GUEST BLOG: The Brexit effect

By Sean Melly, chairman of Powerscourt Investments and chairman of the board of Trinity Business School

Many column inches have been spent speculating on the possible impact on Ireland’s economy of the UK’s departure from the EU.

But whether the UK stays in or leaves the EU, UK tax incentives are having an increasing effect on the Irish entrepreneurial environment, making it increasingly uncompetitive.

The Irish SME sector has long been referred to as the backbone of the Irish economy and ministers have praised Ireland’s ’great entrepreneurs’, while lamenting that ‘we just need more of them’.

But right now, not only are the odds are stacked against encouraging any more entrepreneurs, but in fact we are losing the ones that we have. In recent years, Ireland has seen a dramatic loss of competitiveness to the UK. Ireland’s tax environment has significantly dis-improved, while the UK’s has greatly improved. This needs to be addressed urgently by the new government.

For example, Irish entrepreneurs pay Capital Gains Tax (CGT) at a rate over three times that paid by their UK counterpart. This gap is set to widen following the UK’s recent budget announcements that will reduce UK (CGT) by a further 8%. Irish CGT still stands at 33%.

RETAINING TALENT

Entrepreneurial tax relief schemes in the UK in recent years have created a well-documented explosion in the number of start-ups in the UK. This has attracted not just international entrepreneurs looking for an attractive environment, but also Irish start-ups because of the excellent availability there of seed and early stage angel capital and the relatively generous tax treatment of entrepreneurs.

If the Irish Government does not act quickly, more Irish entrepreneurs will make the move. In the meantime, Enterprise Ireland is attempting to attract foreign entrepreneurs to Ireland, but is not being given the tools to do this.

So how do we keep Irish entrepreneurs here, and even manage to ‘get more of them’, including foreign investors? The entrepreneurial environment needs to be changed. We need to incentivise entrepreneurs to start and grow new businesses.

The Irish Government should move to reduce CGT to enable capital to recycle into new investments. I would like to see Irish CGT being reduced, in particular, for ‘productive’ capital gains.

GETTING THINGS DONE

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. The UK managed to do this under the ‘entrepreneurial relief’ scheme.

The entrepreneurial environment needs to be changed. We need to incentivise entrepreneurs to start and grow new businesses

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.

I have worked as an entrepreneur for almost 20 years working with and investing in many successful Irish enterprises, such as Beats Medical (a digital health business helping Parkinson’s disease patients) and Solar Adtek (pioneering solar power management systems), helping to create hundreds of jobs in the process.

I’ve also been teaching young entrepreneurs on Trinity College’s MBA programme for almost a decade. I know what government policies Irish entrepreneurs need.

For the past decade, I have been working with the leadership of Trinity College to help restore and maintain the university’s global ranking. I am a member of the Provost’s Council and the Trinity Foundation and, as chairman of Trinity Business School, I have led a €70m building project due to be opened in 2018.

Both my work with entrepreneurs and with Trinity College 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 and I want to be a voice for business in the Seanad.

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.

Photo (above): eFile989