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Tax credit could boost ad market

John McGee


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AAI chief executive Barry Dooley has called for an advertising tax credit

AAI chief executive Barry Dooley has called for an advertising tax credit

AAI chief executive Barry Dooley has called for an advertising tax credit

Last week, Barry Dooley, chief executive of the Association of Advertisers in Ireland (AAI), wrote to the Minister for Finance, Paschal Donohoe, to express his concerns about the perilous state of the Irish advertising industry.

With investment in advertising down by as much as 50pc since the end of February, left unchecked, this could lead to massive job losses, a raft of corporate insolvencies and a hammer blow to the Irish advertising and media sectors, which derive the bulk of their income from advertising.

Dooley also asked the minister to consider the introduction of a 25pc tax credit for companies that invested in advertising during 2020 and 2021.

While the AAI has been down this road before, with a similar request several years ago, this time around the circumstances are a lot different and a lot more urgent.

The AAI's plea comes as other organisations representing advertisers in countries such as France, Spain and Belgium are making similar representations to their respective governments. And there are precedents.

On March 17, the Italian government introduced a 30pc tax credit for companies that invested in advertising during 2020. This is coupled with an existing tax credit that companies can claim for incremental ad spend year-on-year.

Meanwhile, Denmark has set up a €25m fund which will allow news outlets that have been hit by the collapse in advertising to avail of substantial tax credits based on up to 60pc of their losses. Further afield, ANZA, the Kiwi equivalent of the AAI, has also been working with the government on a relief package to support the advertising and media sector in New Zealand.

Here in Ireland, the collapse in the advertising market is being felt by newspaper and magazine publishers, radio stations, TV broadcasters, online publishers, advertising agencies, media agencies and production houses, many of which have scrambled to implement pay cuts, temporary and permanent layoffs, and reduced working hours.

It's probably fair to say that the importance of advertising in society and the role it plays within the economy has been overlooked or simply ignored by policymakers in recent years.

Whether we like it or not, advertising is a proven driver of the economy, and its impact is felt directly and indirectly in every county in Ireland.

Let's

Let's start with some numbers. Between them, national and local newspapers throughout Ireland employ around 4,600 staff. Local and regional radio stations, meanwhile, employ around 1,300.

Between them, the two main national broadcasters - RTÉ and Virgin Media TV - have around 2,100 on their payroll, while publishing companies operating in the magazine and online space employ an estimated 1,200 people.

Add to this the 5,000 people that IAPI estimates work in media and creative agencies, as well as the various production houses that make ads, and we are looking at around 14,200 people whose livelihoods depend, in some way, on the performance of the advertising market.

This does not include those working in the likes of Google, Facebook, LinkedIn or other multinationals that derive the bulk of their income from advertising. If we include them, a back- of-the-envelope calculation suggests that the number is 25,000, the same amount of people that work in the Irish software industry.

If we look at just local and national newspapers as an example, NewsBrands, the organisation which represents news publishers around Ireland, estimates that its members contribute in the order of €515m annually towards GDP, while revenues paid directly to the Exchequer amount to €135m, of which €20m is in VAT.

But there are other compelling arguments that highlight the importance of advertising to the economy.

In his letter to the minister, Dooley also quotes research carried out by Deloitte in 2013 that notes that for every €1 of advertising spend, it generates €5.70 for the Irish economy.

There's also no shortage of evidence-based research that shows that advertising stimulates consumer demand and encourages innovation, while it drives competition, all of which are essential components in any functioning economy.

If advertising investment plummets by 30pc this year, as recent analysis by Core suggests, this would result in a loss of up to €316m to the market, a catastrophic outcome by any measure.

This figure, however, only covers media investment and the money lost to the market. But the many creative, design and digital agencies, as well as the production houses - that never figure in these types of media forecasts - will also see their turnovers decline, possibly by as much as €30m, if not more, according to one industry estimate.

All of this comes at a time when Ireland had already been lagging other European advertising markets by as much as 20pc over the last 10 years.

Historically, there has always been a correlation between growth in GDP and the growth in advertising investment, with the latter closely tracking the former. In other words, in a booming economy, a rising tide lifts all boats.

Unfortunately, in the case of Ireland, advertising investment collapsed by around 40pc between 2008 and 2012, but it has never returned to the halcyon days of the Celtic Tiger.

According to the AAI, a tax credit of 25pc would have an immediate impact on driving advertising spend, while helping brands reboot their businesses.

It may also stave off the collapse of many media companies and save hundreds, if not thousands, of people from losing their jobs.

If there is one Cabinet member who might understand the importance of advertising and marketing, the AAI is hoping that it's Donohoe who, in a former life, was a sales and marketing director for P&G, the largest advertiser in the world.

Sunday Indo Business