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Irish economy grew by 26% in 2015?

by Frank Schnittger Tue Jul 12th, 2016 at 02:52:50 PM EST

The Irish Central Statistics office has just revised Ireland's GDP for 2015 up from €215 to €255n Billion. GDP growth for 2015 has been revised upwards from an already high 7.8% to 26.3% with the GNP growth rate coming in at 18.7%.  Ireland is a small, open economy and the actions of a few gigantic multinationals can throw the national accounts into total disarray. Apparently:

Crazy growth figures bear scant relationship to reality

A handful of companies in the tech sector relocated their IP assets or patents here last year amid the global clampdown on multinational tax avoidance.

This had the affect of transferring billions in capital assets to Ireland inc and boosting the measured level of investment.

These companies are also involved in contract manufacturing, whereby they engage third-party companies abroad to manufacture products on their behalf.

However, the exports which never touch down here are reflected in our trade balance. Hence the 102 per cent growth in net exports last year.

Another reason for the inflated figures relates to an aircraft leasing company, which redomicilled its entire multibillion euro balance sheet to Ireland in 2015.

Consumer expenditure rose by a much more modest 4.5% in 2015 and employment has been rising by c. 2 to 3% p.a. over the past few years with unemployment falling from a peak of 15.1% in 2012 to 7.8% now. In other words, there has been a real and sustained improvement in the Irish economy over the past few years, but nothing close to the scale that some official figures might seem to indicate.  That does not mean, however that such stratospheric growth rates don't have some real world consequences:

Crazy growth figures bear scant relationship to reality

A definite positive stemming from the 26 per cent explosion in GDP is the Government's debt to GDP ratio, which is now below 80 per cent. It had been up at 123 per cent at the height of the financial crisis.

The new metric has extremely positive implications for Government's sovereign debt rating and its compliance with EU fiscal rules.

The grossly inflated growth figures may thus provide  the Irish Government with more room to maneuver in seeking to counter Brexit's estimated drag on the Irish economy of c. 1.2 per cent of GDP. However they also have the effect of increasing Ireland's net contribution to the EU above what would have been required under more realistic growth rates. Thus the financial engineering by which global companies move more assets into Ireland also has some real negative consequences for the Irish exchequer.  Crazy stuff, indeed, but if you encourage crazy financial engineering like this, you also have to live with the crazy consequences..


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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jul 13th, 2016 at 11:12:36 AM EST
Economic incentives
So if we look at the €62.7 billion increase in nominal GDP we can break it down as:

        €4.2 billion of employee remuneration
        €1.5 billion of self-employed/mixed income
        €23.1 billion of company profits (mainly foreign companies)
        €1.1 billion of product taxes
        €30.7 billion for depreciation (mainly foreign companies)
        €1.9 billion for stock adjustment/statistical discrepancy

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jul 13th, 2016 at 11:26:26 AM EST
This is your periodic reminder that GDP is an utterly useless, crappy metric.
by Colman (colman at eurotrib.com) on Wed Jul 13th, 2016 at 12:03:09 PM EST
True, but I don't recall any prior instance that was quite so absurd.
Will that stop Osborne and his ilk from claiming that the UK has the most rapid growth in the world? That would at least be a positive...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Wed Jul 13th, 2016 at 12:15:16 PM EST
[ Parent ]
They do that anyway, sometimes qualifying their claim that they are referring to major economies, usually forgetting about China and India, and aiming it mainly at what they like to regard as the "sclerotic" economies of the Eurozone. Who knows, maybe Brexit will make even the Eurozone look dynamic by comparison to the UK economy...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jul 13th, 2016 at 01:17:01 PM EST
[ Parent ]
Paul Sweeney: The news that Ireland saw GDP growth of over 26.3% in one year in 2015 at first appears remarkable.  However, it had little impact on jobs or citizens' welfare. It was the work of "magicians" working for multinationals in the tax avoidance industry.

It really illustrates is how multinational corporations and their servicing agents in the big four accounting firms and legal firms are using Ireland to avoid tax internationally with major profit-shifting, base erosion and other financial shenanigans.

Normally - in the past in developed countries - the wage share was around 75 per cent of national income. It has been in decline because of globalisation, the decline of union power, reduced taxes on companies, productivity gains going to capital etc.

A remarkable figure is the 44% growth in profits in 2015 over 2014. This is in stark contrast to some growth in aggregate wages of 5.6% (mostly because there were more workers employed) and indeed a small rise in the earnings of the self-employed.

What is also interesting is that the share of profits almost equalled total aggregate wages in the economy in 2015. The labour share of national income - all the workers (wages and social contributions) and self-employed versus a relatively small number of owners of capital.

The labour share in Ireland in 2009 was around 55 per cent which was 5th from the bottom, with 25 countries with higher rates, I found in a paper on the decline in labour's share of national income. It was much lower than in most countries where it is around 65%. Wages and self employed income made up just 51.3% of national income in 2015, which is not much more than total profits.

Total profits had been around 25% of national income in most developed countries, but in recent years it has been around 65%.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jul 13th, 2016 at 01:29:17 PM EST
CSO to convene special group to examine how best to measure the economy
The Central Statistics Office has said it will examine on how to provide accurate measures of Ireland's economic performance , in the wake of controversy over the huge 26 per cent GDP growth rate recorded for 2015.

In a statement on Wednesday it said it would "convene a high-level cross sector consultative group to examine how best to provide insight and understanding of all aspects of the Irish economy."

The CSO's statement came following questioning of the GNP figures from a range of international and Irish analysts, and a general acceptance that the recorded growth rate did not reflect underlying economic activity.

The statement said: "The CSO, like all national statistical institutes, must publish the key economic indicators of GDP and GNP in accordance with the international rules."

It added that the National Accounts 2015 did accurately "capture and highlight the open and globalised nature of the Irish economy."

However the CSO added that " due to the highly globalised nature of our economy, GDP and GNP do not always help to understand what is happening in the domestic economy" .

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jul 13th, 2016 at 03:43:31 PM EST
What's the story with the sweetheart tax deals for multinationals?

The likes of McDonald's and Amazon use the "IP/royalties" scam to make all their European profits in a low-tax environment. This is a loophole that the EU appears to be working on.

Luxemburg has been named and shamed for deals to incite multinationals to set up shop there. They appear to be doing something about that.

But has Ireland been assured that they will continue to get a free pass for this sort of shenanigans? And if so, why?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Jul 18th, 2016 at 05:59:17 AM EST
No, Ireland is under a lot of pressure to reform its tax code and closed the "double Irish" tax loophole a couple of years ago.  Bit now, following the UK, they have introduced a "patent box" loophole.  The Government seems determined not to be "out-loopholed", especially now that the UK is reducing its corporate tax rate.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 25th, 2016 at 05:08:23 PM EST
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