Monday 26 September 2016

Irish v FDI productivity gap widens

Published 12/11/2015 | 02:30

Dr Mann told a tax conference organised by the Department of Finance that Ireland needs to do more to tune its tax system to boost productivity growth. Photo: iStock
Dr Mann told a tax conference organised by the Department of Finance that Ireland needs to do more to tune its tax system to boost productivity growth. Photo: iStock

Multinationals based in Ireland are far more productive than their home-grown peers, and the gap is widening, the top economist at a leading international think-tank has said.

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Dr Catherine Mann of the Organisation for Economic Cooperation and Development (OECD) said the issue was "striking" and the trend is "not in the right direction".

Dr Mann told a tax conference organised by the Department of Finance that Ireland needs to do more to tune its tax system to boost productivity growth.

"Foreign owned enterprises are far more productive than Irish owned enterprises," Dr Mann said. "In general, except for financial services, the differential has actually worsened. So global capital has come into Ireland, and that's a good thing, but somehow it hasn't got translated into Irish-owned firms.

"The linkages, the technology transfer, the management expertise, the forward and backward linkages where we've upped the game of the Irish enterprises, that doesn't seem to have happened.

"And if anything, there's been a bit of deterioration even as the amount of capital as a share of GDP has actually risen. So this is something that we are puzzling about and we would like to rectify."

Harvard-educated Dr Mann, who was appointed as the OECD's chief economist around a year ago, questioned whether it is the type of FDI coming into Ireland that has led to this.

She suggested there was little link between the foreign businesses that are based here, and local, indigenous firms.

"The assets are here, but they're not being linked in to the domestic economy. They're not being levered up by domestic firms, and they're not being married to domestic workers," she said.

Meanwhile, Finance Minister Michael Noonan said the surge in corporation tax this year, which has seen receipts rise over 70pc above target, is sustainable.

The amount of money collected from the profits of big business is 74pc ahead of target for the year so far, with €800m coming in last month that wasn't expected.

"The corporate tax take has been surprisingly high this year. I've asked the Revenue Commissioners to do an analysis of it and they say that it's very broadly based, that it's coming from a number of sources, that it's cutting across all sectors, that the number of companies paying between €100,000 and a million has gone up by something like 20pc and they think it's sustainable," Mr Noonan told reporters ahead of the tax conference.

Referring to the Knowledge Development Box, the tax break scheme for companies that derive their profits from patents, Mr Noonan said home-grown firms will be the first to benefit.

"In the first instance it's probably of greater benefit in the first phase to indigenous Irish companies who have research and development underway and want to expand on it. The multinationals will come on board in due course, but I think the first run of it will be to help Irish SMEs," he said.

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