to the foreign earnings deduction regime.

In the longer term, which in some ways is almost more important, we would like to see the announcement of a new tax roadmap for the Irish indigenous sector, alongside the roadmap for FDI so that we give Ireland the best possible growth opportunity into the future.