By Eamon Quinn
Ireland remains vulnerable to a handful of giant foreign-owned firms, economist Jim Power has warned.
In his latest Friends First outlook, Mr Power said Irish prosperity is not as well anchored as it might appear, because of “an over-reliance on a small number of large companies in the Irish corporate tax system, inflated GDP measurements, and a chronic lack of housing”.
New official figures may back up Mr Power’s case about the economy relying on multinationals.
The output of Irish factories fell almost 4% in February from January but was up 3.5% from a year earlier, driven by multinationals and pharmaceutical firms in particular, according to CSO figures.
The CSO said the so-called modern sector of the economy — the part that is dominated by US multinationals — surged 4.5% in the year, while the traditional part of the economy fell 1.9%.
The traditional sector is dominated by Irish-owned private companies which proportionately employ more people than their multinational counterparts.
In his economic assessment, Mr Power said Government revenues “inordinately” rely on the corporate tax receipts of multinationals.
“The pressure on Ireland’s corporate tax system; the inordinate economic and financial dependence on a small number of very large companies; the damage that the housing situation is doing to competitiveness; and the impact that inflated measures of GDP are having on the fiscal parameters are key risks and challenges that will need to be monitored and managed very carefully in 2018 and beyond. A proper risk assessment is required, and one which ignores political imperatives,” he said.
Mr Power forecasts that house prices will rise “at least” 10% in 2019, as the housing crisis remains a running sore for many years to come.
Housing is “the biggest economic and social issue confronting Irish policymakers at the moment, and is likely to be for some time, even if barriers to increase supply were removed”, he said.
GDP will rise 5% this year and by 4% in 2019, and the unemployment rate will fall to an average 5.2% in the next two years. Inflation will likely take off next year, rising to 2% from less than 1% this year. “All in all, the indications for the coming year are positive,” said Mr Power.
“It is essential that national policy focuses very strongly on broadly-defined competitiveness. This includes wages and other business costs; IT infrastructure and capability; high-quality public services; prudent management of the public finances; and the personal tax burden,” he said.