Paschal Donohoe (Fine Gael)

As one Paschal follows another, I wish to pick up on some of the themes Senator Mooney mentioned. I wish to speak about one big area and then focus on a smaller one.

Senator Mooney gave a very accurate overview of the economic environment in which Ireland is operating, which has important implications for the Finance Bill and the overall strategy it represents, about which I have some questions and points to make. The general situation the Senator outlined is one in which the European economy is at best sluggish. In order to pay for the social welfare services we enjoy - let alone do anything else - the European economy probably needs to grow by 1% to 2% every year. The signs are that it will not do this. On the other two engines of our export growth, the Senator has pointed to what is happening in the United Kingdom. The British Government, under whatever party, will embark on spending reductions which will probably be as tough as ours. The outlook for economic growth in America and the way it is performing are at best uncertain.

All the markets on which our market has depended for economic prosperity, Europe, the United Kingdom and America, are facing challenges that in some cases are on a par with those we are facing. We have all had the expectation that those economies would recover to further pull in our exports of goods and services which, in turn, would reflate our economy. The period of time that will take could well be much longer than any of us has anticipated. This is a very troubling context within which the country is plotting its security and way forward. I say this because the financial course of action we are following is one of deflation and reducing Government spending. It is a policy our party has supported for practical reasons. We are spending approximately €50 billion a year and taking in approximately €30 billion. A €20 billion gap needs to be bridged. We are also following this course of action because of the agreement we have made with the European Commission to support the economy and the different borrowing arrangements the country will need. Particularly at a time when our international reputation is high, it is important to take stock of where we are and the consequences of that approach.

I return to the contribution Senator Mooney made. I agree with him on many of his suggestions as to the way forward. It is extremely difficult to see how we can deliver a broad domestic stimulus to the economy while still delivering the deflationary budgetary strategy to which we are signed up. Deflation and reducing Government spending are about reducing how much we allocate, which is the exact opposite of a stimulus package and identifying a particular part of the economy and supporting it with increased Government spending.

I return to a matter I mentioned during the Order of Business this morning, the report of the innovation task force which the Government published two weeks ago. From a strategy point of view, it contains little with which people would argue. It is all about its implementation. We have a range of plans across the economy in writing. Will our current course of deficit reduction, into which we are locked for reasons I understand, take us to a point where, when the global economy recovers, we will not have spent the money we need to increase the productive capacity of our infrastructure both soft in terms of our young people and hard in terms of broadband and so on? We may not have spent enough in these areas to allow the country to pull through and take advantage of a global economic recovery as it happens. In addition, if that global economic recovery takes longer to happen, will we be spending enough money domestically both in the private and public sectors to deliver the tax receipts we need, deal with the issue of unemployment and the pressing issue of funding the Government services we all want? Even in the cut and thrust of partisan debate it is incumbent on us to take a step back and, if these are the things we want to deliver, ask whether the plan we are locked into at present will allow us to deliver them. I return to the report of the innovation task force which I mentioned earlier. If we have not delivered that strategy and those building blocks in two or three years and the main reason is that the programme of deficit reduction has meant the money is not there to do it, is that the place in which we want to find ourselves?

Let us consider the different plans we have relating to spending on social services, for example, on education to ensure our young people are equipped to deal with a national and global economy which will be very different from anything we have experienced to this point. If we find our young people do not have the education they need, indeed, not just our young people but also our middle aged people who will be as much in need of that retraining as others, and if that has not been delivered owing to the deficit reduction plan, is that a price worth paying? I must be honest and say I am not sure of the answer to that question. Given where this country stands at present, it is a question worth discussing.

At some point there will have to be a trade-off between a deficit reduction programme, which is where we are at present, and a programme for creating jobs and demand. I am concerned we are reaching that crossroads and that, in the context of consumer demand and the need to get people to spend the money they are saving at present, the confidence or flicker of hope we need will take longer to deliver than we are willing to admit. The deficit plan in which we are engaged might be one which delays the day that money is spent because people see taxes increasing and spending decreasing. I look forward to the Minister's response on this point. We do ourselves a disservice if we cannot responsibly discuss this issue in the Oireachtas.

Having discussed the overall background to this Bill, I wish to focus on a specific point which will be dealt with in an amendment I will move on Committee Stage. It relates to the need to support spin-out activity from high tech companies in our economy. I will elaborate on this on Committee Stage but I will outline the background to it now. It is a very important issue to which the Government could respond now. In launching the task force report last week the Taoiseach made the point that the members of the task force had focused on how to deliver a step-change in the level of company start-ups and their growth to international scale to drive job creation and innovation export-focused sectors. Mr. Chris Horn is very supportive of this but he made the point in some of his work on the innovation task force that engineering a positive feedback loop is the critical insight and the most critical objective for the smart economy. If there is a positive feedback loop, we will create sustainable growth and a rapidly increasing number of direct and indirect jobs.

There is a great deal of investment in research and development, but is that investment directly leading to the commercialisation of that research and development which will then lead to creating jobs? At this point in our national economy and given our desperate situation there is a need to ensure the research and development spend directly feeds into commercialisation and wealth and job creation. Spin-offs is an area where this is happening. What is a spin-off? A spin-off is where a group of people within a large company encounter a piece of technology or thinking that is unique but does not form part of the competitive advantage or focus of the company within which they work. They take that piece of research or insight from the company and form their own company to drive it forward, make money and create jobs with it.

This is happening to a large extent in Ireland at present. I can give three commercial examples. Hewlett Packard has licensed some of its intellectual property to a smaller company in Ireland called Crosspan. Signals, a company based in Ireland, is using technology that was transferred from Microsoft and InnisTech, another high-tech company, bought some software production from Microsoft that was not part of where Microsoft was going but was something that could create jobs and wealth in Ireland. The majority of our colleges are engaged in this type of activity. It is happening in Maynooth and in parts of Trinity College. IONA Technologies is a great example of this. It contributed a great deal to the smart economy in Ireland and was a spin-out from research that was taking place in Trinity College.

An amendment we have proposed in this regard was discussed in the Dáil. The Minister acknowledged the thinking behind it but did not accept it. The amendment proposes to change the research and development tax regime to incentivise companies to commercialise the research and development that is already taking place within the company to allow that to become a spur to a new company being formed. We have a research and development tax regime at present that is as important to the prosperity of this country as the corporation tax regime, something that is not appreciated. It protects and encourages research and development. The amendment we propose, which we will discuss on Committee Stage, would incentivise companies to examine the work they are already doing, commercialise it and use it as a way of creating additional jobs. It is a practical proposal relating to a part of our economy which we all talk about and are committed to but with which we might not have the time or expertise to engage.

We can use this measure to spur employment and wealth creation. Chris Horn, who has a huge amount of expertise in this area, has independently endorsed the amendment as a good idea that should be implemented. It will be the litmus test of how committed the Government is to the implementation of the report which it published with great fanfare last week.