‘It’s not really Ireland’s gain as UK can just cut corporate tax’
HOPES of an investment bonanza for Ireland as a result of Brexit are misplaced, because Britain will now likely cut its corporate tax rate to attract multinational investment, a leading economist has said.
‘Let’s not delude ourselves into thinking that all of that foreign direct investment is going to come over here,’ said Professor Alan Barrett of the Economic and Social Research Institute.
‘There is a possibility for us here. There is a chance of FDI (foreign direct investment) being diverted into Ireland, but it shouldn’t be exaggerated.’ He added: ‘Let’s remember that every country in Europe is competing for FDI. Britain would still compete, and make the moves necessary to counteract some of the effects of Brexit.’
An ESRI study into the likely impacts on international investment decisions showed that the position for Ireland was likely to be mixed, with Britain unlikely to simply watch the billions in corporate flows ebb away from their country, Professor Barrett insisted.
‘They are not going to sit back and just watch it happen,’ he said.
There are complex and multiple reasons behind why corporations choose their international locations, and to be the sole English-speaking member of the European Union was just one of them, Professor Barrett indicated.
‘One of the most likely things they will do is to aggressively lower their corporate tax rate to go after foreign direct investment,’ he told RTÉ Radio 1’s Marian Finucane Show.
Further aggressive competitive steps could also be expected, he added.
‘There are reports today that the HSBC (Hong Kong Shanghai Banking Corporation) is saying it will move its European headquarters out of London – but they are not going to Dublin, they are going to Paris,’ Professor Barrett said.
All member states would also be reacting and repositioning in order to win business and to secure employment in their own countries, just as countries outside the EU take their own steps, he indicated.
Professor Barrett argued that the British political class had not properly contemplated that the referendum could be lost in the first instance, nor the dramatic effects that could be then produced.
‘About a year ago or more, the ESRI was approached by the Department of Foreign Affairs and the Department of the Taoiseach to look at the implications of a possible Brexit. I think the Government here wholly understood that this was a possibility,’ he said.
‘It was quite clear that the British government had not given the same level of thought to the matter as the Irish Government. A referendum is a very different kind of election. The Government here understood this very well, because of our experience with referendums.
‘The British political classes did not appear to grasp the impacts, I have to say. I don’t think any of them really had any sense that it could lead to the break-up of the United Kingdom.’
Professor Barrett added: ‘I remember being at a seminar organised by the Institute for International and European Affairs in Dublin up to a year ago. The first implication I took away that night was the potential break-up of the UK because of the Scottish situation, and secondly the implications for Northern Ireland.’
Economist David McWilliams struck a more positive note on the implications of the Brexit for the Irish economy.
‘We should be on the phone to every single executive who might be on the brink of making a 50-50 investment decision, saying the English are an erratic race and have shown it, and you should instead invest in Ireland,’ he said.
Speaking on Friday, Mr McWilliams said there were reasons for optimism. He said: ‘Americans will not stop investing in Europe, via the two English-speaking countries in Europe, just because Britain has said, “Politically we’re out of the EU”.
‘So I suspect, we could have a huge opportunity here to actually garner a percentage of that diverted capital and income to Ireland.’
The Financial Times said in 2014 that Irish companies and State bodies have been ‘hard-selling’ Dublin as a home for financial institutions postBrexit for years.
The respected title reported that a number of Wall Street banks were at the time drawing up preliminary plans to move some of their Londonbased activities to Ireland in the event of a Brexit. Organisations such as Bank of America, Citigroup and Morgan Stanley were cited.
The day before he knew the result of the Brexit vote, Morgan Stanley’s Irish president Colm Kelleher said that in the event of a Leave, the bank might ‘possibly, possibly’ consider moving its European Union HQ to Dublin.
When asked on Bloomberg TV last Wednesday what Morgan Stanley will do differently after the Brexit vote, he said: ‘Assuming there is a Brexit,
we have contingency plans.
‘We will talk with our regulators, we will look at having a European headquarters somewhere in Europe that will be acceptable to Morgan Stanley and to our regulators.’
When asked where that location would be, he replied: ‘Possibly, possibly – we haven’t made a decision – Dublin or Frankfurt.’
And he added: ‘I like the idea of Dublin.’
Also reviewing matters is the American Chamber of Commerce Ireland. Speaking following the result of the Brexit referendum in the UK, its chief executive officer Mark Redmond said the result will have ‘a significant impact on Ireland’.
He said: ‘While it is important to note that no changes are imminent, it is vital that all necessary reassurances are provided that the EU
remains a great place for inward investment and job creation.
‘This is of particular importance when it comes to the EU’s largest trading partner – the United States. Ireland is the gateway to Europe to over 700 US companies who employ over 140,000 people; one of the key attractions has always been access to the markets of the European Union.’