Ireland’s innovation ecosystem is at a crossroads

OECD’s Entrepreneurial Ecosystem Diagnostics

Ireland's entrepreneurial landscape has recently come under the spotlight with the release of a new OECD report earlier this summer.

In a step toward understanding and enhancing entrepreneurship worldwide, the OECD has released its first-ever Entrepreneurial Ecosystem Diagnostics report—introducing a new framework and dataset to assess and compare the entrepreneurial environments of all 38 OECD member countries.

As the first edition of its kind, the report is both a benchmarking tool and a strategic resource for policymakers. It aims to identify systemic bottlenecks, guide targeted reforms, and foster more dynamic, inclusive, and resilient entrepreneurial ecosystems.

Methodology

Departing from traditional rankings, this report presents a new OECD diagnostics tool for assessing national entrepreneurial ecosystems in OECD countries, adopting a multidimensional, evidence-based approach to understanding what drives entrepreneurship at the national level. Unlike previous efforts that relied on single indices, the OECD’s new methodology evaluates ecosystems through three core dimensions: inputs, outputs, and variation.

• Inputs: Encompasses ten foundational elements such as institutions, infrastructure, finance, talent, and culture, measured through composite indexes built from over 40 indicators.
• Outputs: Measures entrepreneurial performance, including startup rates and business survival.
• Variation: Assesses inclusivity and regional distribution, focusing on gender and geographic equity.

Each dimension is tracked at three time points to monitor ecosystem evolution and progress. This innovative methodology not only captures the complexity of what drives entrepreneurship but is also designed as a policy support tool, providing policymakers with robust, evidence-based insights to identify systemic bottlenecks and guide national strategies.

Ireland’s strong showing

Ireland emerges as a strong performer in this inaugural assessment, demonstrating robust scores across several key input dimensions.

The country attains relatively high scores on the following metrics:

• Institutions: Evaluates administrative systems, regulations, and taxation that impact economic activity, focusing on corruption control, rule of law, market regulation, and tax rates.
• Intermediate Services: the availability of these services can reduce entry barriers for entrepreneurs, aiding them with marketing, pitching, network building, and connections with investors and customers.

These strengths are reflected in Ireland’s high startup activity and strong start-up survival rates, positioning it among the top-tier entrepreneurial ecosystems in the OECD.

Ireland’s lowest scores are on the following metrics:

• Knowledge: Measures the knowledge base necessary for innovation, including R&D expenditure (GDP share), patents (per capita), and GitHub software uploads (per thousand people).
• Infrastructure: Assesses transport and telecommunications, with indicators on fixed subscriptions, mobile data usage, and transport quality.
• Culture: Captures entrepreneurial propensity and supportive social norms through indicators on career desirability, social status, and trust.

These can be interpreted as the weakest links in the ecosystem, which should be addressed first.  

A foundation for future growth

The OECD emphasises that this diagnostic is a pilot edition, laying the groundwork for future iterations with even deeper data and refined methodologies. For Ireland, the findings offer both validation and a roadmap.

While the country is performing well, the report also identifies areas for continued improvement, such as enhancing entrepreneurial culture, appropriate infrastructure and expanding the availability of a substantial knowledge base.

The case for an increase in the RDTC rate

Earlier this year, the Department of Finance opened a public consultation as part of their review of the R&D Tax Credit (RDTC). As part of KPMG’s response, we suggest that the RDTC rate be increased from 30% to 35%.

This increase is essential for making Ireland more attractive for businesses to set up their R&D operations here and help mitigate against other domestic and international challenges.

Whilst the recent increase in the RDTC rate from 25% to 30% has been welcomed by all claimants, the ultimate benefit of this increase will only be realised by those not within the scope of Pillar Two. Therefore, increasing the rate to 35% would deliver the first effective increase in the RDTC rate to Pillar Two companies since Finance Act 2008.

In an increasingly competitive and uncertain international environment, the ability to attract and retain a significant level of innovation activity at an Irish site of an MNC can be a challenging endeavour and a rate increase would support in overcoming these challenges.

We now know that exports to the US now face 15% tariffs which did not exist last year (a decision is yet to be made in relation to tariffs on pharmaceuticals). An increased RDTC rate would help offset some of the impact of these tariffs.  

An increase would also provide additional funding to SMEs and help address the Ireland’s Innovation Index survey finding where 64% of respondents highlighted budgetary constraints as the biggest factor impacting companies’ ability to innovate.=

Innovation Index 2025: Industry speaks

The recently published 'Ireland’s Innovation Index 2025’, a joint initiative by KPMG Ireland and IRDG, provides valuable insights into the current state of innovation in Ireland and emphasises the need for a new Innovation Tax Credit. The Innovation Index 2025, based on responses from 556 companies, reveals a vibrant but constrained innovation landscape:

• 65% of businesses increased R&D spend over the past three years; 71% expect to increase it further.
• 64% cite budget constraints as the top barrier to innovation.
• 76% say a 50% R&D tax credit would incentivise green innovation.
• Only 22% of firms have structured innovation measurement systems.
• 53% believe Ireland’s R&D supports are competitive internationally, but 31% are unsure.

The report also highlights a growing appetite for disruptive technologies, with nearly half of respondents prioritising AI and digital transformation. Yet, administrative complexity and slow funding disbursement continue to deter companies from fully engaging in R&D.

Green innovation

Ireland’s climate commitments under the Paris Agreement and the EU Green Deal demand urgent action. Yet only 35% of companies are actively investing in sustainable innovation.

A targeted 50% RDTC for green technologies, as supported by 76% of survey respondents, could unlock up to €1 billion annually in green R&D by 2030.