Could leprechaun economists yet precipitate an Irexit? Or predict crocks of gold for all?
With a ruling imminent on the EU investigation of Apple's Irish tax affairs, last week's claim of 26pc GDP growth couldn't have been worse timed
Published 17/07/2016 | 02:30
It's already been dubbed "leprechaun economics" by Nobel Prize-winning economist Paul Krugman.
Last Tuesday, the CSO published its revised 2015 National Income and Expenditure figures showing that Irish GDP grew by a scarcely credible 26pc in 2015.
A clearly embarrassed CSO issued an "explanatory note", telling us that the 26pc "growth" was the product of an increase in the number of aircraft being imported into Ireland by leasing companies and multinationals shifting their balance sheets to this country. Whatever the explanation, the timing of the CSO announcement was absolutely terrible.
Ever since the US Senate Investigations Sub-Committee laid bare Apple's Irish tax affairs in May 2013, this country's corporate tax regime has been in the EU's sights.
The American Sub-Committee alleged that Apple had agreed a "sweetheart deal" with the Irish Government to pay an effective tax rate of just 2pc on tens of billions of dollars of profits that were routed through its Irish operations - allegations that have been strongly denied by both the Irish Government and the IDA.
The EU Commission, which has long been hostile to our 12.5pc corporate tax rate, seized on the opportunity presented by the Sub-Committee's allegations and in June 2014 announced an investigation of Apple's Irish tax affairs to establish if they breached the EU's state aid rules.
A ruling is expected in September, and the omens are not good. In February, US Treasury Secretary Jack Lew wrote to EU Commission president Jean-Claude Juncker warning that the Apple investigation, and other EU investigations into Facebook and Google, "appears to be targeting US companies disproportionately".
Lew's letter also alleged the Commission was "seeking billions of dollars in penalties from US firms - far more than it is seeking from non-US companies".
EU Competition Commissioner Margrethe Vestager gave as good as she got.
She replied to Lew, stating that the investigations "aim at a proper, non-discriminative, application of the tax laws in Europe" and are "based on firm legal ground".
It is clear that the EU is getting ready to hand out severe penalties to Apple and the other US multinationals being investigated.
Lew met with Vestager on Wednesday and he is understood to have emphasised US opposition to Apple being forced to pay back taxes, which could amount of up to $19bn.
Also in Brussels last week was our own Finance Minister Michael Noonan, who met with the Commissioner on Tuesday.
Minister Noonan stressed to Vestager the Irish Government position - that the EU's case against Apple is unfounded and that it will fight any adverse ruling in the European Court of Justice.
Which is why the timing of last week's CSO figures was so unfortunate.
Coming as they did in the same week that Vestager was meeting both Noonan and Lew, they will have drawn unwelcome attention to Ireland's corporate tax regime - right at the very time she was finalising her decision on the Apple investigation.
Calculating Ireland's true economic performance has always been a controversial subject.
The internationally-accepted measurement of the value of economic output, gross domestic product (GDP), has long since been discredited in this country as it is artificially boosted by non-repatriated multinational profits.
In 2014, Ireland's GDP was €193bn. However, gross national product (GNP), which excludes repatriated multinational profits, was 15pc less at €163bn. For most economists, GNP has been their favoured gauge of the real size of the Irish economy.
Unfortunately, the figures published on Tuesday, which showed that Irish GNP grew by almost 19pc to €202bn in 2015, reinforce suspicions that it too has been skewed by the multinationals as overseas firms re-register as 'Irish' through tax inversions and other mechanisms. When this happens, these firms' profits also become 'Irish', boosting our GNP.
Regardless of whether one chooses to accept them or not, the most recent set of GDP and GNP numbers from the Central Statistics Office demonstrate once again the key role played by the multinationals in the Irish economy.
More than 187,000 people are directly employed by the multinationals, almost one in 10 of all jobs, while the multinationals indirectly support another 150,000 jobs. One fifth of all Irish private sector workers depend either directly or indirectly on the multinationals for their jobs.
The vast bulk of our exports, at least 75pc, come from the multinationals. While the multinationals typically spend a far lower proportion of their sales on Irish inputs than indigenous exporters (less than 14pc versus 63pc), there is no getting away from the fact that Ireland Inc needs the multinationals.
If they disappeared, about one in five of all private sector jobs would disappear with them - along with most of our exports and corporate tax revenues (about four fifths of last year's €6.9bn corporate tax take came from the multinationals).
That is why successive Irish governments have fought so hard to protect our 12.5pc corporate tax rate. Even in the aftermath of the 2010 Troika bailout, the last government made it clear to our EU 'partners' that the 12.5pc rate was non-negotiable.
And with the IDA hoping to create 80,000 new jobs in Irish-based multinationals by 2019, that's not going to change any time soon.
An adverse ruling in the Apple case has at least the potential to seriously undermine the 12.5pc tax rate and with it our ability to continue to attract foreign direct investment.
Fine Gael MEP Brian Hayes was merely stating the obvious when he recently stated that the 12.5pc tax rate was an "absolute red-line issue" for this country.
While Mr Hayes was quickly slapped down by Taoiseach Enda Kenny, an EU ruling that gutted the 12.5pc rate could very quickly see Brexit being followed by Irexit.
Sunday Indo Business