The CSO plans to develop a new measure of economic growth which is designed to defuse the “leprechaun economics” jibe Ireland faced when revised GDP figures portrayed the economy surging at a rate of over 26%
The proposed new measure, called Adjusted Gross National Income, or “GNI*”, will help bring greater insight into the workings of the economy because the scale of activity by multinationals is so large that GDP and even the once-favoured GNP measures hugely exaggerate the true level of the economy here.
Under revisions announced last summer, the CSO was forced to upgrade 2015 Irish GDP growth to 26.3%, which drew the jibe of “leprechaun economics” from international economist Paul Krugman.
The recommendation for a modified measure was made by the Economic Statistics Review Group, which was led by Central Bank governor Philip Lane.
The report of the review group said it is “essential” for Ireland to understand what is happening in the underlying economy and to use measures that were free of the distortions caused by the multinationals who have their European head offices based here.
Though the new measure is yet to be devised, economic growth in 2015 would likely have been closer to 6.4% under the adjusted GNI measure than the official 26.3% figure had recorded.
That’s a rough estimation which would still give Ireland the highest figure out of all of the eurozone countries.
The revision came after unnamed multinationals, in a series of accounting procedures triggered by the new international tax rules, shifted an enormous amount of intellectual property into Ireland. That led to the country’s capital stock surging to an unprecedented €300bn in a single year.
A large part of the €300bn was accounted by firms such as Apple and represents the manufacturing they undertake in China and eslewhere, according to experts.
The transfer of the intellectual property indirectly led to a boost in corporate tax revenues collected by the Government in recent years.
In a report last year, the Irish Fiscal Advisory Council showed the country’s corporate tax base — the level of company trading profits before tax — surged in 2015 by €23bn to almost €75.4bn, as the country’s capital stock surged €300bn.
The report of the review group published yesterday does not identify the multinationals who shifted the large amounts of intellectual property.
CSO officials said they are constrained on confidentiality grounds from disclosing the identities of the companies.
CSO director general Pádraig Dalton said Mr Krugman’s comment ran the risk of “trivialising” the complexities of the highly-globalised nature of the Irish economy. The GDP figure of 26.3% captured the effects of globalisation but did not capture the complexities, he said.
“The level shift in GDP of 26% in 2015 was largely a consequence of the relocations of entire balance sheets to Ireland from outside of the EU and the activity related to these relocations. The relocated companies are FDI (foreign direct investment) enterprises which already had affiliates operating in Ireland,” the report of the review group said.
“The practice of relocating intellectual property to Ireland has been growing in recent years, but the scale of the relocations in 2015 was substantial,” it said.
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