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Irish Brain Drain, Possible Tax Hike, Will Hurt Tech Firms

The Celtic Tiger is losing its charm. Alarmed at the prospects of increased taxation, stifling budget cuts, and growing emigration of skilled but unemployed talents, high-tech companies that have poured billions in direct investment into Ireland are speaking out.

Their message is very simple but also very blunt: Any moves that crimp the ability of foreign investors to retain employees or that boost their tax rate will impede direct investment in the country.

“Any increase in corporation tax will have a damaging impact on our ability to win and retain investment in Ireland,” the American Chamber of Commerce Ireland, said in a statement supported by executives from {complink 2376|Hewlett-Packard Co.}, {complink 2657|Intel Corp.}, and {complink 3426|Microsoft Corp.}:

    At this point in time, the one bright spot on the economy is our multinational sector, which has been sustaining jobs, driving our export growth and, through R&D investment, leading the development of the smart economy. When we compete for jobs and investment we are competing not against the European Union, but against countries such as Singapore, Israel, India and China.

{complink 2294|Google}, Ireland's biggest US-based employer, was even blunter. The Belfast Telegraph quoted the head of Google in Ireland as warning: “Anything that impinges on Ireland's competitiveness is going to be a big thing for Google, including corporation tax. And anything that increases the cost-base of a business is negative for competitiveness.”

The Irish government isn't deaf to the ominous warnings from the group representing the country's largest foreign investors. Before it agreed to accept a €90 billion bailout from the European Union and the International Monetary Fund, it promised to ensure the country's attractive 12.5 percent corporate tax rate was not pushed higher by the financial rescuers.

This is not a promise the government can keep, however, especially if it requires future additional financial assistance. In fact, the government that made that promise has already folded, with Prime Minister Brian Cowen saying he will dissolve his government and call for new elections in 2011.

Ireland was a success story during its boom years, quickly earning the moniker “Celtic Tiger” as high-tech companies moved R&D facilities and even some manufacturing operations into the country. The American Chamber of Commerce Ireland estimates US firms have invested $165 billion in the country over the years, employ some 100,000 people, export some €90 billion worth of products from Ireland, and contribute about €3 billion in corporate taxes.

Recent events have undoubtedly forced the government to introduce huge cuts to deal with its budget deficit. How will this affect ordinary people and the high-tech industry? Analysts are coming up with doom forecasts, including that any significant emigration could turn the country's immediate debt problems into a longer-term “brain drain” crisis, with an army of skilled workers, who learned their trade in Ireland, lost to other nations.

Ireland's brightest minds, unable to secure local jobs or dissatisfied with the country's economic situation, are moving out en masse . Even the Irish government, according to The Independent , estimates the country's economic problem could drive some 100,000 people out over the next four years.

What will be the lasting impact on the economy and high-tech employers? Ireland's former chief economist, Michael Casey, author of a recent book, Ireland's Malaise: The Troubled Personality of the Irish Economy , puts it well when he says: “A brain drain on any scale would be a loss to the country. The middle class is the backbone of an economy and trained workers are the seed laid for the future.”

12 comments on “Irish Brain Drain, Possible Tax Hike, Will Hurt Tech Firms

  1. SP
    November 23, 2010

    Many times I wonder whenever there is finance issues the first option governments find is to increase taxes whether on people or on corporates. Cant they take other measures like reducing money spend on elections, government trips, pay cuts and so on.

  2. Mydesign
    November 24, 2010

        Brain drain is a very common and natural phenomenon happens in almost all the field, especially in technological side. The rate of brain drain is much higher in technological field, especially in IT sector, when compare with the other fields.  This may be because of better packages, work culture or for career growth. The recent decision taken by Ireland government fasten this phenomenon,  either by forcing the companies to move away or the employees to move away as a part of tax savings. In both case it’s not good for the nation’s economic side and industrial growth sector.

  3. Marc Herman
    November 24, 2010

    I propose we stop calling nations “tigers.” It never ends well.

  4. eemom
    November 24, 2010

    If Ireland does not find a way maintain its tax base, they can potentially start loosing US employers who have invested Billions.  If that happens, that will hurt the country even further.  When the new government is in place, they will need to find a way to cut their cost while keeping the taxes relatively competitive.  I agree that raising taxes is not the only answer, yet it is the first one that governments flock to when faced with a fiscal crisis. 

    The world in general is faced with a financial crisis and the countries that offered incentives for foreign corporations and manufacturers are not able to sustain them.  This may translate into manufactureres having to absorb increased cost across the board.  Maybe this is an opportunity – albeit a small one – for the US to bring back some jobs that we have lost.

  5. SP
    November 24, 2010

    There is no doubt about it that if corporate taxes are increased further, American companies would consider pull out. After all its business and in business the first policy is to make money. The reason why they go out of US is less cost and less taxes and more profit. Unless the market is really huge that even after the high taxes they make money which definitely doesnt seem to be the case.

  6. elctrnx_lyf
    November 26, 2010

    I wonde why Ireland government is trying to impose taxes on the Technlogy firms if they know for sure that it would impact the jobs. When even the UK prime minister is willing to invest and welcome the hi tech firms to set up the next silicon valley in london why would Ireland want to loose something that it already have.

  7. Anna Young
    November 26, 2010

    Sp, Taxation – direct or indirect is a major revenue venture for any goverment. Election on the hand is not a yearly occurrence, trips I'm sure is a necessity. I believe the government would have assessed and evaluated other sources of income.”
     

  8. Anna Young
    November 26, 2010

     

    Marc, Maybe so. Once Celtic, now what?Any suggestions?

  9. Ms. Daisy
    November 27, 2010

    It will be penny wise, pound foolish for the Irish government to try to play with current incentives that made it the Celtic Tiger at a time when England is proposing its own silicon vallley. It will make it definitely easy for investors to just travel down to London along with the skilled labor. A delicate balance at this time with IMF conditions which may be the cup of poison that will kill the Irish economy.

  10. Backorder
    November 29, 2010

    This is a crisis that is bound to have ramifications across national borders and will impact big banking institutions in Gemrany, UK and France which have a good amount of exposure in Ireland. The core of the problem is in the financial sector, with circumstances akin to those that existed during th sub-prime in US. This reminds of what happened earlier in Greece and it seems Ireland will have to follow the austerity advice of Big Brothers in the Euro zone!

  11. Ms. Daisy
    November 29, 2010

    Backorder, I guess the Eurozone and Britain also understood your concern on the longterm ramification of the Irish crisis, hence the late Sunday unanimous passing of the “Euro bail out” for the Irish Tiger.

  12. itguyphil
    November 29, 2010

    Sad but true. Unfortunately, I think many more nations will face the same fate before things get better. I hope these cases will be a testament to proper foresight and the downside of pure speculation (in all industries).

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