No country for young entrepreneurs: Ireland should be attracting more skilled people

Receipts from company profits are buoyant, but the Government is heavily dependent on a small number of companies, as many commentators have noted,.

Last year, 77% of the corporation tax receipts came from foreign — mainly US — multinationals. Irish-owned multinationals accounted for just 4% of the tax receipts.

Reforms to international business taxes are in the pipeline both at EU, OECD, and national levels.

The well may not dry up immediately, but we would be foolish not to be preparing for a decline.

Ever since the early 1980s, the authorities here have sought to foster local enterprise.

There have been success stories, but one could hardly argue that Ireland’s indigenous firms punch above their weight in the international arena, when compared with their counterparts in, say, the Netherlands and Denmark. There are geographical, cultural, and financial explanations.

Ireland’s location has counted against us. We lack the level of accumulated local capital, a pro start-up enterprise banking system, or the sort of education that fosters entrepreneurship.

Traditionally, most Irish people have viewed property as the vehicle for financial advancement, with disastrous consequences a decade ago.

Despite this, old traditions die hard and the post-2013 boom in the rental sector has, once again, rewarded rentier capitalists over risk-seekers.

The Government has introduced a raft of reforms for entrepreneurs, but they are carefully hedged with restrictions, by officials keen to protect the tax base from tax avoidance.

As a result, take-up has tended to be disappointing and many regard the measures as little more than fiscal window dressing.

In the run-up to the budget, accountancy firms pressed for more generous tax treatment for entrepreneurs and for clients who play, or could play, an important role in the establishment of businesses, as managers or investors.

This year, the leading accounting firms lined up three target areas for attention: Reform of capital gains tax; tax treatment of the self-employed, and share-incentive arrangements for SMEs.

In her post-budget blog, KPMG partner Olivia Lynch noted that while reform in capital gains tax and the alignment of personal tax rates for the self-employed have been put on the back-burner, there has been progress in the area of incentives.

The Key Employee Engagement Program, or Keep, is a share incentive programme for smaller firms.

Relief under the programme has been extended to pre-trading activity, while improvements have been made to the Enterprise Investment Scheme, with a rise in the amount that can be claimed in the first year. That’s a time when the cash-flow is especially tight.

However, the real action is in capital gains tax.

Irish rates are very high compared with the UK’s. As Ms Lynch puts it: “If you really want to draw the ire of entrepreneurs, just mention the letters CGT.”

Entrepreneurs using the current relief pay a special rate on the sale of a business or asset. In Britain, the rate is available up to a much higher level.

Ms Lynch argues that with Brexit on the horizon, the gap needs to be eliminated.

Plenty of businesses will continue to be created, even if this tax gap is allowed to persist.

But will Ireland lose many high-value, high-tech businesses to other jurisdictions, particularly those that could be created by serial entrepreneurs, who may have used up their existing limit?

Risk-takers with an ability to generate profit will — and are — moving elsewhere in search of their dream.

Take the Collison brothers, Patrick and John, the Irish high-tech poster boys of their generation.

The Limerick-born brothers co-founded the payments firm, Stripe, valued at up to €35bn.

The firm is headquartered in San Francisco, though it employs over 200 people in Ireland and is likely to reach 300 staff members by the end of the year.

The recent survey of entrepreneurship in Ireland, carried out for Enterprise Ireland, reveals that one-in-nine entrepreneurs promote an idea that is medium- or high-tech-related.

The presence, on the ground, of so many high-tech companies offers an opportunity for the creation of clusters of allied activity.

However, as things stand, the incentive to leave the paid job to strike out on one’s own does not exist to a sufficient extent.

Irish agencies need to encourage the Collisons of this world to start their businesses on home soil, if possible.

It may not always be possible. It is hard to replicate the financing structures and cluster benefits available in Silicon Valley, but the authorities need to act much more decisively to craft an enterprise-based economy in Ireland, so that we are best able to fill any gaps in our economy.

Personal taxes on high incomes are likely to remain relatively high for the foreseeable future.

However, generous personal reliefs for wealth-creating activities could attract many skilled people into business.

Such reliefs, of course, would have to be crafted so as not to be abused in the cause of tax-avoidance.

Irish banks also need to be restructured to increase the flow of loans into enterprises.

Improved profit-sharing arrangements aimed at key workers, in particular, could also serve as a trigger for encouraging firms here to build international scale and owners should be incentivised to hold onto their businesses, rather than sell the businesses to outsiders (usually based overseas).

At the same time, the state should target those who have accumulated property assets — the winners from the crash, who have grown fat during the ‘cheap money’-fuelled recovery.

The message should go out that such activity is not the real route to personal wealth.

It is the great paradox of Ireland that we have traded successfully since the 1960s as a low-tax zone aiming to attract mobile international corporations. Yet at the same time, the state, in effect, discourages individuals from setting up and expanding businesses at home.

The state has a stable political and legal environment and a far-from-perfect physical infrastructure.

Ireland should be attracting many more individual entrepreneurs, returned Irish or non-Irish, into the economy.

However, the establishment prefers to place almost all its bets on the mobile corporates to whom we are in thrall.

The explanation is, in large part, a political and cultural one — a distrust of the local business people inclined to get too big for their boots.

Unfortunately, there are those who live up to the stereotype of the rapacious profiteer, the overcharging shopkeeper, but a far greater number in business are making a modest, honest living, while employing many in their local communities.

Their numbers could be swelled considerably with the right approach.