WHY IS INVESTMENT LOW IN EUROPE?
the amount of investment, the European Parliament considers the SME sector the most endangered group. In its opinion, the main challenge is that SMEs do not comprehend how their role in the value chain will be affected by the digital changeover (European Parliamentary Research Service (2015)). The attenuation of these concerns may be facilitated by the Horizon 2020 programme, which supports the practical implementation of the Industry 4.0 concept with approximately EUR 80 billion, the European Structural and Investment Funds, which facilitate the process with at least EUR 100 billion, as well as the ICT Innovation for Manufacturing SMEs (I4MS) programme, which also promotes the digital changeover (primarily in the areas of cloudbased information technology, robotics and simulation
economy) with some EUR 77 billion, especially encouraging the investment activity of SMEs in manufacturing (European Parliamentary Research Service (2015)). In the near future, the propensity to invest in digital technologies may be increased by the expectation that if a company implements digital investment faster than its competitors, it may have a higher rate of return and faster return as well. This may contribute to a decline in the amount of missing investment (PwC (2016)). In addition, the analysis prepared in connection with the Industry 4.0 concept by the consulting firm Roland Berger points out that the cost of additional investment may be offset by an increase in productivity (Roland Berger (2016)).
2.5 Solutions to structural challenges The low investment rate may successfully be remedied by responding to the above described challenges with economic policy and structural-regulatory changes.
exemption) as well as the accelerated depreciation accounting of capital equipment from a taxation aspect also have an encouraging impact on investment (OECD (2015)). Concerning capital taxes, the spread of the Labour market rigidities, which have an unfavourable cash-based approach may create a possibility for increasimpact on the level of the investment rate, can be ing the investment rate (Nobilis and Svraka (2014)). For eased by increasing the flexibility and the deregula- the further stimulation of intangible assets and knowltion of the labour market. In order to improve labour edge-based investment as well as in order to terminate market conditions it is also essential to prevent the unit the negative discrimination of new undertakings,27 labour cost from departing from productivity and to making R+D tax incentives reimbursable may be the make wage determination more flexible. Harmonising solution (OECD (2015)). sectoral and company-level productivity also has a positive effect on the long-term investment rate (OECD The investment rate could also be improved by increasing public investment expenditures – taking (2015); ECB (2015); Palenzula and Dees (2016)). into account aspects of fiscal discipline. Community In the product markets, increasing competition, reduc- investment has a significant fiscal multiplier effect as ing entry and functioning constraints and simplifying well. It is one of the reasons why this tool is important regulations may contribute to the longer-term rise in for increasing the investment rate. In addition, the the investment rate (Palenzula and Dees 2016; OECD investment rate could also be increased by improving (2015)). Beyond the modifications of market regulation, the efficiency of public investment (OECD (2015)). At the investment rate can be improved by the simplificathe level of the European Union, the Investment Plan tion and harmonisation of the tax system as well as by for Europe intends to facilitate this objective. With the the introduction of preferences. First, the investment simultaneous involvement of government resources may be influenced by the cut of taxes on profits. Second, and private capital, it intends to achieve the implemenJacquinot et al. (2016) elaborated a growth-friendly tax system that proposes lower tax burdens on labour from both the demand and supply sides. In addition, tempo- 27 The negative discrimination of new undertakings means that the initial conditions for businesses (typically micro, small and medium-sized companies) rary tax allowances and tax credits (e.g. temporary newly appearing in the market are less favourable in credit scoring and granting tax allowances than for enterprises that have been operating for a longer time.
GROWTH REPORT • 2016
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