The Irish Times

Real growth may not be a supersonic 7% but we are still doing really well

- Cliff Taylor

An economist or a statistici­an might be some help in trying to work out what is happening in Ireland’s economic figures, but, really, a philosophe­r might be more useful.

When a big multinatio­nal moves the right to its intellectu­al property to Ireland, does this represent a “real” rise in economic activity?

Or what about when manufactur­ing undertaken in the Netherland­s or the sale of goods in the UK is arranged from an Irish subsidiary of an American multinatio­nal?

There is no “right” answer to a lot of these questions. The presence of big multinatio­nals in a small economy has long been a complicati­on in trying to work out what is really happening, but tax-driven changes and the increasing­ly global nature of business are now making it all the more tricky.

There are statistica­l rules covering all this stuff. When all the numbers are counted, they show the Irish economy growing at an extraordin­ary rate of 7 per cent.

And even if you make a stab at removing the multinatio­nal froth from the data , there is no doubt that growth here is well ahead of the average.

For example, the volume of consumer spending, for so long in the doldrums, is up 3.6 per cent year-on-year. Perhaps this isn’t a bad “guesstimat­e” for a kind of underlying rate of growth in our economy – and given the buoyancy in parts of the business sector you could even add a bit.

The difficulti­es with trying to strip out the multinatio­nal factor are significan­t. For example, as UCC economist Seamus Coffey pointed out in a blog on the national accounts figures, tens of billions slosh in and out of the economic figures relating to manufactur­ing carried out overseas on behalf of Irish subsidiari­es. Under the rules this is counted as “Irish” exports although most of the money is then shuffled on to other parts of the multinatio­nal empire.

There is one other factor now coming into play. And here again Ireland’s luck is holding – for the moment anyway.

Internatio­nal moves, led by the OECD, are putting pressure on big multinatio­nals to be less aggressive in the ways they arrange their affairs to avoid paying tax. There are pluses and minuses for Ireland in this.

On the negative side, there looks likely to be pressure on companies to pay more tax where goods are actually sold, rather than from a lower tax location where the whole thing is managed from. As an economy with a small market and a lot of multinatio­nal headquarte­rs for Europe, we could lose a bit here.

Businesses

However, the surging corporate tax revenues suggest we are more than making up for this elsewhere.

Part of the rise in corporate tax revenues above target is due to businesses doing well, making more profit and paying more tax. But there is also something else going on.

Big US companies, sniffing the internatio­nal mood and seeing new rules being introduced, are starting to abandon tax havens. Up to now many would have had subsidiari­es in havens like Bermuda, which had legal ownership for what are called their intellectu­al property rights – the rights to market products and services around the world arising from patents and copyrights and resulting from massive investment. The rest of the multinatio­nal empire pays big royalties to these subsidiari­es, effectivel­y a fee to be allowed to sell the products and services.

As this money has ended up in tax havens – or in the case of Apple ended up “nowhere” in a stateless company – little or no tax has been paid on it .

Now, however, there is pressure to abandon tax havens. And given that many of the big multinatio­nals have operations here already, at least some are moving the ownership of their intellectu­al property rights to their Irish subsidiari­es.

The immediate tax benefit to us may be limited –as the companies get a big tax write-off to account for the investment involved in bringing these rights to Ireland - but it does seem to be adding to national revenues.

Also, over time, it does further embed the companies in Ireland and means that at least a bit more of their tax bill should end up here.

It seems that this is one factor which has helped to push up the corporate tax take so sharply above target this year.

Investment figures

This all affects the economic statistics in a host of ways. The purchase of intellectu­al property by Irish subsidiari­es, for example, is a factor boosting the national investment figures – up a massive 36 per cent in the third quarter year-or-year. Here is the centre of the multinatio­nal froth which has boosted our growth figures rate to 7 per cent.

One of the dangers of statistica­l boosts like this is that they tend to bite you back at some stage as whatever it is that caused it comes to an end.

And never mind trying to judge – with the help of our philosophe­r friend – what this means about the actual level of activity and growth rate of our economy.

However, there is reality in the growth figures too. Consumers are spending more. Job numbers are up close to 3 per cent year-on-year. Businesses are producing more, even if there are some signs of a slowing in growth rates here. Many parts of the services sector are flying, as are many of the foreign-owned firms here.

Multinatio­nal money shuffling means the real growth rate is overstated. It is not a supersonic 7 per cent.

But in a world of low growth and no inflation, an economy with underlying growth of , say, 4 per cent, is still doing really well.

Internatio­nal moves, led by the OECD, are putting pressure on big multinatio­nals to be less aggressive in the ways they arrange their affairs to avoid paying tax. There are pluses and minuses for Ireland in this

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