Our aim should be to foster a self-sustaining innovation ecosystem, writes RAY O'NEILL

BEYOND THE headline grabbers the report of the Commission on Taxation contains several recommendations that will impact positively on Ireland’s ability to develop a balanced and sustainable approach to innovative, high-value economic activity.

First item of interest is a proposal to put in place a new system of tax incentives to increase the attractiveness of Ireland as a location for individuals with specific skills that Ireland cannot immediately provide. A 25 per cent tax credit on salary for three years is proposed.

It might be seen as unfortunate that Ireland cannot provide all the high skills that industry requires, but it is only realistic to recognise there are specific skills deficits in the short term in areas of strategic importance, and that some importation of talent is required.

A second set of important recommendations are aimed at supporting new businesses.

The third point is the proposal that the 25 per cent tax credit on research and development should continue, but that companies should have the option to offset credits against employer PRSI. The rationale is to make Ireland a more attractive location for multinational companies interested in pursuing R&D.

In 2008, €2.6 billion was spent on research, development and innovation activities in Ireland. This represents 1.7 per cent of GNP or 1.4 per cent of GDP, which compares poorly with a 2.25 per cent GDP average for OECD countries. Of that sum, €1.6 billion is invested by firms carrying out R&D in Ireland. Just under €1 billion is derived from Government, EU and other non-profit sources.

The €1 billion is invested by agencies such as Science Foundation Ireland and Enterprise Ireland, and lags the OECD average in this sphere by about 0.1 per cent of GNP (about €150 million).

The main value of this funding is in developing genuinely new ideas, in training innovative thinkers and researchers, and ensuring Ireland has the internal capacity to understand and benefit from scientific and technological progress worldwide. It is a central factor in attracting high value foreign direct investment. Such investment includes companies such as IBM, De Puy and AON, so there is hard evidence that the strategy is bearing fruit.

Despite these successes, investment in R&D in the business sector (€1.6 billion in 2008) provides cause for reflection. It represents only 58 per cent of the OECD average expenditure. Over 70 per cent of the business spend on R&D is by foreign-owned companies.

Ireland’s prosperity depends on further development of high value activities including high quality manufacturing, international services and associated R&D.

Our aim should be to foster a self-sustaining innovation ecosystem for small and large firms, while partnering with government agencies and universities. The Medtech approach in Switzerland is an interesting model that Ireland might learn from. Medtech is an umbrella body with members in private and public institutions, from industry, research and regulatory bodies. Medtech focuses on consolidating a network approach to improving healthcare and biomedical products and international awareness of them.

Most of these elements are present here in sectors including ICT, biopharma and biomedical devices. But our approach is less co-ordinated than that of the Swiss. Changes in this area proposed by the commission are a positive move that will help promote a healthy innovation ecosystem – and they should be adopted.

Ray O’Neill is vice-president for research at NUI Maynooth