Business World

Monday 21 May 2018

Trump more likely to hit Pyongyang than achieve tax cut for firms

US President Donald Trump Photo: Reuters
US President Donald Trump Photo: Reuters
Richard Curran

Richard Curran

US president Donald Trump has name-checked Ireland in a list of countries with low corporation tax rates. He isn't happy about America's trade deficit with countries like Ireland. He says he is going to change all that. Should we be worried?

Not really, is the answer. US corporation tax is in need of reform that may involve reducing the rate, but it is not likely to be enough to seriously undermine the investment rationale of major US companies here.

The headline rate is 35pc and Trump says he wants to get that down to around 15pc. Firstly, he hasn't a hope. Some estimates have suggested that a cut like that would cost the US exchequer over $2.3 trillion in a decade.

Corporate taxes of US companies contribute around 10pc of America's total income or $350bn. A serious cut would leave a gaping hole in his budget.

Reform is a different matter. He could re-jig the tax system to incentivise companies to create more jobs in America. Equally, he could give a once-off reduction in tax payable on the $2 trillion held in profits overseas by American corporations.

A study by the Institute on Tax and Economic Policy found that in reality American companies pay around 22pc in corporation tax and reducing the rate would not necessarily lead to the creation of new jobs.

If that analysis is correct, it suggests the risks of losing jobs is less.

Trump looks short of the credibility or unity of purpose required to secure a major new tax reform package, even if it is long overdue. Trump is more likely to land a missile in Pyongyang than an across-the-board 15pc corporation tax rate in the US.

The bigger risks for Ireland may be closer to home - weakening competitiveness, a new two-speed EU and Brexit.

ICG, Grafton Brexit-proof for now

Speaking of Brexit, the uncertainty rumbles on but two Irish companies likely to be affected delivered solid-enough results during the week. A fall in sterling is affecting tourist visitor numbers to Ireland but ICG reported higher passengers numbers in the first half of this year. Perhaps the balance is shifting towards Irish people heading east instead of British heading west. Either way, ICG carried 700,000 in the first half of the year, 12,000 more than the same period last year - which came before the referendum.

Passenger numbers were up 1.7pc while car numbers were up 2.3pc. While sterling weakness is an obvious drawback, and it has shifted 9.2pc in the wrong direction, low fuel prices are evening things up. Brexit swings and roundabouts are all around.

Meanwhile, building suppliers and DIY group, Grafton, delivered a very strong set of first-half figures but did warn about possible softness in the UK market. Margins are up 50bps which according to Goodbody Stockbrokers reflects "strong gross margins and good profit recovery in the traditional businesses, which has been aided by restructuring benefits already flowing through".

Even the UK merchanting business is doing well despite obvious concerns about Brexit, shrinking consumer purchasing power caused by inflation. Grafton businesses are performing well in other markets such as Belgium and the Netherlands, but it seems inevitable that reduced consumer purchasing power, will start to make some impact - just not yet it seems.

Big change for Philips at DAA

Wicklow resident Dalton Philips takes over from Kevin Toland as chief executive of Dublin Airport Authority. We can only assume that Philips won't be enjoying quite the same pay packet when he returns to Ireland as he had in the UK.

The former chief executive of British grocery chain Morrisons received a pay packet of £2.1m (€1.7m) in his last year in the job back in 2015. As part of his exit deal he was set to receive a further £1.1m payoff despite a slump in sales and profits at the supermarket chain which precipitated his departure.

He was awarded a £1m bonus on top of his £850,000 salary, £213,000 in pension payments and £28,000 in other benefits.

Kevin Toland was labouring under a government semi-state salary cap of €250,000 per year. However, he did receive a further €149,000 in other benefits last year bringing his total remuneration to €399,000.

It is still well off what predecessor Declan Collier was earning at London City Airport (€614,000). DAA chairman Padraig O'Riordain said back in May that he might seek permission from government to break the pay cap when hiring a successor to Toland. However, I understand the Philips deal is the same as Toland had.

This raises the interesting question of whether the chairman asked for the cap to be exceeded and was told no, or felt he could land a suitable chief executive for the same money as Toland. Toland takes over at Aryzta from Owen Killian, whose salary last year was €1.36m and that was without a performance bonus of nearly €1m which was withheld.

Philips will have his work cut out getting the proposed new runway over the line. Dublin Airport says it needs the new runway to cater for future growth but planning restrictions on night flights could cost the business and the economy dearly according to the DAA. Philips will need to have his political instincts finely tuned for that one.

He inherits a DAA in a much better financial position that Toland did when he took over in January 2013. In 2012 DAA passenger numbers hit around 22 million. Last year they exceeded 30 million, while after tax profit went from €19m to €108m in the same period. This week it announced new Cathay Pacific flights from Dublin to Hong Kong, which is a significant route development.

Toland caught the tailwind of economic recovery very nicely. Philips, who has extensive business experience, will hope to do the same.

Hurricane Harvey's energy legacy

The devastation of Hurricane Harvey in Texas and Louisiana has been enormous. It has taken about two million barrels of oil capacity per day out of circulation and forced the widespread closure of refining plants, rigs and platforms.

Yet global oil prices have not spiked nearly as much as they would have in the past. One of the reasons is the shale boom.

Despite the shutdown of refineries, oil and gas rigs and other elements of the complex network of energy infrastructure in the region, the shale boom has seen the US return as an oil exporter.

The US still imports around five million barrels of oil per day, but this is far less than the 12 million it imported a decade ago.

Port closures during the hurricane have seen around 13pc of U.S. refining capacity bottling up some oil that it would otherwise have been processing or selling abroad.

This has resulted in a greater spike in the likes of the UK Brent oil price index opening up a greater gap between US prices and oil prices on this side of the Atlantic.

The situation could get worse in the weeks ahead where the damage to some refineries has been extensive. Some may not get up and running again so quickly.

The real longer-term change will come in natural gas. The boom in shale has dominated domestic US demand and America is set to emerge as a leading exporter of liquefied natural gas.

America's share of global LNG export capacity is set to rocket from 1pc to one fifth in within a decade.

Sunday Indo Business

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