It is hard to move from the previous debate to this one. A colleague spoke today about moving from the sublime to the ridiculous, which is not quite fair because the Bill being discussed is important. However, the Minister will understand we need a minute or two to collect our thoughts in order that we can consider this legislation and get back to our day-to-day work.
With every fibre of my body, I support this legislation because its aim and the excellent intention behind it are very much akin to my own - that we start to develop our own indigenous industry and support, in particular, smaller innovative technology-based industries throughout the country and research and development that will help these companies and the economy to grow. The Minister's intention is absolutely right in that regard. However, the mechanism used in the legislation to achieve this is the wrong one. It is not making the optimal use of our resources and not in tune with what we need to be doing to really stimulate innovation, research and development and the development of patents, copyright and inventions. I will use this chance on Second Stage to outline some of that thinking.
People have a keen interest in developing appropriate tax policies and innovation in Europe, but, from what I have read, it seems that the OECD and the European Commission have come out against the approach adopted in this legislation. They do not believe it to be targeted and I imagine they are concerned that it may be seen as a continuation of mechanisms such as the double Irish tax mechanism whereby intellectual property rights were often traded between Ireland, Holland and the Bahamas. I imagine it is feared that these mechanisms may, in a sense, be a variation of the loopholes that have been closed in trying to gain a competitive advantage over other countries in the application of tax law. I also think there is, rightly and validly, a real lack of evidence that they will have the desired effect of radically improving levels of research and development and innovation and that there are other mechanisms that could achieve that objective far more successfully.
As I understand it, the original application of a knowledge box mechanism for larger companies in the 2015 Finance Bill is already costing us some €50 million a year in tax forgone. Yesterday I was in my alma mater, UCD, where I once worked in the innovation space in the business faculty. I was there for a debate on the national planning framework. As the president of the college had a Minister in front of him, he availed of the occasion, even though it had nothing to do with what was being debated, to point out that in 2008 UCD had a staff-to-student ratio that placed it 80th in the world. It was based solely on the staff-to-student ratio, which is fairly easy to measure as it is not one that is subject to distortions that sometimes are controversial. As I understand it, in 2016 UCD's placing was 501 in the world. If we have €50 million that we are willing to forgo because we want to invest it in research and development and innovation, I would prefer if the money was allocated to universities and for the provision of support for research and development at third level in order to improve the staff ratio and quality and standing of higher education.
I say this as a former Minister in a Department that was connected to innovation and the commercial sector. I was in office before many of the recent cutbacks were imposed. The most common complaint I used to hear from large multinational companies seeking to develop extensive research and development and indigenous companies was that investment in universities needed to increase and the quality of their output needed to improve. A broad question arises as to what we should do in that regard and I would ask it of the companies concerned, both large and small. Any company that meets the criteria to apply for the knowledge development box is successful because it has got out of the valley of death of development and innovation. As anyone who has established a company knows, once a company makes a profit, it has made it and will survive unless a strategic mistake is made.
The companies which meet the criteria should invest in third level education. Rather than introducing tax cuts, we should seek to generate additional revenue and hypothecate this income for the third level sector, even if the Department of Finance hates hypothecation. Many of the companies in question are making profits from patents and intellectual property. It is inappropriate that, according to figures provided by Professor Jim Stewart in Trinity College Dublin, American companies located here are paying effective tax rates of as little as 2%. It is wrong that the State does not achieve a return from companies that make money from intellectual property, especially as it is third level education, a public good, which creates intellectual property. Rather than giving tax breaks, we should invest in research and development.
Recently, the chief executive of Science Foundation Ireland, whom I strongly support, briefed Members of the Oireachtas in Buswells Hotel on SFI's activities. Not all of our past decisions were bad mistakes. In 2004 or 2005, the then Minister for Enterprise, Trade and Employment, Mary Harney, made the strategic decision to refocus industrial strategy on investment in science research, specifically the biomedical-biopharma and digital sectors. The Green Party in government provided the third leg of this stool when we added clean energy, although this is still the weakest of the three legs. This strategy worked and was the right approach. Rather than introducing tax breaks, we should pursue this strategy further and use the revenue we would forgo as a result of the tax break to invest in Science Foundation Ireland and the range of other infrastructure required to support innovation. This does not always mean significant financial investment. It may be providing access to data and managing our resources to create innovation communities, cultures and connections. This is where innovation is taking place. The reason the silicon docks area of Dublin is working is not that certain companies have located there as a result of tax breaks, although that should also be acknowledged, but that a community of smaller companies is being supported by a network of angel investors and other non-formal investment mechanisms. It is this that creates innovation. Tax breaks will not do it, especially for the types of small companies the Bill seeks to benefit.
As I stated, we are already backing winners. If we want to support research and development, we must back losers. Most research and development does not reach the commercialisation stage. We are targeting the lucky few projects that have proved commercially viable and successful and will create a profit. We are handing a direct capital gain to companies that have already made it and ignoring the vast majority of small Irish companies whose profits are below the thresholds provided for in the Bill and which need investment in research and development if they are to emerge from their current unprofitability. The mechanism in the Bill, by its very nature, is not targeting in the right way.
It was interesting to listen to Deputy Richard Boyd Barrett speak about copyright yesterday. I pointed out to him that the original copyright law came from St. Columba when he said, "To every cow belongs its calf; to every book, its copy." I presume this statement, which is often cited as the first copyright decision, dates back to the seventh century. We need to start reconsidering copyright and many of the principles around the new and evolving Internet digital economy.
The State needs to invest in getting the principles right, not only on copyright but also on rules of privacy, open access to data and data sharing. Rather than providing €50 million for the tax break proposed in this Bill, we should invest a similar amount in attracting the best digital and legal thinkers to advise the State on digital principles and how to make this country a safe and secure location to store digital information. This would set alight industries across different areas which are seeking such a location, particularly in a world of fake news where there is uncertainty about the protection of privacy and copyright. These are the issues in which we should invest to create the environmental culture in which the economy will flourish, rather than sticking with the old ways of providing tax breaks, which may have worked when the Shannon industrial development zone was established 50 years ago. We must be more sophisticated and thoughtful in terms of how we seek to develop an innovative environment.
I recently attended a conference organised by the Goethe Institute on surveillance, which is a major issue in terms of privacy and data protection. As an English speaking nation and a common law country that is subject to European regulation and has a strong, stable and democratic political system, an independent Judiciary and connections to American technology companies, Ireland is primed to become a safe haven for ethical, trusted digital industries. Denis Jennings, the former head of the computer science centre in University College Dublin, addressed the conference and made the case for what could be described as a digital Bill of Rights. He set out ten principles, proposing, for example, that citizens should have an ability to opt in to a State digital identity where their information would be stored or managed in a way they could trust. If anyone were to seek to use or interact with these data, this activity would be logged and audited and the process would provide the security that is currently absent on the social platform networks on which we all engage. People want a digital platform that guarantees security. The State should invest in this system rather than giving tax breaks in the belief that it is the clever approach.
Patent law tax breaks have been introduced in 12 other countries and London is probably ahead of the game by a couple of years. The tax break option is not enough, nor is it the best or wisest use of resources. It is not even in tune with the culture we need to adopt. We must invest in innovation and become one of the best places to locate on the basis of our judicial rules and support for education, culture and community, rather than tax breaks.
If the Bill is passed, as I presume it will be, we must try to achieve some of the cultural change that will be important in the way we implement the legislation. It will be interesting to have an opportunity to make inputs on Committee and Report Stages on how we operate. As I stated, we must create a safe, secure, open, transparent and well-regulated environment for enterprise and innovation.
Everything we do in regard to this particular tax break and the application of the knowledge box for the large multinationals should be done in as transparent a manner as possible. There should be an obligation for reporting on an annual basis stitched into the budget cycle in terms of the number of jobs created, the inventions, patents and copyright mechanisms that have been supported in the different sectors, the timelines, and the connections to other grants or supports we provide to ensure that we are not giving double tax advantages and grants via a whole range of different measures such that certain countries are accruing them. We also need to know who are the real beneficiaries and how this fits into the new European Commission and OECD rules around measuring tax where business activity takes place. Whatever one's views of the Apple tax judgment and whatever one thinks about the ethics or efficiency of our system or the appropriateness of it, in a vast majority of key places such as Brussels, London, the United States and elsewhere we are not seen in a favourable light in terms of how we have applied corporate tax breaks in recent years. We are seen as a tax haven.
If the world needs to move - I have a strong sense that it does - towards a more ethical version of capitalism, one not based on bending the rules and having favourable connections which allow companies effectively to get away without making any contribution to society, which I think it will do despite what is happening in Britain and America, then we need to be cleaner, more transparent and more ethical in everything we do. We should do that in the application of this particular tax break so that we work out what exactly we are gaining, where that gain is going and what we are losing in terms of what we could be investing in those other arms of innovation development that we badly need to address.
I studied business in UCD in the 1980s. I also worked in UCD in the same decade and I have had a consistent interest in the college and in the development of business innovation here. I am old enough to remember the Telesis report, the Culliton report and the Enterprise Statutory Group report. There are many reports which point to the need to develop Irish indigenous industry to ensure we are not over-reliant on foreign direct investment. We are still over-reliant on foreign direct investment. We need to change. We need a new innovative enterprise strategy that is based on confidence in our commercial companies and their ability to grow, prosper and develop. They are as important a part of this country as are other communities, including the communities we saw here tonight. We need to support that community. The Green Party believes that this community will flourish in a green Ireland. We should do this by supporting our education system, creating cultural community supports around innovation and development, by investing in Science Foundation Ireland, by putting in place a set of digital rules in this country that are best practice in the world that are neither corporate nor State controlled and by providing an alternative to the excessive power and hegemony of some of the international social media companies which, I think, will lose the trust of the people because of the inappropriate controls and level of surveillance in which they are engaged. If we do that at the same time as we are doing this, our economy will fly.
