The American Chamber of Commerce today said that the Government’s budgetary policy must be biased towards cost controls and productivity improvement measures to enhance competitiveness. Speaking at the Chamber’s Annual Thanksgiving Lunch, Brian Lenihan, Minister for Finance said that "over the last 20 years, salaries in the public service and social welfare payments have increased well ahead of inflation. Given the parlous state of the public finances and the fact that falling prices have boosted consumers’ real spending power, it is not unreasonable to examine the feasibility of reductions in public expenditure. It is only through making improvements in both public and private sector competitiveness that we can protect and grow the number of jobs in Ireland."

Minister's adddress

Dr. Paul Duffy, President of the American Chamber of Commerce in Ireland said; “the past twelve months have been unprecedented in Ireland’s economic history and the next budget is probably one of the most important to be introduced in living memory. Budgetary incentives which retain jobs, increase competitiveness, encourage innovation and prepare the foundations for new investment and employment must be the priority”.

“When I was appointed President of the American Chamber earlier this year, I pledged the full support of US firms in Ireland to the national effort to restore the country’s economic fortunes. We remain committed to supporting the Government efforts and I believe that if we take the opportunity to re-engineer our cost base, greater employment levels will be secured in the future."

“The multinational sector is one of the few industrial sectors to have seen investment and job creation in the past year, albeit at a lower rate than heretofore. Over 2,700 jobs have been announced in 48 new investment projects by IDA Ireland so far this year. A competitive cost base is a necessary pre-condition for this vital and vibrant sector to retain and grow employment in Ireland."

Duffy said that the any measures introduced in the budget need to be carefully assessed to ensure they do not add to the cost burden of doing business in Ireland.

Referring specifically to the proposed introduction of a carbon tax which has been signalled by the Minister for Finance he said; “Ireland’s energy costs are above the EU average with electricity costs 35.5% higher than the EU-27 average in the second half of 2008. The price of energy has more than doubled during this decade making it the biggest contributor to the cost base after wages.

“We cannot impact on Ireland’s capacity to deliver a secure and sustainable energy supply at a competitive cost. I urge the Minister and his department to consult with the National Competitiveness Council ahead of any measure being introduced in the forthcoming budget”.

Duffy also urged the Minister to build on the reforms to the R&D tax credit regime introduced in the 2009 budget saying “subsidiaries of multinationals actively pursuing R&D deepen their importance in their own corporation and develop local mandates into new areas with positive benefits for jobs and sustained long term investment. Government supports to attract higher levels of R&D investment can be developed at no great cost to the exchequer”.

He said that the companies should be allowed to off-set the R&D tax credit against either corporation or payroll taxes. “By allowing subsidiaries of multinationals to book the tax credit against labour costs on a quarterly basis it would enhance Ireland’s competitive position against other inward investment locations."

“If the objective is to secure greater levels of R&D investment in order to deliver the Smart Economy then it must be recognised by Government that R&D activity is one of continuous innovation, not incremental steps and that R&D investment projects are long term in nature. To reflect this, the current incremental system of R&D tax credits should be changed to a volume based system. A volume based system would increase the certainty of the tax credit from a business perspective. It would allow companies to be forward looking in terms of winning new R&D projects without being penalised for any significant prior investment”.

Duffy added that at the core of Ireland’s ability to attract foreign direct investment was its talent. "To compete for the best talent, and to keep the talent we have, we must have a personal tax regime that is competitive and does not act as a disincentive. The changes that have been made to personal taxation in recent years have significantly altered the balance. We all recognise that perceived equality in the tax system is an important social goal but we need our most talented people now more than ever and we must recognise that taxation plays an ever more important role in where they chose to live. The wrong tax choices will not only deter talent but will drive what we have away."

In an echo of Taoiseach Brian Cowen's jargon based delivery, Duffy said: “At a time when Ireland’s economic future is so uncertain, what our economy needs now is collaboration and not confrontation. Post-Celtic Tiger Ireland, the world has changed and we have got to change with it. We must all work together to meet the challenge of repositioning Ireland Inc., to be fit for purpose in the new global reality.”