Friday 24 January 2020

Dan O'Brien: 'Twin truths of the matter: Ireland booms and suffers'

There is plenty of evidence of rising affluence in all those takeaways and all that dining out, but many still struggle, writes Dan O'Brien

Ibec boss Danny McCoy wondered if corporate Ireland had ‘grown too quickly’.
Ibec boss Danny McCoy wondered if corporate Ireland had ‘grown too quickly’.
Dan O'Brien

Dan O'Brien

Irish households spend more of their incomes on dining out and takeaways than those of any other country in Europe. There is no perfect measure of comparative affluence, but how much you spend on having others prepare, deliver and serve the food you eat is a pretty good one. The recent figures from the EU statistics agency on dining out and food deliveries is but one measure to show that Ireland is now a very affluent country.

Last Friday, Danny McCoy, the head of the business group Ibec, gave an untypical speech for someone in his position. Along with issues around affluence, he wondered if corporate Ireland had grown too quickly for the wider society in which it operates and suggested that it may be time to expand the role of the State further, given the scale of private sector growth.

These are not things lobbyists for the corporate sector often say. They certainly raise eyebrows at a time when the taxman has his hand so deep in the pockets of the people on whose behalf McCoy works.

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His views that Ireland has a booming economy, and that the extent of the affluence it is generating is not be fully appreciated, might not go down well with an entirely different group in Irish society - those who insist on focusing exclusively on problems and failings.

Many people in the angry brigade cannot get their heads around the fact that two things can be, and in Ireland's case are, simultaneously true. One of those truths is that Ireland has some serious problems and that some people suffer a great deal. Another truth is that the Irish economy is booming and that most people are benefiting from that boom in one way or another.

Few need convincing on the second truth - simply turn on your radio and listen to any news show or scan social media for 60 seconds.

The second truth gets less attention, but it is equally true. That employment is growing rapidly means anyone who wants to work can find a job. A tight labour market is causing pay rates to increase at a high and accelerating rate.

In 2018 Irish residents took more than seven million foreign trips - for holidays and to see loved ones. That was one million more than in 2015. Anyone who passes through the country's airports can see these statistics in the flesh, just as anyone can see the numbers of food delivery cyclists on the country's streets to support this column's opening statistic.

Despite the massive amount of job creation over the past half decade and more, there has been little change in the share of the adult population in the labour force. One reason for this is how attractive Ireland is as a place to work. McCoy wondered last Friday if Ireland - and Dublin in particular - was coming to resemble Dubai, with lots of foreign workers arriving at both the high skill and low skills ends of the spectrum.

He also suggested that at least part of the reason for more adults not taking up paid employment was because there is a significant group which is sufficiently affluent not to have to work. There is undoubtedly much to this.

A central point of McCoy's talk last Friday was the scale of business investment in Ireland, the durability of that investment, and what the State should do in response. On these topics, there may be more to quibble with.

Let's go back a few years. In recent times there has been international recognition that as companies become more globalised, the rules governing them need to follow suite. One reason for this is the capacity of clever accountants and lawyers to shift money between a multinationals' subsidiaries in different countries in order to lower their overall global tax bills.

The first international "Base-erosion and profit-shifting" (BEPS) agreement was meant to cut down on companies using tax havens to avoid tax. There were some concerns in Ireland that this could have a negative effect on the huge multinational sector here. In fact, the opposite happened.

In Ireland in 2015 the world's most commonly used measure of economic growth - gross domestic product - surged by 25pc. These days, a developed economy that grows by a tenth of that rate is considered to be doing very well. The figure made headlines globally, prompting American celebrity economist Paul Krugman to derisorily describe it as 'Leprechaun economics', on the basis that it had more to do with multinationals' accounting practices than real business activity. Most people in the economics business would tend to agree with the thrust of Krugman's argument.

McCoy challenged the conventional view last Friday (and of relevance is that, unusually for a lobbyist, he is an economist by profession, so his views cannot be dismissed as merely 'businessman's economics'). He argues that the world's biggest companies as recently as a decade ago had most of their money tied up in tangible, physical assets such as factories and oil rigs.

Today, the technology companies have overtaken the manufacturing and energy giants in size. Their assets are mostly their patented ideas. The main cause of the huge increase in Irish GDP in 2015 was the BEPS-prompted decision of multinationals to move their intangible assets to Ireland. Among other things, this has caused the amount of profit taxes going into the Government's coffers to more than double since. Companies paid the State well north of €10bn last year in corporation tax.

Will this last? That question keeps the Department of Finance's mandarins awake at night. McCoy sleeps soundly. He believes that Ireland won the lottery when the multinationals shifted their intangible assets here and that they are not likely to up sticks and leave any time soon. He is probably correct.

The multinational sector is deeply embedded and Ireland has come through significant challenges, such as the reputational damage of being bailed out in 2010 and changes to US corporation tax laws two years ago which threatened to cause US investment to be repatriated. Last week's figures from IDA Ireland showed that foreign investment continued to flood into the country last year.

But should growth in public spending be accelerated on the back of this, as McCoy suggests? On this, I'm more sceptical.

The main sources of government revenue - personal taxes and VAT - have grown solidly since the economy turned around. They have not surged, as profit taxes have. Nor have they grown at the double-digit rates recorded in the 1997-2007 period.

The public sector has expanded since the economy returned to growth, soaking up all the additional revenues (none of the government's €200bn in debt has been paid down). A more rapid expansion than is already taking place would lock in even more spending commitments, with implications for the Government's budget balance and overall public debt in the event of any kind of downturn.

Perhaps McCoy is right, but his proposal if implemented would generate additional risk for the economy and the State. However dull and boring it may sound, but with the economy doing well and a history of excessive volatility in economic performance, the priority should be on de-risking.

*******

On an entirely different subject, permit me conclude with a thought on the recent Royal Irish Constabulary commemoration controversy. Higher levels of education and greater historical awareness has made the marking of events in the past a growth industry, in Ireland and around the world.

Also underpinning the rise and rise of commemoration is George Santayana's famous claim that "those who forget the past are condemned to repeat it". His words are accepted as a wise and immutable truth by most thinking people, despite the lack of evidence to support them. It may be more accurate to say that excessive focus on the past can cause suspicions and hatreds to be passed on from one generation to the next.

The opposition that emerged last week to an event commemorating the pre-independence police force, and how strongly some of those who opposed it appear to feel on the subject, led to the Government cancelling the event. It might well consider cancelling more events and slowing the commemoration juggernaut more generally.

With the centenaries of the most painful events of the wars of 1919-23 yet to come, reflecting on history should become more like the practice of faith - a private affair. Fewer public, and in particular State-led commemorations, would lessen the scope for further unnecessary controversy. We have enough divisions in society on issues of relevance now and into the future. Bringing old divisions back to the fore will benefit nobody.

Sunday Independent

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