The Budget 2013 provision for €175 million Irish venture capital firms to be made available through Enterprise Ireland was welcomed as an "enlightened move" by the Irish Venture Capital Association (IVCA).
The IVCA said that the move would be a significant boost for indigenous jobs in the life science, ICT, clean-tech and other high technology sectors.
The association said that Irish VC firms are currently raising funds for investment in innovative SMEs and based on previous experience, such firms would leverage the State funding by a factor of eight to 10 times, making the real value of the Government investment well in excess of €1 billion.
"This is a timely, smart strategic move by the Government and a strong vote of confidence in the Irish venture capital industry. It will help us continue to play an important role in the recovery of the domestic economy," said Dr Manus Rogan, chairman, IVCA.
"Venture Capital is the only viable source of capital for these innovative SMEs," said Regina Breheny, director general, IVCA. "They are export focused and are an essential part of creating a knowledge based economy. In addition their R&D spend represents almost half of all the indigenous SME R&D spend."
Breheny added that Irish VC firms invest more in technology and knowledge based companies than in the rest of Europe. "High technology companies accounted for 92% of all investment by Irish venture capitalists in recent years. This is the highest proportion of investment in technology companies in Europe, where the average is 31%, with only four countries investing greater than 50%."
The Irish Small and Medium Enterprises Association (ISME), normally vociferous critic of Government policy, also gave a "guarded welcome" to the budget.
The association described the Budget as "a genuine effort to address the environment" in which the association works and "an opportunity to recognise the potential of small businesses and introduce sufficient stimulus measures that will assist them in maintaining or increasing employment and remain competitive".
The association also welcomed the changes in the start-up corporation tax, cash receipts for VAT and the doubling of the R& D credit, together with the foreign earnings deduction. "For a small open economy," it said, "specifically relying on road transport, the decision to introduce a diesel rebate for haulage contractors is overdue and most welcome."
"This Budget, while necessarily harsh, has taken the first steps to kick-start the economy," Mark Fielding, chief executive, ISME. "While tough measures are required to balance the day to day books, a much more strategic approach is needed to address the underlying bank-induced debt, the totally unaffordable public sector pension bill and the inappropriate union-dominated structure of the public sector."
However, a note of caution was introduced by Cormac Kelleher, tax expert, Mazars. Kelleher argues that Budget 2013 did not address issues relating to the taxation of intellectual property and, as a result, global technology companies may choose to locate in the UK.
Kelleher said that under the new UK ‘patent box regime’, UK resident companies will be able to tax IP receipts at a rate of 10% which is lower than the Irish rate.
"Sadly, Budget 2013 is lacking in attracting new and much wanted FDI. It is vital that steps be taken to copper fasten Ireland as a location of choice for the holding of IP," said Kelleher.
"In previous years, steps have been taken to incentivise multinationals to locate their IP in Ireland. The fruit of this labour is evidenced in the number of global technology companies present in Ireland."
"The ability to tax IP income at a rate of 12.5% is often cited as one of the key reasons for deciding to locate in Ireland. The UK has announced a ‘patent box regime’. With effect from April 2013, UK resident companies will be able to tax IP receipts at a rate of 10%. The 2.5% lower rate being applied by our closest neighbour is a matter which needs to be considered and promptly reacted to. Let us hope that the issue is appropriately addressed in the Finance Bill."
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