Business Irish

Wednesday 22 November 2017

Richard Curran: Davos starts to tire of Kenny's 'how we did it' yarn

PREDICTIONS: Joseph Stiglitz tried to temper some of the Taoiseach’s optimism on Ireland Photo:World Economic Forum/
PREDICTIONS: Joseph Stiglitz tried to temper some of the Taoiseach’s optimism on Ireland Photo:World Economic Forum/
Richard Curran

Richard Curran

Taoiseach Enda Kenny has learned a trick or two since his infamous gaffe at the Davos World Economic Forum in 2012. On that occasion he summed up the Irish crash as having been caused when “everyone went mad borrowing”.

Simple and to the point — but it did not go down well at home.

A more experienced Taoiseach delivered his 2016 Davos message that the Irish economy is not going to blow up again because we are now “more insulated” from external risks. But his how-we-rebuilt-Ireland lap of honour is looking a little tired.

A CNBC interviewer asked Kenny about his use of tax cuts as bribes to buy the general election. He ended up denying Ireland is a tax haven, while others questioned his optimism on the economy.

Nobel prize-winning economist Joseph Stiglitz shared the platform with Kenny — and he wanted to temper some of the Taoiseach’s optimism about the future.

Stiglitz isn’t the most objective commentator on Irish economic affairs, but neither is Kenny. Stiglitz predicted an apocalyptic economic meltdown for Ireland and the eurozone, and was “astonished” at Irish people’s ability to “suck up pain”. He could only explain it with reference to that econometric textbook term: “Catholic guilt”.

The fact that the economy has bounced back so quickly doesn’t sit comfortably with Stiglitz’s predictions delivered at the height of the financial crisis. So he has to say we did better than other austerity-ridden countries — but he questions our optimism about the future.

Despite the economic progress, how reassured can we be, when Enda Kenny says we are better insulated from outside economic risks than we were back in 2007 or 2008? Not very, I think.

The public finances are better insulated in so far as current expenditure growth has been kept under better control than it was in 2005, 2006 and 2007. But with the €1.5bn in unscheduled additional spending rammed through for 2015, cracks are appearing.

The make-up of where our taxes come from is better. We have a lot more money emanating from consistent and predictable income taxes and less from property and transactional taxes than in the boom.

But Kenny wants to move towards US-style tax levels without setting out where the lost revenue would come from — other than from a continuous sizeable economic growth rate.

And our reliance on corporation taxes, which may or may not be there in the future, is a source of genuine concern.  In 2009, just 10 major companies accounted for 20pc of the corporation tax take in Ireland. In 2012, the top 10 paid 30pc of it — or €1.2bn.

The top 20 companies accounted for nearly 40pc of our corporation tax take in 2012, while just 50 corporations paid around 52pc of it.

Don’t forget that a turbo-charged 30pc increase in car sales, driven by cheap loan deals from motor companies and banks, generated €1bn for the Exchequer in the first 10 months of 2015. How permanent a fixture is that?

So, the robustness of the public finances could easily be undermined by the wrong tax giveaways or stealth increases in some public expenditure.

As for the economy, we are as dependent as ever on the success of attracting foreign direct investment. Ireland has become one of the best little countries in the world for big business. We shouldn’t knock that too easily, because it is paying off. But we are very vulnerable to external shocks.

FDI and exports have been the cornerstones of the recovery so far. Global turmoil could reduce FDI, while export success has been handed to companies on a plate by a cheap euro. That won’t last forever.

In the last three weeks, the euro is up over 4pc against sterling, the currency of our biggest trading partner. Sterling has lost ground against the euro for eight weeks in a row now and is hovering around the 77p mark. If it keeps going, it will be felt by exporters.

The most constructive thing to come out of Kenny’s jaunt to Davos is probably the meetings he had with chief executives from major corporations already in Ireland or thinking of coming here.

It is worth going just for Kenny to press the flesh of corporate decision-makers and maybe give out his mobile phone number.


O’Leary/Walsh EU lobby group in a holding pattern

The new lobby group formed by Europe’s five biggest airlines, including Ryanair and the Willie Walsh-led IAG, is hard to figure.

After all, timing is everything — and this is not the optimum time to come together to push the European Commission on things like landing charges and even preventing air traffic controllers from going on strike.

Airlines are enjoying a boom on the back of cheap oil. Global profits are at a record high and are expected to grow further.

Do they have a point? The group, called Airlines for Europe, quoted a new study saying the 21 biggest airports in Europe had increased fees by 80pc since 2005, while air fares had come down by 20pc.

But in the last 10 years airlines have changed their pricing model so that your bags, a drink, booking your seat, are all stripped out of the basic fare and are all extras. This reduces the basic headline air fare, while also providing an enormously profitable revenue stream for airlines.

By not including a snack in the ticket, airlines are raking in money by getting passengers to pay for a coffee and a sandwich — something which also mops up money that might have gone into tills at the airport. 

Most airports make money from car parking, shops and other activities — and actually lose money on their core aviation activities. This could be used as an argument by either side of the row.

Buy a ticket and pay the airport charges and then for whatever reason you don’t travel. The airline keeps the whole fare. Airports only collect if the passenger travels.

Airports Council International (ACI) is the representative body for airports and it dismissed the new airline rally cry as “having nothing in it for the consumer”.

“For them, airports are just scapegoats,” said ACI Europe director general Olivier Jankovec, as he accused them of “wilfully ignoring today’s market reality of ever-increasing airport competition”.

It’s an old battlefield between airlines and airports — and not one the airlines are going to win easily, not when oil is sub-$30.


Vernon applies keen sense of timing — again

Stephen Vernon, the boss of Green Property, has no such difficulties when it comes to a sense of timing. He took Green Property, owner of the Blanchardstown Centre, private in 2003 at a great price. He then sat back and watched it rake in money, grow in value and even ride out the crash very well.

When the country’s property developers were broke, Vernon returns and sets up the Green Property Reit, buying assets at knock-down prices.

With that sense of timing, you have to wonder about his decision to put the Blanchardstown Centre on the market. The economy is growing at 7pc per year. Consumer spending and confidence are up. Things are looking up.

The other thing about Vernon is that he doesn’t do spoof. He has been very consistent in his view about a pending Dublin office market glut that could come in a couple of years’ time.

The sale will be a big payday for him, given that it could be worth €1bn and he owns 60pc of the company. We don’t know how much debt remains in the business — but he will land a very big cheque.

The centre has been a huge part of his business success, and perhaps he feels the legwork in expanding the shopping centre further should be done by someone else.

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