Ireland’s economic chickens coming home to roost

FIRST we gave the world the Celtic Tiger and now we have the dubious honour of introducing the term ‘Leprechaun Economics’ into the economic dictionary. Let us be clear, the Central Statistics Office’s recent report that Ireland’s GDP had experienced growth of 26 per cent – and the implications of this for Ireland’s EU contributions –are disastrous. Any attempt by the Government to say otherwise is, at the very least, disingenuous. It is a crisis for the Department of Finance as it prepares a budget under never before seen political pressure and scrutiny.

However, it is a crisis of successive governments’ own making and one that the mandarins in the Department of Finance should have seen coming a mile off.

The 26 per cent growth figure is, in the most literal sense of the word, incredible and it bears little relation to the real growth that has been seen in Ireland’s real economy.

That, though, does not mean that the figure isn’t accurate. What it really represents is the fact that Ireland’s economic chickens are coming home to roost after years of dubious corporate tax policies.

While many in Ireland are loathe to admit it, across the world Ireland is seen by governments as a tax haven where government policy actively facilitates enormous multinationals in reducing their tax burden by billions every year.

Our reputation as a paradise for tax dodgers isn’t quite as bad as the Cayman Islands, Bermuda or Switzerland, for example, but we are most certainly held in the same category.

Ireland has a highly skilled workforce but anyone who claims that our workers – and not our notoriously cheap and loose corporate tax regime – are the main reason so many major multinationals base themselves here are deluding themselves.

Our corporation tax regime has led to a situation where many of the world’s biggest companies have reinvented themselves as Irish based firms so they can book all their global profits - which often run into the billions – here and avail of our cheap 12.5 per cent corporate tax rate.

These ‘Irish’ companies typically contract overseas firms to make goods whose Intellectual Properties are registered in Ireland. This means that while in many cases none of these goods are made in Ireland they are all included in our exports, another factor in calculating our GDP.

All this provides the Government with short term benefits in terms of limited additional tax, job creation and the momentary prestige earned by wooing prestigious multinationals to set up shop in Ireland. Unfortunately – as we have seen in the last few weeks – there is a major downside.

In a classic case of shooting the messenger many in Government have laid the finger of blame at the CSO. This is grossly unfair. The CSO is internationally regarded as one of the world’s most proficient and accurate statistics agencies and has been specifically singled out for praise by the EU’s own agency Eurostat. That the CSO’s figures – which are accurate - do not suit the Government is not the CSO’s fault.

Given how comprehensively Eurostat slapped down the Government’s attempts to keep Irish Water off the state books last year, any change appears highly unlikely. Ireland’s love of creative accounting has historically paid dividends but it seems our international friends and neighbours have finally lost patience.

Rather than heaping scorn on the CSO our leaders need to take some responsibility and deal with the fall-out.