Call for tax breaks for software sector

A skills shortages and lack of competitiveness threaten to undermine a fast-growing sector that could be pivotal in Ireland’s economic recovery, warns a new study of the Irish software industry.

To secure the future of vibrant indigenous companies, Prof Brian Fitzgerald, chief scientist at Lero, the Irish software engineering research centre, is calling on policy makers to emulate countries such as Romania, where employees working on software development get tax exemptions, and the UK, where there are more incentives for investment.

"Ireland needs to review its current investment and taxation policies to ensure that it does not lose out to more highly incentivised models in the UK, including Northern Ireland, and eastern Europe, " he warned. "We have a very healthy base here that we need to develop. There is an opportunity and we shouldn't miss it."

Foreign direct investment and the presence of large IT multinationals has helped fuel homegrown start-ups to a point where there are five times as many indigenous software companies as multinationals in Ireland. The number of jobs has increased by 39 per cent in the indigenous sector in the last three years compared to 23 per cent among multinationals.

The problem is finding skilled people to meet demand. Between 40-55 per cent of jobs are filled from inward migration rather than by Irish candidates, but access to overseas skills may dry up because of tax incentives that encourage foreign talent to stay at home.

At the same time, plans to grow the Irish graduate talent pool from 1,500 a year to 2,000 are woefully inadequate, according to Fitzgerald. He says the multinational presence is a double-edged sword, increasing Ireland’s kudos but compounding the skills shortages.

Limited pool of talent

Internationally known names tend to suck up the talent from a limited pool creating what the report calls an “arms race”, whereby firms compete for top graduates, pushing up salaries and reducing Ireland’s competitiveness.

Another fear is that innovations originated here might end up supporting more employment in countries that offer more attractive tax breaks.

The report, “Irish Software Landscape Study”, says 25 per cent of indigenous firms have been established in the past three years, responding to growing demand for software solutions to drive competitiveness in industries such as manufacturing, energy, transport and health.

Part of an ongoing initiative to lobby policymakers and protect the interests of the software industry, Lero compiled the study in conjunction with the Kemmy Business School at the University of Limerick, and the Centre for Science, Technology and Innovation Policy at the University of Cambridge.