International economists, including Nobel-prize winner Paul Krugman, have criticised how Irish economic growth is measured.
The comments were in response to Governor of the Central Bank Gabriel Makhlouf’s defence of the country’s strong economic growth.
He told the Financial Times that much of Ireland’s forecast 12.2% growth last year – more than treble overall EU growth – comes from “real factories with real people”.
Critics say Ireland’s GDP is distorted by the accounting manoeuvres of large US multinationals capitalising on low tax rates here.
In 2015, Apple moved intellectual property assets to its Irish base, thereby helping to drive Ireland’s GDP up 25%, which led to Paul Krugman calling it “leprechaun economics”.
Yesterday he said Irish officials are “in denial”.
Brad Setser is an economist and senior fellow at the US think tank, the Council on Foreign Relations. He previously worked with the US Treasury, where he worked on Europe’s financial crisis.
We need your consent to load this rte-player contentWe use rte-player to manage extra content that can set cookies on your device and collect data about your activity. Please review their details and accept them to load the content.Manage Preferences
Mr Setser is also critical of Irish fiscal measurements. “The basis issue is that Ireland is now the tax home of a very significant number of multinational companies. Many, particularly after some of the initial round of global tax reforms have located a lot of their international property in their Irish subsidiaries and this in effect inflates the measured size of the Irish economy.”
He said Apple essentially reports all of its foreign operations as running through Ireland, which registers in Irish GDP data, “even though I don’t think anyone in Ireland sits and sees Apple as a huge Irish company, as a huge Irish employer so there is a fundamental mismanagement of the true size of the Irish economy”.
Mr Setser said pharmaceutical companies are producing tangible goods in Ireland so that they can locate the bulk of the intellectual property and the bulk of their profit outside of the United States. “The bulk of the profit that they register in Ireland is actually accruing to their intellectual property, it isn’t really Irish,” he said.
The Central Bank has acknowledged the GDP is not as representative as it could be, and it is using another version of gross national income known as GNI* which the Central Bank expects to show much slower growth of under 6%.
“The GNI* measure is actually a more helpful measure,” Mr Setser said. “I applaud the Central Bank and the Central Statistics Office for developing this measure, but when Ireland submits it’s data to the Eurostat repository when the Euro area compiles its GDP figures, they use GDP data.”
Mr Setser said the solution fundamentally is for the United States to change its tax law. “All these tax avoidance strategies are legal under US law. They wouldn’t happen if Ireland wasn’t an attractive tax hub, but they also wouldn’t happen if they weren’t permitted under US law.
“Ireland has to be conscious of the fact that people who are looking at international corporate tax avoidance are inevitably going to be looking at Ireland,” he said.
