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News & Events

Speech by Tánaiste Leo Varadkar TD, The Future of Ireland’s Industrial Policy, IIEA Zoom Webinar

Good afternoon from Government Buildings.

Donal, thank you for the introduction and for the invitation to speak today on the future of Ireland’s industrial policy.

It was a pleasure to work with you during your time as Chairperson of the Low Pay Commission. You can be proud of the fact, that during your time in office, the minimum wage increased well ahead of the rate of inflation with no adverse impact on employment levels. We have higher wages than ever before and higher levels of employment than ever before.

Congratulations also to David O’Sullivan on his appointment as the new Director General of the IIEA. David, I know you will be a fantastic leader for this organisation. 

Also, I want to commend the IIEA for choosing this topic – ‘The Future of Ireland’s Industrial Policy’ – and I look forward to the Q&A later.

It’s strange to say, but I rarely have a chance to debate topics like this in the detail they deserve. 

Government needs to respond to the issues of the day – and the war in Ukraine and the pandemic is rightly absorbing most of our attention at the moment – but it’s also important to think about the longer term, to help us plan for a world that is changing before our eyes.

As Minister for Enterprise, Trade & Employment, I find myself in the odd position that enterprise or industrial policy is rarely debated in the Dáil. My opposite numbers make suggestions about improving workers’ terms and conditions and sometimes about providing extra help to small business – which is fine - but we never debate enterprise policy.

This leaves me concerned that many take Ireland’s recent economic success for granted – that Irish companies will continue to expand, that trade and employment will grow, that we will attract more investment from overseas and that we will have the skills and talent to underpin that model for years to come.

That’s a dangerous state of affairs. We cannot, and should not take our economic strength for granted, and whatever about others, the Government does not.

We will not stay successful by standing still.  We have to get ahead of the next wave and catch it.

In the past few decades, we have made the right calls – pharma, medical devices, food production, digital, financial services.

  • But what are the right calls for the future?
  • Do we fully understand our economy’s strengths and weaknesses?
  • How has the pandemic changed us?
  • How will climate change and climate action affect us? And of course, they are not the same thing.
  • How will geo-political developments – the divergence of Britain from the EU, the rise of China and the new cold war started by Russia – change the world for us?
  • How do we drive productivity and success among our own start-ups and scale ups so that they go global? 

With these questions in mind, the Government has given me approval to develop a new White Paper on Enterprise Policy.

It will be published later this year, setting out a vision for Ireland’s enterprise policy to 2030 and beyond.

Consultation will be central. We will make sure the White Paper is informed and challenged by fresh perspectives and the latest thinking.

An advisory panel of international experts will be established, including experts from organisations such as the OECD, the World Economic Forum, experts from similar jurisdictions, as well as business people and academics.

We want to hear from you, IIEA members, and any other organisations or people that can articulate different perspectives and identify what we are doing right and what we are doing wrong.

The past two years have been a period like no other. We had to show pragmatism, adaptability and a willingness to do things we would never have contemplated before. The pandemic has accelerated pre-existing trends that have reshaped the way we live and work. In particular, it has accelerated the digital transition.

The war in Ukraine adds further uncertainties on energy prices and supply, inflation, the cost of living and food supply and will accelerate the green transition and particularly energy independence for Europe.

For Ireland, as an open and global economy at the heart of the European Union, it is critical that we rebuild our European economy and prepare for a new world that is greener, more digital, more resilient and fit for the future.

The fact that we depend so much on undemocratic parts of the world like Russia and the Gulf for energy supplies is simply not in our interests.  An agricultural model that relies so much on imported grain is a strategic risk we cannot ignore.  The ongoing ‘zero-covid’ policy in China continues to disrupt the supply of goods to Ireland and demonstrates that we are far too reliant on China to be the world’s factory.

 

At a European level, the Irish Government will advocate for ‘open strategic autonomy’.  Yes to producing and developing more things for ourselves, diversification of source and destination markets, more stockpiling and storage of things we may need.  However, we will not allow this to be used as a cover for protectionism.

We are closely engaged in this work, advocating and influencing at all EU fora for an approach to EU strategic autonomy that is open to all economic actors.

Ireland is engaging with EU Strategic Value Chains and Important Projects of Common European Interest – otherwise known as IPCEI.

IPCEIs are large, multi-country projects for state-of-the-art innovation to solve market or systemic failures in particular sectors.  Favourable state aid rules apply, allowing for the possibility of public-sector funding to be granted for certain projects

The Irish Government sees this as an opportunity for Irish and Irish-based businesses to be part of developing and strengthening European capacity and capability in frontier technologies and collaborating with other businesses throughout the EU.

Ireland was one of 16 Members to sign the Manifesto towards a Health IPCEI. Other IPCEIs are under development, such as in Microelectronics and Communication Technologies and the hydrogen value chain.

Accelerating the twin transition, digital and green, will present both challenges and opportunities for enterprises and we need to be prepared to take advantage of these and ensure Irish businesses expand into new and growing markets in a low carbon economy.

Chairman, I’d like to spend a few minutes to talk about the themes we are likely to explore as part of the white paper.

Climate

To start with the theme of climate change, the Russian invasion of Ukraine has highlighted the inherent vulnerability of allowing our economies become dependent on fossil fuels, especially when limited supplies are controlled by a small number of states.

While weaning ourselves off coal, oil and gas is a global challenge, it also presents incredible opportunities for Ireland, specifically in the area of electricity generated by offshore wind, backed up by mega-batteries and interconnection, and of course, green hydrogen – the home-produced fuel of the future that can replace natural gas, fire our power stations and heavy industries and fuel our trucks and ships.  We can go from being an energy importer to being an energy exporter with all the benefits that come with it – greater energy security and price stability, employment and regional development.

 

As well as that, by ensuring we have plentiful energy supply, multinationals and industry will feel more confident investing in Ireland and creating jobs here.

I believe the development of synthetic aviation fuels will be an area of growth and of crucial importance to maintaining our connectivity being an island nation.

Retrofitting is another area where we will see massive growth. The Government recently launched a new National Retrofitting Scheme which offers incentives for homeowners to upgrade their homes to a higher energy standard. We’ve committed to a range of initiatives to train and upskill people to carry out what we expect will be significant demand.  

I see this as another fantastic opportunity for regional development, with around 13,000 new jobs forecast to be created in the industry over the next three years – in every county.

The Government is committed to reducing emissions by 51% by 2030 and to become net zero by 2050. These targets are now legally binding and the Enterprise sector will be required to remain within a carbon budget.

I’m under no illusions as to how difficult the climate transition is going to be for small businesses. I know many business owners are concerned about what all of this means for their business and how they are going to adapt, especially given the past few years.

We must help them through this transition with practical advice, grants and loans.

Digital Transition

Under our new National Digital Strategy, we will drive a step-change in the digital transformation of businesses, especially SMEs.

The digital economy in Ireland is running at two different speeds. While a small proportion of the enterprise base has fully embraced digitalisation, there is a need to accelerate and enhance digital adoption right across Irish businesses and indeed, the public sector.

We want 90% of SMEs to have achieved basic digital intensity by 2030 and we will help to realise that ambition through a multi-annual Digital Transition Fund for business.

All Irish households and businesses should be covered by a Gigabit network no later than 2028 due to the National Broadband Plan and private telco investment and we want to increase dramatically the number of graduates with higher-level digital skills.

 

Ireland has a strategic advantage with our rich ecosystem of multinational and indigenous technology companies and we have incredible expertise within those companies and in academic institutions.

 

Supporting companies to innovate and scale

While Ireland has performed very well on international innovation indices, on some indicators, such as the European and World Innovation Indices, we are starting to plateau. Other advanced economies are also prioritising innovation policy reform and investment and are moving ahead. On the Global Innovation Index, we have fallen back to 19th position in 2021 from 15th in 2020.   That’s not good enough.

It's no secret that our high national productivity figures mask a productivity gap between high-performing ‘frontier’ firms, often foreign-owned, and the rest of the economy.

Closing this gap must be a focus of the new White Paper on Enterprise Policy.

I am encouraged by the number of Irish start-ups that have achieved unicorn status from Flipdish and Fenergo to Wayflyer and LetsGetChecked.  We should aim to have two Irish unicorns every year.

To do so, we must broaden and deepen enterprise innovation capability, increasing the number of SMEs investing in RD&I, linking our multinational and SME innovation base and public policy, and embedding a culture of continuous innovation.

We must cultivate collaboration between industry, academia and research commercialisation and simplify the routes for enterprise to engage with the public research system.

To enable this, my Department is developing an overarching National Clustering Policy and Framework to maximise the potential of clustering as a policy tool. Clustering is a strategic focus for both Enterprise Ireland and IDA Ireland to promote balanced regional growth and to strengthen enterprise linkages and spillovers.

The €500 million Disruptive Technologies Innovation Fund is a good example of how Government can encourage collaborations between industry and the research sector on the development and commercialisation of ground-breaking technologies.

Over 180 projects under the Fund are pushing boundaries, driving change and devising better ways of doing business. This kind of collaboration is our future.

Traditionally, Ireland has lagged behind other countries in our ability to scale up our SMEs into large global companies.

The well-documented shortcomings of our seed funding market for start-up companies has led to high potential businesses seeking investment from outside the jurisdiction, which, in turn, leads to a flight of technology and skills to other jurisdictions, especially the US.

I want this to change.

So, last month we launched the Irish Innovation Seed Fund. It will operate as a fund of funds, essentially a fund that invests in specialist fund managers, who then source companies with strong potential for a commercial return on investment. It’s a collaboration between Enterprise Ireland, the Ireland Strategic Investment Fund and the European Investment Fund.

We have also reformed the Employment Investment Incentive Scheme to increase uptake and we are examining ways to help smaller companies and starts-up that cannot afford large salaries or bonuses to keep their staff.

The White Paper needs to examine what more we can do.

Investing in people

Companies can only grow if they invest in their workforce and plan for the skills of the future.

Upskilling and re-skilling will increasingly become the norm for companies needing to adapt to the challenges that lie ahead.

As you may know, I have set three objectives in my role as Minister for Enterprise Trade and Employment:

  1. To help businesses respond to Covid and Brexit – to survive and prosper. And you can probably add Ukraine to that now too.
  2. To restore and exceed pre-pandemic employment levels by achieving a target of a record 2.5 million people in work by 2024 and ensure there are job opportunities in all parts of Ireland.
  3. To create jobs with better terms and conditions, that are more sustainable, secure and valued.

These objectives must be underpinned by a series of actions across government to invest in education and widen our skills base.

 For example, we are trying to reimagine the role of apprenticeships in Ireland. Our ambition is to grow new apprentice registration to 10,000 per annum by 2025.

We are on track to reach that target. Apprenticeship registrations in 2021 were the highest they have been since 2007.

 

It’s cliché to say there is a global fight for talent, but recent events mean that fight is only going to intensify.

I am sure that improving pay, terms and conditions for workers is part of the answer.  It’s the only way we will attract and retain the staff we need.

I know small businesses have been through a lot in the past two years and new policies like sick pay, remote working, more family leave, a living wage and auto-enrolment just feels like the Government loading on more costs.

We will help small businesses and employers to manage these changes by phasing them in over time.

Competitiveness

Ireland’s industrial policy framework for over half a century includes a stable and low rate of corporation tax. 

My colleague Minister Donohoe in an address to the IIEA in November said that Ireland’s decision to join the OECD Agreement on international corporation tax was “an important decision for the next stage of Ireland’s industrial policy”.

I agree. And, it underscores the need to remain competitive right across the economy.

IDA Ireland clients enjoyed a record year of job creation in 2021 and the early signs are that joining the OECD agreement is unlikely to adversely impact Ireland’s existing base of FDI.

From a tax perspective, Ireland will remain a highly competitive place to do business. We will continue to offer a 12.5% rate to over 95% of companies operating in Ireland. For those larger companies affected by the decision, the recent changes provide clarity and certainty for investors on the global minimum tax rate that will apply to them – 15% and no more – and that is, assuming the deal is ratified and implemented.

We must be creative about how to preserve Ireland’s reputation as a world-class place to do business. As always, it will be about talent and track record as well as tax, but it must be about other things too like security and infrastructure and liveability.

Competitiveness also means providing the basic infrastructure expected in advanced economies, such as energy, housing, water and transport. I acknowledge the real shortcomings in these areas.  We are determined to change that.

With a rapidly rising population, Ireland needs to invest big in infrastructure. Since 2017, the percentage of Gross National Income committed to public infrastructure has risen from 2.5% to about 4.5%. That’s now substantially higher than the EU average and well ahead of our peers like the Netherlands and Denmark.

 

The revised NDP – Project Ireland 2040 - will see this level of investment continue and grow to 5% of GNI, from €12.7bn this year to €19.3bn in 2030.  I recall when I first became a Government Minister it was as little as €3 or 4 billion euro.

Trade Policy

As a country, we owe our relative prosperity to the goods and services produced by our people and our land, which we sell around the world. There are around 200 countries in the world and Ireland is always in the top 10 or 20 in terms of wealth and living standards, depending on how you measure it.

I know some other speakers at IIEA webinars and elsewhere have sought to characterise Ireland’s recent economic success as a story of prosperity enjoyed by the few and at the expense of the majority. Some even characterise Ireland as a ‘failed state’.

I reject those assertions.  They are simply at variance with the facts.

We have not become a wealthy country because of oil, gas, diamonds or gold. Our success is based on a formula of trading goods and services internationally, our attractiveness as a place to invest and our ability to enter into international free trade agreements with other countries.

That formula might sound simple, but it has to be reinforced day-in, day-out by our enterprise agencies and officials working throughout government.

Our position at the heart of Europe, its single market and the eurozone is crucial to this formula.

Chairman, I believe Europe must be a champion of free trade, free enterprise and multilateralism.

Unfortunately, protectionism is alive and well and plenty of excuses for protectionism are presenting themselves. That worries me because there is no doubt Ireland will be a net loser if we start rowing back on free trade and see the rise of protectionism again.

We have lost a natural free trade ally in the EU with the departure of the UK, so we will continue to have to work harder with like-minded EU trade ministers to make sure we strongly articulate our position.

Inflation / Cost of Living Crisis

Colleagues, it would be remiss of me to conclude without saying something about the inflation and cost of living crisis being experienced by so many of our citizens.  For the first time in many years, real living standards could fall this year if prices rise faster than disposable incomes.  It’s certainly true for very many households already. 

 

It’s something the Government is conscious of and concerned about.  For this reason, we have provided over €1 billion in relief already to ease the pain – increased fuel allowances and a €125 payment for the poorest households, a €200 deduction from electricity bills for all households and reductions in taxes on diesel and petrol.

There are many causes of this spike in inflation and living costs.  It comes after a long period of very low inflation and interest rates which was sure to end, but unfortunately, it ended dramatically. 

Monetary policy decisions by the world’s central banks, rightly printing trillions of dollars, euros and yen to help pay for the Global Financial Crisis and then Covid, disruption to supply chains, the pandemic itself and a mismatch between rising demand and inadequate supply have brought the world to this pass. 

We have not seen this phenomenon since the early 1980’s.  While I might not agree with the exact numbers, I agree with the ESRI’s assessment that the spike in inflation is not temporary.  It could go on for two years or more.  It requires a long-term response as well as temporary measures.  As every doctor knows, it’s important to treat the symptoms and you must also treat the underlying disease.

So, I believe we need a comprehensive anti-inflation strategy to reduce the cost of living. Central Banks must do their bit, and I believe it would be better if they reigned in quantitative easing at an appropriate pace, rather increasing interest rates at this time. As a Government, we can do more by helping to reduce some of the underlying high costs that Irish people endure.

  1. We can continue to reduce the income tax burden on middle-income earners in particular so they can keep their pay rise if they get one and at least get something back in their pockets if they don’t.  I can’t understand why the Opposition parties continue to oppose the indexation of tax bands.  The case for it is never stronger than now given inflation.
  1. We can reduce the cost of services that are influenced by Government.  Childcare is already subsidised in Ireland.  The focus of additional subsidies this year has been on paying staff better and improving quality. Next year, increased subsidies should be used to reduce costs considerably for parents.  This will increase disposable family incomes and make it more attractive for parents to return to the labour market thus helping to fill vacant positions and moderate wage inflation. The same applies to charges for healthcare.  While we have made real progress in recent years in reducing the cost of medicines and extending free GP care, Ireland remains an outlier.  It’s simply the case that other Europeans do not have to pay so much to see their doctor, attend a hospital or buy medicines.  The same is true of the cost of a higher education.
  1. We can strengthen our Competition Laws and Consumer Protection Laws and my Department is doing exactly that with major overhauls of consumer law and competition law due to be enacted this year.  We are also leading the Inter-ministerial committee on the cost of insurance.  Motor insurance is coming down.  Home insurance will this year and we need to see business insurance costs falling soon also.  More needs to be done on legal and other professional fees.
  1. We can accelerate the transition away from buildings and industries heated by fossil fuels to well-insulated warmer homes and businesses powered by electricity and hydrogen.  I elaborated on actions we are taking on this earlier.
  1. Of course, housing costs, and rents in particular are very high in Ireland.  We have already acted by capping rent increases at 2% which is now well below the rate of inflation.  While the temptation is there to go further, I am concerned that doing so will result in making the availability crisis worse by pushing more landlords to sell up and discouraging others from providing or investing rental properties at all. 

I think the best action Government can take is to scale up social housing construction, thus freeing up private rental properties, and scaling up our cost rental programme which offers rental properties at below market rents to low and middle income individuals and couples. 

It goes without saying that ramping up supply of new housing, of all forms, is now more important than ever especially with the increased demand for accommodation that will arise from the refugee crisis.  There must be an end to people opposing new housing because it is not perfect.  We just need new developments to be good.

These are not simple solutions, but they are perhaps sustainable ones that will work in the long term. 

I understand the need to get the balance right between responding to these cost pressures and avoiding adding to demand in the economy and making our challenges harder.

So, this is why all this will have to be done within the existing fiscal and budgetary framework agreed by Government, which involves ensuring that we continue to reduce the deficit, stay ‘with the pack’ in terms of the deficit level among our peer countries and ensure that public spending does not rise faster than the economy is growing in the absence of new revenues. 

Conclusion

To conclude, I believe our industrial policy for the last sixty years has served us well. The pace of change and the range of challenges now facing us is so fundamental that we must re-evaluate that policy. The outcome might be an evolution rather than a revolution.  Either way, I am looking forward to the work and the challenge.

Thank you.