The decision by The Economist magazine to exclude Ireland from its annual ranking of the world’s richest countries is not the first time comparisons of this kind have sidelined the State’s economy, Even official EU statistics now sometimes leave out Ireland, particularly when looking at trends in trade. And private sector analysts often exclude Ireland when looking at Europe-wide indicators.
Should we be upset? Not really. The problem, as the Economist puts it, is that Ireland’s economic data is “polluted by tax arbitrage.” Multinationals organise their tax affairs to declare as much profit as possible in Ireland, helped by accountants who are , as the magazine said , “as versed in the arts of surreal creativity as James Joyce.”
Ireland argues, with some justification, that these companies have “ substance” here – in other words they employ people and produce goods or services from Ireland. However, the extent of the profit declared here is well in excess of what would be justified by this activity. And so, on a range of estimates, as much as half of Ireland’s corporate tax take may be “windfall” – not directly related to activity here – and our Gross Domestic Product (GDP) is very significantly inflated.
Does this matter? It complicates analysis of Ireland’s economy and more meaningful assessments now use other modified aggregates. Had the Economist included Ireland in its list of GDP per head, it would have been somewhere in the top half dozen countries. A more realistic measure would put Ireland in the middle of the European pack.
RM Block
Unfortunately, Ireland’s out-of-kilter data has created another problem. It has put the State in the spotlight internationally, including in the White House, where there has been focus on Ireland’s trade surplus with the US, due almost entirely to pharma exports. The Irish GDP and trade figures may not reflect the scale of real activity here, but they do show major pharma production in Ireland for the US market and the impact of the associated aggressive tax planning. In that way, Ireland’s mangled figures do still tell a real story.
