Budget 2023 will be delivered against a challenging backdrop, so what steps can the Government take to maintain and enhance Ireland’s FDI appeal? Kevin McLoughin explains

The surge in Ireland’s tax revenues came when they were most needed, giving the Government valuable fiscal room to help people and businesses deal with the cost-of-living crisis.

The record €9 billion in revenue from corporation taxes does, however, raise some concerns about its sustainability in the future and the concentration risk involved, as a significant proportion of the revenue comes from a limited number of taxpayers.

While Budget 2023 will undoubtedly focus on the cost of living and energy, it is critically important that Ireland’s highly competitive position as a location for foreign direct investment (FDI) is kept firmly front of mind.

In a competitive global landscape, Ministers should seek ways to enhance Ireland’s attractiveness to FDI, so that we might retain and grow investment from multinational enterprises.

Ireland’s competitive edge

Ireland’s competitiveness as a place to do business will become even more critical as economies move into anticipated recessions here and in key export markets such as the UK, regardless of the impact of Brexit.

While Irish organisations might have diversified their export markets in recent years, those changes will not protect them from a global recession where margins are likely to be squeezed to the limit. This highlights the critical need to ensure that Ireland offers a cost-competitive, highly innovative and supportive environment in which businesses can continue to compete successfully in international markets.

What will the Government’s role be in relieving some of the supply chain pressures businesses face? There is certainly very little direct action Ministers can take on Budget Day. Still, the Government should continue its indirect support for businesses through its network of embassies, Enterprise Ireland, and other government bodies, all of which are working to open new trade routes to facilitate a broader range of procurement options.

The supports and incentives offered by the Government to indigenous Irish entrepreneurs will be of key importance to Ireland’s future economic success. These individuals are the bedrock on which the next generation of globally successful Irish companies will be built.

Spotlight to remain on R&D scheme

From a budgetary perspective, we already have an attractive research and development (R&D) tax credit regime and a Knowledge Development Box designed to encourage research, development, and innovation. In this context, non-tax measures, such as the young talent pool possessing the technical skillset and experience, are becoming increasingly persuasive.

That said, Ministers need to be conscious of the impact of the personal tax burden on an individual’s working location. In particular, there should be no changes in the Budget that might make the current Special Assignee Relief Programme scheme less attractive. International mobility remains critical to supporting investment decisions by international businesses, and the level of personal taxation can be a significant driver of the cost of such mobility.

Finally, with agreement on sectoral carbon budgets reached in July, there has been speculation that Budget 2023 will include new reliefs and incentives for green investments aimed at accelerating Ireland’s net zero journey.

In this area, however, there have not yet been any radical moves on the tax front to either penalise or incentivise activities or investments. We expect the existing policy position to be maintained in this Budget and that the Government will resist pressure to reduce the carbon tax regime against increasing energy costs.