Third-level tax credits could deliver skills to assist economy


OPINION:Giving tax credits to students who enrol in prioritised courses could help achieve the goal of building a knowledge economy, writes OWEN ROSS

THE COUNTRY is bracing itself for what many expect will be one of the toughest budgets in decades. The Minister for Finance will have to take decisive action in the immediate term to try to balance the books.

Despite the bleak outlook being put forward by many commentators, it does not have to be all doom and gloom. Through creative thinking and innovative taxation policy, Brian Lenihan can create a long-term vision based on developing certain sectors that can achieve sustainable economic growth. He can help energise the Irish people to attain the appropriate qualifications and skill set to deliver on this vision.

The Minister could announce an educational future tax credit as a long-term response to the economic downturn. He can instil hope by placing the development of Irish people at the core of economic policy and the best part is that this will not cost the Irish taxpayer an extra cent at this time.

So what is an educational future tax credit and how would it work? It is a promise of a tax credit for future graduates who enrol on designated, prioritised third-level programmes. These tax credits could be availed of for a substantial number of years after graduation.

The purpose is to incentivise people to select programmes in disciplines where Ireland is experiencing a skills deficit. The designated programmes could be altered as our needs and priorities change. The goal of this long-term strategy is to produce more graduates to develop certain sectors, thus delivering the vision of Ireland as a knowledge economy.

The first step in introducing a tax credit of this nature will involve leading figures from industry prioritising the third-level programmes from which more graduates are needed. These programmes will provide students with the required skills needed to drive our economy forward and could be designated as wealth creation programmes. The Minister could offer incentives in the form of tax credits that can be availed of at a future date by any person who undertakes one of these programmes in either a full- or part-time capacity.

One such model might involve a commitment that any person who graduates from a designated programme will get a generous tax credit for 10 years after the date of graduation. This innovative measure would have little or no impact on the remaining budgets of the current Government. The impact would see more prospective students choosing to study on one of the designated programmes. This will result in an increased number of graduates available for employment in sectors in which a current or potential future skills deficit has been identified. This tax incentive would influence individual choice and guide people toward attaining the skill set that the country needs to grow the economy. In the long term this will lead to greater levels of employment, higher incomes and higher tax revenues for the Government.

This proposed tax credit is merely an incentive to deliver on a larger vision. This vision, like many others, raises two distinct questions that need to be clearly answered. In what sectors can we identify long-term sustainable employment opportunities for Irish people? How are we going to provide people with the necessary skills? Fortunately for the Minister, the first question has already been researched by the Expert Group on Future Skills Needs. They have identified specific skills shortages in an array of sectors. One such sector, information and communication technology, was the subject of their most recent report published in June of this year, entitled Future Requirement For High Level ICT Skills in the ICT Sector.

Improving the intake at undergraduate level and ensuring third-level courses reflect the skills mix/diversity of ICT business are included as two of the recommendations. The difficulty for the Government is how to encourage more people to choose the type of third-level programmes that these recommendations allude to. Up to now, government policy has tended towards investing in State agencies and third-level institutions to enable them to supply programmes of the highest standard.

Further investment of this type by Government is unlikely due to declining economic resources. This means that the focus must change to individual choice. This is where creativity and innovation in tax policy can take centre stage in defining the next step for Ireland. The introduction of an educational future tax credit would be one such innovative measure that would see taxation policy as a positive agent of change.

Of course, tax innovation and creative thinking is nothing new in this country. It is unwise to underestimate the impact that it can make over time to the manner in which we lead our lives. A look back at the McCreevy era highlights how taxation policy can influence individual choice and become a means of economic and social change.

Regardless of how people feel about Charlie McCreevy's taxation policies, they certainly had a considerable impact on the social and economic fabric of the nation. One cannot deny that the reduction in capital gains tax contributed to a change in how Irish people bought and sold assets. In particular, this was evidenced by the increase in the volume of transactions associated with property. People made choices to trade based on a reduced tax burden. The impact of individualisation had a similar effect. People made a choice influenced by this taxation policy. This contributed to more married people entering the workforce.

There are also welcome side effects to announcing this particular type of tax incentive. It would send out a signal to the international community that Ireland is genuinely committed to ensuring that our workforce contains the appropriate level of graduates with the necessary skills mix. This could lead to increased inward investment and associated future prosperity. It might also incentivise some of the multinationals currently operating in Ireland to remain here. Another positive is that our national obsession with the housing market might come to an end. "People before Property" could be our new mantra.

But perhaps the biggest positive development might be the restoration of belief in our politicians. This is a long-term policy decision. It is unlikely to result in any economic bounce in this electoral cycle. Brian Lenihan could be putting a taxation policy in place that might benefit future ministers for finance from other political parties. Such an act could surely be viewed as a somewhat patriotic action on the part of the Minister.

What should the priority be on budget day? Much of the recent media coverage on our current predicament has been focused on the construction industry. You can expect that attention to continue in the lead up to the budget.

Yet from a long-term perspective it is essential that we learn from our recent experiences and recognise that we cannot centre our economy on the property market.

A new long-term vision must be created around human capital. The raw materials for this vision are creativity, innovation and hard work; and it is these raw materials that will place the Irish population at the core of economic policy. It is time therefore to make the knowledge economy a reality for everyone. Put simply, we need to focus on providing Irish people with the necessary skill set through third-level education to ensure sustainable long-term employment and a good standard of living in the future.

Investing for the future is always good. This is the first generation to have enjoyed real prosperity. The next challenge is to ensure that future generations can also enjoy the benefits of a boom, but let us hope we can provide them with the appropriate set of competencies in order to sustain it over a longer term. Tax innovation contributes to individual choice. It is too powerful a tool to ignore when considering the shape of the Ireland to come. It is never the wrong time for a solid long-term policy decision. Hope is a powerful emotion. An educational future tax credit could provide more than a glimmer of hope in a budget where few expect it.

• Owen Ross is head of the department of humanities at the Athlone Institute of Technology