The Republic's corporation tax rate is the prime reason why multinational companies choose to remain in Ireland, Microsoft Ireland managing director Joe Macri said yesterday.
While access to the EU and the availability of cheap labour were key factors in attracting foreign investment here 20 years ago, these have largely been eroded by rising costs, falling productivity and the enlargement of the EU to central and eastern European countries, he said, adding: "That leaves us with tax."
In the Republic, Microsoft subsidiary Round Island One provides a structure for Microsoft to radically reduce its corporate taxes in much of Europe. Following press coverage in the US, Microsoft took steps in March 2005 to re-register as unlimited two of its Irish units, Round Island One and Flat Island Company.
Addressing the Leinster Society of Chartered Accountants, Mr Macri said the competitive rate of return of investment by multinationals in the Republic fell from 28 per cent in 1995 to 12 per cent in 2002/03. At the same time, it rose from 0 per cent to 8 per cent in eastern European countries. "Our competitive advantage has been eroded by our high costs. That does not bode well for the future," said Mr Macri, adding that declining productivity was a major threat.
"Where we are today is not a great place." An over-reliance on construction activity was harming productivity in other sectors, he said.
"What has driven our productivity is ICT production and pharmaceutical production. Our labour market is growing fastest where productivity is least. We are moving bodies from highly productive industries to less productive industries."
Greater investment in human capital was needed, he said, adding that research had shown management capability, especially in small and medium-sized enterprises, was below par.
He also criticised the level of investment in research and development and the lack of a policy on commercialising innovation.
Mr Macri described the education system in the Republic as average at best, arguing that there was not enough emphasis on science and technology at all levels.
"We are fooling ourselves if we say we have a great education system," he said.
