Online retail is a big threat to Ireland Inc

The Central Bank’s Philip Lane and fiscal watchdog Seamus Coffey have warned about the many risks facing the economy. They should add online shopping to the list, writes Kyran Fitzgerald

Online retail is a big threat to Ireland Inc

It is never great when the head of the Central Bank feels the need to appear on the airwaves to counsel caution ahead of the budget.

In a formal set-piece, Governor Philip Lane every year writes a letter to the finance minister to remind politicians of the need to curb their natural spending instincts.

This year’s letter was more hard-hitting than ever which tells one all one wants to know about the current political arrangements in Leinster House.

Mr Lane is certainly on firm ground when it comes to his suggestion that the Government reins in its natural spending instincts in next month’s budget.

Governments should run surpluses at this stage in the economic cycle.

Mr Lane’s intervention should be welcomed in Merrion Street.

He is providing back up to the Finance Minister Paschal Donohoe, as he tries to face down the torrent of requests from the various interest groups.

The minister’s inclination should be to identify key target areas for attention such as housing, social or otherwise, childcare provision and greater support for carers.

But does he have the political space in which to move, given voter expectations?

Mr Donohoe will not need to be reminded that the Brexit gales could soon be blowing, causing a reversal on the jobs and tax revenue front.

President Donald Trump’s reforms could soon bite Ireland hard by causing an essentially one-off corporate tax bonanza to taper off.

The message of caution has been amplified by the Irish Fiscal Advisory Council which is chaired by UCC economist Seamus Coffey.

The problem is that the current Government is led by a party, Fine Gael, that secured only 50 seats in the 158-seat Dáil at the last election.

And a few of the governing crew are freelancing. Take Transport Minister Shane Ross, who wants to dole out free money to babysitter grandparents regardless of need.

It would be interesting to gather the uncensored views of Finance Minister Donohoe and his officials regarding that bright idea.

As Mr Coffey has pointed out, the room for manoeuvre is limited. He favours the modified GNI measure of national income as a measure for economic wealth, which strips out the distortive impact of multinationals on the Irish data.

On the more realistic modified GNI basis, the national debt was substantial — one of the highest in the Organisation for Economic Co-operation and Development.

This is still way too higher for comfort and it follows a long period of recovery boosted by record capital inflows.

A downturn is not possible, or likely. It is certain, Mr Coffey warns.

The budget watchdog chair is calling on our leaders to squirrel away more resources to deal with tougher times ahead.

There is a fat chance of that happening, one suspects, but we can’t say we haven’t been warned. It really is a case of waking up and smelling the coffee.

Another problem rearing its head is that the ground in the world of business is shifting. It is not a shift in favour of governments interested in effective tax gathering.

Online companies are gnawing like rats at the tax base through their onslaught on traditional business models.

Last week Amazon — the online retail and service giant — became the world’s second $1 trillion company by valuation — following hot on the heels of Apple.

Its share price has jumped by almost three quarters since the start of the year.

It is hard to believe that Amazon was only founded in July 1994. It is now eating up traditional retailers and distributors like a latter-day Pac-Man.

Amazon employs 563,000 people across the globe. Among US firms only th giant bricks-and-mortar retailer Walmart employs more.

It recently ordered 20,000 delivery vans. Its founder Jeff Bezos, has a net worth of between $163bn (€141bn) and $167bn.

The median salary of Amazon workers stands at just over $28,000 but many employed on basic non-technical tasks earn far less.

The company dislikes unions. Amazon is a major investor in the Republic. It currently employs 2,500 and hs plans to add a further 1,000 jobs.

It has plans to build a large data centre in Mulhuddart in north-west Dublin.

The Government is reluctant to bite the hand that feeds. Amazon has been under fire in Britain for paying too liitle corporation tax.

The group’s business strategy is simple: Expand across many fronts, colonising space ruthlessly.

It moves the way the US rail network did as it fanned across the prairies of the 19th century.

Employment has grown almost twentyfold at Amazon since 2010.

Its networks now cross into business to business e-commerce territory while it consolidates its hold over a series of business to consumer internet spaces.

According to a 2017 study of US retailing by Walker Sands, 84% of US consumers made a purchase on Amazon in the preceding year, while four out of five US millennials bought on Amazon during the preceding month.

Traditional retailing has been hollowed out and much of incumbent business distribution is now in the firing line.

According to Forbes magazine: “Amazon started out as a bookstore.

Today, they are a technical innovation hub expanding far beyond retail sales.”

The company is engaged in transforming the supply chain, deploying artificial intelligence in the process.

You could break up the group, using competition or anti-trust law, but the company has appealed to consumers and voters with its price-cutting strategy.

It has huge lobbying power. It can argue that overseas rivals like Alibaba are equally enormous.

Hobble Amazon and you hand power to the Chinese, goes the argument.

Irish retailers and suppliers have reason to feel nervous — after all thousands of stores in US shopping malls closed last year. Employment in British retailing is falling.

Ireland has had a degree of protection due to its growing population, but the shutters are coming down on the many UK-owned stores here.

There will be real wealth consequences when the Amazon effect really begins to bite.

Irish councils have come to depend heavily on income from commercial rates.

Councillors are reluctant to saddle householders with too many taxes and charges.

Soon, they may not have much choice but to do so.

Income from commercial rates has amounted to €1.5bn a year since 2010.

In the cities, the share is above 50% rising to almost 60% in south Dublin where the Dundrum Centre is located.

As shoppers move online, revenues move offshore and the domestic tax base shrinks.

Trapping more of the huge revenue bases of the online giants is becoming a real public policy challenge.

It is one that Governments simply cannot shirk.

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