Targeting ‘rich’ may hurt aircraft leasing firms
These bring together about 1,000 delegates who, more importantly than attending presentations, conduct deals to finance the world’s commercial aviation sector. This industry is posing important questions for the new Ireland.
Commercial aviation is growing each year as demand for air travel expands in line with GDP. It has been doing this for over 40 years and recent economic expansion in so-called “developing” economies has augmented that trend. This pull from consumers drives demand for aircraft.
In 2013 it is calculated that about $100bn will be spent on new airplanes for the world’s airlines. About 40% of that will be financed through leasing companies and over 50% of the world’s leasing companies have key bases established in Ireland. From here senior executives travel to meet incessantly airlines, aircraft manufacturers and financiers.
These road warriors are typically well paid, highly educated and at the forefront of progressive Irish companies excelling in true international markets. Their companies have deep roots in the legal and financial services sectors where experts in aviation law and funding form a critical ecosystem in support of this activity.
For policymakers in Ireland this sector poses some important questions, including: (1) Does Ireland want to attract highly paid and ambitious business people? (2) Are highly profitable companies welcome residents of the new Irish Republic? (3) Is the State flexible enough to react dynamically to the challenges facing these businesses?
Five years ago I would not have considered these questions as valid. Ireland, via the IDA and Enterprise Ireland, presented itself as a go-go economy that fully embraces globally mobile enterprise. Yet now there are nagging doubts.
The IDA and EI remain active promoters of Ireland as a base for companies and wins over the past year suggest this strategy continues to be successful. Yet there is a disconnect between the official message and a gathering political narrative.
Senior Irish individuals who are executives in high-end companies such as those in the leasing sector typically earn over €100,000 per year. They are being courted by competing jurisdictions that are offering lower income taxes, lower capital gains taxes and even lower corporate taxes as a means of enticing companies to shift operations.
You will find in Singapore and Hong Kong, for example, very little begrudgery about high incomes as these are seen as relatively high spenders too. In Ireland, by contrast, the mood music appears to be more hostile.
The “rich” are apparently legitimate targets for loose and gratuitous criticism in the media. Politicians on all sides consistently ask for more tax pressure on the “rich” and you get the sense that creating wealth has become somewhat undesirable in many parts of the chattering classes.
This debate is playing with fire. If competing countries continue to aggressively target global industry based in Ireland, and the Irish establishment continue to gnaw away at those perceived to be well off, a dangerous long-term trend could set in.
In the leasing industry this debate is being carefully watched. A number of lessors have changed ownership in recent years with equity investors emerging in particular from Asia.
Assuring these owners that Ireland is the optimal place to locate their best executives has been aided by decisions around aviation law and corporate taxes in the past. Updating these will be an important aspect to retaining these companies, but making senior executives feel at home in Ireland will be a critical task too.
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