‘Leprechaun economics’ will not lead to crock of gold

What a week for the women and men of the Central Statistics Office. Surely never before has the Irish statistical community occupied such a starring role in our national conversation.

There was that number. Yes, 26.3% economic growth for Ireland in 2015. Cue several days of national self-flagellation and people rolling around the place laughing.

Paul Krugman of the New York Times fell off his chair at the ‘Leprechaun economics’.

Also, the census figures. There are more of us living here than we had thought, the statisticians revealed, and population growth in the cities is leaving rural Ireland in the dust.

Much to digest. First, let’s look at the growth figures. The explanations are, at this stage, well worn: aircraft leasing, tax inversions, intellectual property, and so on.

It demonstrates, with exquisite absurdity, just how irrelevant the efforts to capture real-life economic activity within a neat set of figures have become.

Yes, the CSO could have published a number stripping out the nonsense, but that wouldn’t get away from the truth that growth figures are meaningless to most. Just ask Fine Gael.

The numbers employed and the amount of money they spend is what interests economists. They may mean literally nothing on the ground, but our growth figures have been a political, and economic, problem for some time.

When Europe wouldn’t cut us a break on bank recapitalisation, Angela Merkel could point to them and ask; ‘Sure aren’t you grand’?

Europe’s fastest growing economy needs no one’s assistance. Ignore talk about how this accounting exercise has reduced our debt-to-income ratio making us a more attractive sovereign debt prospect.

The markets had us figured out long before it hit 123% and they dumped us accordingly. They have a pretty clear view on Ireland’s actual assets and liabilities.

Now these soaraway statistics create a new difficulty. As this newspaper highlighted, they bolster those people who look to unsteady Ireland’s relationship with multinationals — firms that enable real people to pay their mortgages and occasionally enjoy a night out. They say ‘look at your ludicrous numbers — this tax avoidance business must stop’.

The French president is expected to soon visit Dublin. His predecessor sought to prise away the central plank of Irish industrial policy in 2011.

Nicolas Sarkozy famously asked for a ‘gesture’ on corporation tax in exchange for a little breathing space on Ireland’s bailout repayment schedule.

François Hollande, we are told, is not so bothered. However, Paris finds itself competing with Dublin for any rich pickings that may spill from the City of London post-Brexit and it wouldn’t surprise if the 26.3% figure gets a mention in some private moment.

Ireland will keep its guard up. However, how long can it hold out?

The headline corporate rate of 12.5% should remain untouched. However, what brings companies here is a benign package of measures and it is the overall corporate tax regime we should be concerned with. Small things can be corrosive.

When Facebook chooses, like it did earlier this year, to book its UK advertising revenues no longer through Dublin but London, the economic incentive to then shift costs to Britain to offset them against tax becomes more compelling.

When Pfizer sought to engineer a tax inversion with Irish-domiciled Allergan that would have cleverly saved it billions of dollars, the US Department of Treasury exploded the deal with the ruthless efficiency of a drone strike. And then there is the little matter of Apple and its arrangement here.

So while Ireland will continue to fight the good fight, surely a concrete Plan B would be an idea worth pursuing. A revised industrial and economic policy recognising that the rug could be pulled from beneath us. And one that takes account of those census findings.

When TK Whitaker mapped out Ireland’s economic future in 1958 there was a distinct alternative apparent to him — abandon protectionist policies and you will be rewarded. There is no such remedy to hand nowadays. Policy professionals have explored the options for years, and a loose consensus has emerged; help our indigenous exporters become more innovative and use public money intelligently to help entrepreneurs.

As our friend the Nobel laureate Paul Krugman might say, there is no guarantee of a crock of gold at the end of the rainbow.

Paul Colgan is economics editor with Ireland Live News on UTV Ireland


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