Ireland’s central bank governor has defended the country’s world-leading economic growth against accusations that it is an artificial product of big US companies taking advantage of Dublin’s low taxes.
Gabriel Makhlouf told the Financial Times that much of Ireland’s growth – forecast at 12.2% last year, more than triple growth across the EU – has come from “real factories with real people”, albeit a lot of activity pharmaceutical groups come from big technologies and companies.
“Too many people think or conclude that this is just intellectual property that moves around and isn’t real, and that’s wrong,” Makhlouf said.
“This stuff, especially in pharmacy, is made in Ireland. There are people in Ireland. There is a notable proportion of the top ten drugs in the world [that] are made in Ireland,” he said. “One of the oldest multinationals in Ireland is Intel and they make stuff too.”
Debate over Ireland’s economic superiority recently flared up after the country’s 3.5 percent GDP growth single-handedly saved the euro-zone economy from stagnating in the last three months of last year.
Critics say Ireland’s GDP is being skewed by the accounting maneuvers of large US multinationals, which benefit from Ireland’s low tax rates. When Apple moved intellectual property to its Irish base in 2015, it helped boost Ireland’s GDP by 25 percent in what Nobel Prize-winning economist Paul Krugman called “leprechaun economics.”
After Ireland’s Central Statistics Office published its 12.2 percent growth estimate for 2022 last month – the highest in the OECD rich nations club – the Irish Times wrote that the country’s economic data “should carry a health warning” because it ” as meaningless” are guidelines for how the economy is doing”.
Many large US companies – including Google, Apple, Meta, Intel and Pfizer – have their European operations in Ireland, which has a relatively low corporate tax rate of 12.5 percent. The country is also a global hub for aircraft leasing. This helped its economy rebound strongly after a previous “Celtic Tiger” boom came to an abrupt end in the 2008 financial crisis.
Even before last year’s growth, Irish GDP had more than doubled since 2014, according to Eurostat, the EU’s statistical office. That dwarfs the growth of the entire EU economy of 23 percent over the same period.
The Central Bank of Ireland uses alternative growth measures to offset the influence of multinational companies and get a better picture of domestic demand. One is a version of gross national income, known as the GNI star, which the central bank expects to see much slower growth of 5.9 percent in 2022.
Makhlouf said exports from Ireland’s multinationals “have increased and they are a big engine” for the country’s growth. “They skew our statistics, which is why . . . because a lot of the profits go back to the parent company – it’s not based in Ireland – we don’t use the GDP.”
The outlook for Irish growth has clouded over lately due to high inflation, rising interest rates and slowing global growth, Makhlouf said. Another blow could come from a recent wave of job cuts announced by several big tech giants, which is expected to hit their Irish units.
Last year there was unusual volatility in Ireland’s industrial production data, which regularly rose or fell by more than 10 per cent from month to month, prompting the Statistics Office to review how it calculates seasonal adjustments.
The Central Bank of Ireland said some of this volatility was due to “moving balance sheets to Ireland” by large multinationals, as well as “volatility in production” by these groups in sectors such as chemicals and pharmaceuticals.
“GDP has been a consistently unreliable proxy for the underlying performance of the Irish economy, particularly since 2015,” said Dermot O’Leary, chief economist at brokerage firm Goodbody.
He said multinationals’ activities, including “intellectual property onshoring, trading and contract manufacturing” had all contributed to “distorting Irish GDP, particularly in the short term”.
But he added: “The activities of the multinationals are real and have had a visible impact on the prosperity of the Irish economy in recent years.” Employment from foreign direct investment in Ireland has increased by an average of 8 per cent over the past five years, he said he. “These are high-paying jobs” that “contributed to an extraordinary recovery in tax revenues on top of the boom in corporate tax revenues,” he said.
Ireland’s unemployment rate has more than halved in the past seven years to 4.4 percent in January. The country’s corporate tax revenue rose 68 percent in August, and the central bank forecast it would surpass 20 billion euros for the first time last year. Irish exports rose 25 percent last year to a record high of 208 billion euros.
Comments are closed.