Irish entrepreneurs are being tempted to the UK - and that would be a huge loss
The country needs more, experienced business voices in government.
IRELAND IS ALREADY feeling the first drafty breeze of a potential economic chasm that may develop if the UK leaves the EU, the so-called Brexit.
The recent announcement of UK tax package proposals is a statement of intent by the UK. In their efforts to have a ‘Plan B’ ready for a possible exit from the European Union, the UK government is offering a package of tax incentives that could damage the Irish investment environment.
But it is not the proposed new UK corporation tax rates that would worry me in the event of Brexit. Attention last week had focused on how the UK’s proposed cuts to corporation tax rate to 17% by 2020 would impact on the attractiveness of the Irish corporation tax rate of 12.5%.
But these are only headline rates. In reality, Ireland’s effective rate is in single figures. In fact, while Brexit would be bad for Ireland and the UK generally, ironically Ireland could actually offer multinational corporations an attractive alternative to the UK as a bridge to the EU.
The more worrying aspect of the recent UK budget announcements for the Irish economy is the reduction of the UK capital gains tax (CGT) from 28% to 20%. Irish capital gains tax is still 33%.
This means that Irish entrepreneurs could be tempted to move their centre of control to the UK, resulting in a loss of businesses, jobs and tax revenue to Ireland.
The Irish government should, in any event, move to reduce CGT to enable capital to recycle into new investments. I would like to see the Irish rate being reduced, in particular, for ‘productive’ capital gains.
Entrepreneurs starting and building a business are applying ingenuity, hard work and taking high risks and should be subject to lower CGT. But I don’t believe this should be applied to ‘unproductive’ investments, such as buying a piece of land and sitting on it for years until it’s value goes up. That is not productive for the economy and such investments should be subject to a higher or normal CGT.
In the late 1990s, Charlie McCreevy dropped Irish CGT to 20% and, instead of losing revenue for the exchequer, this move actually increased the CGT tax take. But the mistake then was not differentiating between productive and unproductive CGT rates.
An economic backbone
SMEs make up the backbone of the Irish economy. They, along with small UK firms, would be very exposed if the UK were to leave the EU. Trade between the two countries supports over 400,000 jobs with half of them in Ireland. Some 43% of exports from indigenous Irish companies are destined for the UK.
The uncertainty that would follow a Brexit, including a possible lower value of sterling, could also be damaging for many Irish small firms.
One of the main advantages for small firms of being in the EU is that they have minimal red tape. But this advantage would be lost and small firms would struggle to finance the increasing layers of complexity that could follow Brexit. Uncertainty is never good for business.
I have worked as an entrepreneur for almost 20 years, working with and investing in many successful Irish enterprises, such as Beats Medical and Solar Adtek, and helping to create hundreds of jobs in the process. I’ve also been teaching young entrepreneurs on Trinity College’s MBA program for almost a decade.
My work has increasingly led me into the arena of government policy and the changes needed. I believe that there should be more, experienced business people in government.
Successful business people are used to ‘getting things done’. We are involved in fact-based decision-making, we focus on outcomes and making an impact. These are very useful qualities for a government and have been sorely lacking up to now.
Sean Melly is the managing director of Powerscourt Capital Partners and chairman of Trinity Business School. He is running as an independent candidate for the Seanad.
If you want to share your opinion, advice or story, contact opinion@fora.ie.
