The chief of the Organisation for Economic Cooperation and Development (OECD) — a regular visitor during the financial crisis — has warned that, despite an impressive economic recovery, Ireland should never forget it’s a small country that belongs to “the Avis Club”.
The speech yesterday by secretary general Angel Gurría to a gathering organised by Finance Minister Paschal Donohoe officially marked the publication by the OECD of its major study on Ireland, which the international think tank publishes every two years, or so.
Mr Gurría — a former finance minister of Mexico at times of severe financial stress for that country — said the Avis Club moniker referred to the famous marketing line once used by the car hire firm that proclaimed: “When you’re only No 2, you try harder.”
Since the crisis, small countries have to try harder to avoid economic mishaps that will be pounced upon by the rating agencies.
“There is no room for complacency,” he told his audience, that included Government officials and economists.
The near-120 page OECD report touched on familiar themes of similar studies:
Ireland is a rich country, but one where its banks carry high levels of badly soured mortgage and business loans which still pose risks to the State; the worst case outcomes under Brexit are significant; and the big gap between productivity of multinationals and Irish-owned firms are significant, because of the surprising lack of digital skills of a workforce surrounded by foreign-owned tech giants.
Unsurprisingly, the report backs the Government’s infrastructure spending plans, with some provisos, and it commends Ireland in a scorecard against other OECD countries for a progressive tax and redistribution system that results in less income inequality here than in many other parts of the rich world.
It also examines and repeats many of the solutions to a housing crisis that is characterised by rapid house-price increases, shortages, and homelessness, as those favoured by the European Commission and other domestic and international think tanks.
It wants a “broad-based” land site tax. The study adds to the debate about the amount of housing that will need to be built to make good the shortages in the coming years, and favours a loosening of some planning controls for housing builds.
The Government will be less pleased with a discordant theme which highlights a health service “failing in terms of cost, patient satisfaction, and waiting times”.
Also, the OECD’s recommendations that the Government broadens the local property tax base and eliminate costly low-Vat rates for tourism and hospitality will also more than likely be quietly bypassed, as the election draws closer.
The report is far less prescriptive than the commission’s study over the best ways to eliminate the country’s running sore of mortgage arrears.
As highlighted by opposition politicians for some time, the commission has long recommended banks here write down debt for distressed mortgage and business borrowers in heavy arrears.
Politicians and leading debt advocates have fruitlessly argued that the banks, expensively recapitalised by the public, have the means to write down debt, without launching widespread loan sales.
The commission in its key report on Ireland published earlier this week again hammered away at the message that banks should write down distressed debt for households and businesses.
Perhaps predictably, the OECD had a good deal less to say on Ireland’s corporate tax regime, which is under severe scrutiny by the commission.
The Government has signed up wholeheartedly to the process called Beps — base erosion and profit sharing — which is led by the OECD itself, while it attempts to fight off the commission’s plans for a digital tax on tech firms.
A digital tax, experts say, would be a significant threat to Ireland’s generous regime that includes charges for intellectual property that benefit multinationals.
The tone of the OECD report and that of the commission’s on Ireland on multinational tax is completely different.
Asked about the differences with his report and that of the Commission’s on banks and debt, Mr Gurría said the OECD offered a “blueprint” to its government members on policies.
It was, he said, looking at how digital tax would work out and would soon report again on ways multinationals should pay their fair shares of tax.
On health, he said that access and the costs to the State were examined, because health was a major piece of expenditure. Governments around the world facing similar challenges didn’t want a “black hole” to open in their finances.
However, returning to the main message, Mr Gurria urged policymakers here to keep an eye on the financial system and to remember that Ireland’s €64bn bailout of the banks was the largest ever rescue of banks in the eurozone.
As a member of the Avis Club, you do not want to go back through that again, was his message.
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