Capital duty move welcomed by business

New CompaniesThe Finance Minister's pledge to halve the capital duty on company formations was one of the few specifically business-friendly measures in Budget 2005.

Mr Cowen proposes to cut the duty on the capital raised to form new companies from 1 per cent to 0.5 per cent, a move he told the Dáil would bring the tax regime in this area into line with the State's competitors elsewhere in the EU.

A number of business organisations welcomed the move. Last night, Ms Aileen O'Donoghue, director, Financial Services Ireland, said that if the Republic is to tempt corporate groups to establish their headquarters or holding companies here, addressing the capital tax issue would be critical.

"This measure will not only have a positive effect on the Irish financial sector, which employs more than 70,000 people, but will also have a positive effect on other sectors dependent on foreign direct investment, such as the pharmaceutical and technology sectors.

"We are now well on the way to establishing ourselves as a serious base for headquarters and holding companies. This is an important development and it will facilitate greater Irish influence on key investment decisions for Ireland."

Last year, Mr Cowen's predecessor, Mr Charlie McCreevy, introduced a number of measures aimed at drawing corporate headquarters to the Republic. Large numbers of multinationals use other European Union jurisdictions, including the Netherlands, for this purpose.

Mr Jim Power, chief economist with Friends First, also highlighted the decision, and said that it would create a more level playing pitch for Irish companies.

However, he also pointed out that the Budget was largely quiet from a business perspective, a view which a number of organisations and individuals echoed in the wake of the Minister's speech yesterday.

Most business lobby groups welcomed the measures on PAYE. Small Firms' Association director Mr Pat Delaney said the group expected that wage moderation should follow measures such as taking those on the minimum wage out of the tax net and widening the standard-rate bands.

Mr Turlough O'Sullivan, director general of employers' and business lobby group IBEC, welcomed the fact that people on lower incomes would benefit, and predicted that the tax measures would aid wage moderation.

In his speech, Mr Cowen reiterated the Government's commitment to the 12.5 per cent corporation tax rate, which came under fire from the trade union movement in the build up to the Budget.

"Lower rates and, in particular, the 12.5 per cent corporation tax rate to which this Government is committed, have meant more revenue and economic growth," he said.

"It is the revenues generated by economic activity which keep public services going, and not higher taxes as some would have us believe."

Business groups were also glad to hear Mr Cowen stress that he was conscious of the need to get the best value for money from the levels of capital funding available to the Exchequer.

"My Department will shortly be issuing to departments revised guidelines on the appraisal and management of capital projects," he said.

"Work is also continuing on changes in public sector capital project contracts to ensure that risk is transferred to those best able to manage and control it."