‘Illusory’ GDP puts focus back on tax regime

Huge upward revisions to economic growth numbers last year, which have been described as “artificial” and “illusory”, risk putting Ireland’s corporate tax regime back under the international spotlight, analysts have warned.

The CSO said capital transfers into Ireland last year led to “dramatic” revisions to the GDP growth numbers and mean the economy here surged in 2015 by 26.3%, up from the 7.8% expansion in a preliminary estimate.

Experts said following the international tax crackdown led by the OECD, a small number of multinationals last year switched their capital assets from Caribbean tax havens into Ireland.

However, the asset transfers were purely cosmetic and have contributed “no substantial” rise in Irish jobs or to the amount of goods and services produced here. The accounting manoeuvres will raise uncomfortable questions about the credibility of Ireland’s tax regime, making it harder for the Government to plead any special case with Brussels for measures to offset the potential economic washback from the UK’s decision to quit the EU.

Economist Jim Power said the unprecedented revisions will lead to observers abroad asking: “What in the name of God is going on in Ireland?” “It sent a clear message about the artificial nature of some of what Ireland does, ” Mr Power said.

Alan McQuaid, chief economist at Merrion Capital, said Irish GDP figures were “illusory and a fantasy”. They also risk stoking huge pay demands, he said.

The Department of Finance told the Irish Examiner the new GDP numbers will lead to Ireland having to pay more into the EU budget, but it was too early to say by how much the payments will rise.

Officials said the new GDP numbers will, however, have no effect on the €1bn in so-called fiscal space for 2017 —the tax-and-spend measures available to Finance Minister Michael Noonan in his October budget, and that the position for future years will be assessed later this year.

An examination by the Irish Examiner of World Bank statistics found no other country whose economy expanded by over 26% last year.

Ireland’s nearest rival was the West Bank and Gaza, which is rebuilding its war-damaged economy and where economic growth climbed 12.4% in 2015. Uzbekistan posted the world’s third-largest increase, with GDP growing by 8%.

Public Expenditure Minister Paschal Donohoe said the Government’s budgetary plans would be “sensible” and not based on the “exceptional” CSO figures.

“I wouldn’t accept that it is meaningless, because certainly in terms of allowing our country to manage the €200bn worth of debt that we have, it is of help,” said Mr Donohoe. “But in terms of how we plan for the future, we are expecting our economy to grow by about 3.7% to 4% next year,” he said.

The Government will outline a mid-year expenditure report today after it goes to Cabinet.


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