Ireland to include prostitution, drugs, and smuggled cigarettes in GDP

Illegal activities, including prostitution, drugs, and smuggled cigarettes were worth more than €1.25bn to the Irish economy last year, boosting official GDP figures.

Ireland  to include prostitution, drugs, and smuggled cigarettes in GDP

While many countries have been including estimates for these banned activities for years, this is the first time Ireland has included them — at the behest of the EU and the UN — to conform to a new method of calculating countries’ wealth globally.

The CSO calculated that illegal economic activities amounted to 0.72% of the country’s GDP last year — similar to Britain’s. Germany and France both put theirs at around 3%, Italy at 2.4% and Spain at 1%. However, while the money circulates in the economy, it does not benefit the State in the form of tax.

As a result of the inclusion, Ireland’s official deficit figures — the sum the Government has to borrow to fund daily spending — has decreased by 1.5%, the most of any EU country under the new methodology.

A third of this also includes sums spent on research and development which amounted to around €7bn last year.

This leaves the deficit at around 5.7%, the fifth highest after Spain, Slovenia, Greece, and Britain.

However, European Commission officials say this does not mean that Ireland has to do less in the national budget to get the deficit down to the target of under 3%, because this is calculated on the structural deficit figures that do not take account of the normal business cycle.

The country’s debt profile was also helped by the change, decreasing by 0.8%, but still leaving the country with the fourth highest at 123%, after Italy, Greece, and Portugal.

The changes to the calculating method saw the EU GDP increase by 3.67% with capitalisation of R&D accounting for half this, debt ratio down by 1.8 percentage points and an improvement in the deficit by 0.1pp.

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