James Lawless (Kildare North, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I congratulate the Minister of State, Deputy D'Arcy, on his recent appointment as Minister of State at the Department of Finance. As someone who originally comes from the same part of the world as the Minister of State, I am delighted to see him being promoted and to see north Wexford enjoying ministerial representation. North Kildare might follow in due course.

I was slightly confused when I saw that this Topical Issue was being handled by the Department of Finance. I had imagined that it might be the Department of Jobs, Enterprise and Innovation or perhaps the Department of Education and Skills because those Departments are normally responsible for research and development issues. I thought the relevant Ministers in those Departments would have to make their case to the Department of Finance for research and development supports to be included in their own budgets. Perhaps it is useful to have a direct path to the purse strings. It is worth highlighting in that context that the funding of research and development and innovation can sometimes fall between the two stools of the Department of Education and Skills and the Department of Jobs, Enterprise and Innovation. It is not always clear who is responsible for these matters. In this case, ultimate responsibility lies with the Department of Finance.

I hope the benefits of investment in research and development are self-evident. A pipeline of innovation brings multiple benefits and returns as the body of knowledge in areas like technology and process improvements advances. I will not recite the multiple studies that bear this out. I hope it is self-evident that investment in research and development produces multiple returns at the far side. The last Government's Innovation 2020 strategy, which was published by the Minister of State, Deputy English, contained some very ambitious targets but unfortunately they have not been met with funding. According to a report published this week by the Nevin Economic Research Institute, this is becoming an issue. It seems we have fallen far short of where we really need to be in terms of international funding. The report, which is based on a comparative analysis of 11 European countries, suggests that Ireland consistently spends too little on research. It points out that in 2014-15, Ireland's research expenditure of approximately €500 million represented 61%, or just over half, of the average spend within the euro group. Under Innovation 2020, we have a target of spending 2.5% of GDP in this area, but we consistently fall far short of that.

It is often said that the Irish experience of research and development and innovation has moved from one of benevolent neglect at the time of the foundation of the State, when other priorities existed, to one involving a graduate supply chain when IDA Ireland started to attract multinationals to this country in the late 1960s, and then to one of accelerated growth during Fianna Fáil's last period in government. Many initiatives taken during that time, including the establishment of Science Foundation Ireland and the programme for research in third-level institutions, accelerated the progress that was being made by bringing the best and most talented teams of researchers to this country. Indeed, the best people were groomed and educated in this country to a level that enabled us to punch above our weight. All of this is now in danger at a time when opportunities exist as people in the international research community are on the move. President Trump's America can be a cold place for people from certain corners of the world who are very eminent in their fields. Similarly, the Brexit scenario in the UK means that country is not a place where people feel comfortable staying in the long term. If we can invest in a way that allows us to avail of these opportunities, we will reap the rewards by attracting talented people to this country.

I acknowledge that investment in innovation is critical not just for universities and multinationals but also for small businesses. I welcome the representatives of the Sallins Business Association who are in the Gallery this evening. Innovation is the engine of small business every bit as much as it is the engine of large business. Indeed, the Small Firms Association has lobbied on this matter in the past as well. I hope the deficit I have outlined can be addressed. It is crucial for our industrial and educational policy, for the promotion of jobs and for the advancement of knowledge that we tackle this issue by closing the funding gap about which we have known for some time. Approximately 900 scientists wrote to The Irish Timestwo years ago to warn that this was happening. I was on the science march in Dublin city a month or two ago when eminent researchers, professors, fellows and academics came out and said "this is not enough" and "this is not going to end well". This was confirmed by the Nevin Economic Research Institute in its recent study. I put it to the Minister of State that we need to address this funding gap.

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
Link to this: Individually | In context | Oireachtas source

I join Deputy Lawless in congratulating the Minister of State, Deputy D'Arcy, on his appointment and wishing him well.

Michael D'Arcy (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I thank the Ceann Comhairle. It is somewhat pleasing to be complimented on my elevation to the position of Minister of State by Deputy Lawless because we come from the same town and we attended the same secondary school.

Seán Ó Fearghaíl (Kildare South, Ceann Comhairle)
Link to this: Individually | In context | Oireachtas source

I suspect the Minister of State will not be inviting him back.

Michael D'Arcy (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

He is well settled in north Kildare at this stage. I thank Deputy Lawless for raising this question. Research and development is an important source of growth because it contributes to ideas and products which affect productivity. One of the key insights of modern economic theory has been that per capitagrowth ultimately comes from changes in productivity. As such, research and development can be a key input in ensuring positive and sustainable economic growth in the long run, alongside other important factors such as openness to trade, the level of competition and the quality of infrastructure. The Government acknowledges the importance of research and development. We believe it needs to be examined comprehensively because all sectors of the Irish economy contribute to research. The vast majority of research and development conducted in Ireland is done by businesses rather than by the public sector. According to the CSO, business expenditure on research and development stood at €2.1 billion in 2014, the most recent year for which data are available. Total business expenditure on research and development, including such expenditure in the public sector, was €2.9 billion in that year. The level of business expenditure on research and development in Ireland, at €331 per inhabitant, is considerably higher than the EU 28 average of €297 per inhabitant in 2014.

The Government has a variety of supports in place to stimulate business expenditure on research and development, including research and development grants and research and development tax credits. I assume Deputy Lawless's matter is being taken by the Department of Finance because of the tax credits. The research and development tax credit is regularly reviewed by the Department of Finance. The latest review, which was published along with budget 2017 in October 2016, found that 60% of the research and development supported by this tax credit was additional in the sense that it would not otherwise have taken place. This is an important result because although it is generally agreed that research and development provides an important contribution to growth, public support for research and development cannot be justified unless such intervention can be demonstrated to lead to improved outcomes. The result also holds up well in an international comparison.

6 o’clock

In 2015, a total of 1,534 companies availed of the research and development tax credit and the total Exchequer cost was €708 million. This represents approximately 10% of corporation tax receipts, a share that has been fairly constant for the past three years. As already mentioned, the Government readily acknowledges the importance of research and development. Its importance is embedded in the Innovation 2020 strategy, which provides a whole-of-Government response to ensure that Ireland becomes a global innovation leader. Among other targets, Innovation 2020 commits to increasing public and private investment in research. As for public investment in particular, data published in early 2017 by the Department of Jobs, Enterprise and Innovation show that the Government allocated €761 million for research and development in 2016. This was the third year in a row that funding had increased and represented a 3.2% increase on the 2015 figure of €736 million. Public investment in 2017 is expected to be broadly in line with the figure for 2016.

In conclusion, the Government is keenly aware of the importance of research to Ireland's economic future. Policy tools to stimulate additional research and development, such as the research and development tax credit, continue to play an important role in this regard, as does a concerted and comprehensive effort from all areas of the public sector, as envisioned by the Innovation 2020 strategy.

James Lawless (Kildare North, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

One can discern the merger of the Department of Public Expenditure and Reform and the Department of Finance in the Minister of State's answer in the sense that it dealt primarily with the tax credits that are available. It is an interesting avenue to go down but I am more interested in the public expenditure side. The research and development tax credits are very important, as is the knowledge box and I was pleased to pass amendments earlier in the year in this area. However, they are only one piece of the puzzle and the Department of Public Expenditure and Reform has the responsibility and opportunity to increase the funding to research and development programmes.

I made a submission to the capital plan suggesting that the Minister, Deputy Donohoe, engage with the EU so that Ireland could draw down Juncker funding, where multiple billions are available for infrastructure in the Europe Union's Horizon 2020 programme and other projects. The successor programmes, which are now coming on stream, also have significant amounts of capital available and they would be delighted to engage with Ireland to fund its needs. There are additional opportunities such as CERN, in which we could invest significantly to reap significant rewards, and the European Space Agency, which I visited with the Minister of State at the Department of Education and Skills, Deputy Halligan, and where there are huge commercial opportunities. The multiplier effect comes into play and every euro invested yields €7 or €8 for the Exchequer in financial opportunities.

As regards investment in education infrastructure, the programme for research in third level institutions, PRTLI, was a fantastic scheme, founded by Fianna Fáil but continued under the last Government. However, it has now ground to a halt and there is an urgent need to support and fund a successor programme. However, while phase 5 should be coming out now, it has not emerged. There is also a need for a balanced portfolio, not only to fund applied and commercial research but to fund the pipeline too - the basic, frontier-level research which creates the opportunities and ideas for commercial opportunities. They deal with the bread and butter elements, namely, the buildings, laboratories and libraries.

On the tax side, there was a JobsPlus scheme where small business got a cash return for taking on employees but an R&DPlus scheme was mentioned by the Small Firms Association, SFA, and this could be very useful in encouraging innovation in the SME sector.

Michael D'Arcy (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am not going to pretend to be as up to speed on these things as I might be. I am not. However, there is an incredible amount of research and development going into FinTech in particular and, while this was once considered a disruptive technology to the industry, it has now evolved and there are a lot of cutting-edge companies moving into that space, meaning FinTech is not now as disruptive to the industry and will be very beneficial. Some of the brightest minds from all over the country, including rural areas, are working in this field.

I will take the Deputy's comments back to the Minister for Finance, Deputy Donohoe, but a concern of mine is that I expect budget 2018 to be quite tight. I do not expect there to be a large amount of headroom. Nevertheless, we need to thrash out the issues raised by the Deputy and I would be happy to do so outside the Chamber.