Before proceeding with today's business I thank the members of the committee for their work in regard to the insurance industry in the past year or so. It was gratifying to note there was all-party support for the actions taken by the Government in regard to the MIAB, in the bringing into operation of the PIAB, in the introduction of the penalty points system and regarding all the decisions in that area that were taken. The system seems to be working. I thank the members of the committee for the work they have done in this area. It is important to maintain the pressure for the benefit of the community.
We will move on to deal with the Taxes Consolidation Act (Prescribed Research and Development Activities) Regulations 2004. I thank the Acting Chairman and members for attending the meeting. I want to express my thanks and that of my Department to the committee, to its Chairman, Deputy Cassidy, in his absence, for agreeing to convene this meeting at such short notice and to Deputy Callanan for assuming the chair.
I assure members consideration of these regulations is time well spent and that the passing of them will be of critical importance to Irish industry and to the economy in general. The overall aim of these regulations is to encourage and increase the amount of research and development carried out by companies in Ireland and to make Ireland an attractive destination for foreign companies to commence or increase research and development, thereby moving Ireland's industry up the knowledge chain.
The regulations are on foot of a provision in the Finance Act 2004 which provides for the introduction of an incremental tax credit for companies undertaking research and development activities. Specifically, this section provides that the Minister for Enterprise, Trade and Employment, in consultation with the Minister for Finance, may make regulations spelling out which research and development activities are or, equally important, are not eligible for a tax credit. This distinction is important to ensure that only the right type of research and development qualifies for a tax credit. By the right type of research I mean research and development which will contribute to an enhancement of the calibre of research and development in Ireland and create high quality jobs and opportunities for our workforce. Critically, the tax credit will apply not only to basic and applied research, but also to experimental development, an activity of significant importance to Irish companies. This measure will provide an effective incentive to companies to increase research and development and will complement the various direct or, indeed, grant supports which are also available through various agencies of the State.
The types of activities defined by the regulations as eligible are in the fields of natural science, engineering and technology, medical sciences and agricultural sciences. However, the regulations specify that activities in categories of, for example, research and social sciences, market research and changes of a cosmetic or stylistic nature to existing products are not considered research and development for the purposes of the Finance Act.
I thank the committee for its co-operation in convening the meeting and I reiterate that this new initiative is particularly significant for Ireland as the level of research and development undertaken by businesses here is low for an economy whose output and exports are dominated by high technology sectors. Private sector spend needs to increase substantially if the major investment under way in the public sector is to be fully effective in its objective of fostering a more knowledge-intensive economy. Internationally, fiscal incentives in the form of tax credits or enhanced allowances are widely used to stimulate private sector research and development. Some 18 OECD member states already offer such incentives. As the importance of research and development for long-term economic growth has gained general acceptance, Ireland cannot afford to waste any time implementing these regulations.
